Beware the global policy consensus

IT’S always nice for one’s thinking to be publicly endorsed, to get validation that what you say is making a difference.

Last year when launching the International Sustainability Institute, we published a paper that set out the thesis that ‘The Channel Islands are blessed with renewable energy resource. With the application of strategic thinking, this natural capital has the potential to be harnessed to generate and export terawatts of energy to mainland Europe’.

I boiled down the gist of the paper for this column back in the spring (‘We could be the Terawatt Islands’, GP, 28 April 2022).

So it was gratifying last week to see the ‘Group of 15’ deputies publish their scoping reports on renewable energy suggesting large scale generation and export as the route forward. There’s a long way to go, not least the development of the economic case as a next step (as recognised by those self-same scoping reports). A next step that we suggested last year. I’m not convinced that’s yet on track. But no matter, baby steps.

In other despatches, a few weeks ago the International Sustainability Institute published a sustainable finance framework for fiduciaries, a three-step framework for private wealth to guide practice towards the 21st Century Fiduciary Duty concept as espoused by the UN. Michael Betley, global head of private clients at Ocorian, which supported the report, outlined their rationale for support in these pages last week.

‘We felt that there’s been lots of talk about problems and issues but not solutions. Guernsey Finance published a report a year ago, but there’s been little forthcoming since. It had gone a bit quiet,’ he said.

We were delighted to help. Chris Moorcroft, partner at Harbottle and Lewis in London, commented on social media that our framework is ‘one of the most important additions yet to this particular debate’.

Again, gratifying. Whether it becomes widely adopted we shall see, but again baby steps.

When I established the International Sustainability Institute, I set out its mission as ‘developing sustainable research and thought’ and ‘advocating global financial, environment and fiscal sustainability’. Quite an eclectic mix really. So, what of fiscal sustainability? Where’s the published output and thinking on that you might say? It’s coming. Watch out for the invite.

In recent months I have been quite forward in this column with my concerns about UK monetary and fiscal policy. And this month I was moved to file an additional column to voice my concerns with our own seemingly never-ending increased levels of spending. In it I commented on, in my view, the generous nature of income support’s household benefits cap of £980 a week. As a result, some have seen fit to portray me as a latter-day Mr Limbkins. Apparently, the present limit is ‘intolerable’, condemning people to ‘grinding poverty’. I beg to differ, but the point I was making is that it is other people’s money that foots the bill and many, indeed by definition most, earn less than this sum. This is just not a sustainable situation.

The cause of fiscal sustainability was my primary motivation for establishing the International Sustainability Institute. But more rather in a global context. Living and working in an offshore finance centre (honestly, I’ve never personally had an issue with the offshore moniker) for the last 15 years, I’ve experienced the crushingly one-sided global tax debate first-hand. The one that remains more than an existential threat to our economic model. And I wanted to do something about that.

Few of the arguments of the global tax activists bear up to robust scrutiny, yet their campaigning goes largely unchallenged. Some readers might recall Richard Murphy’s Tax Justice Network report a decade ago which claimed the tax loss to the EU from offshore finance was a trillion euros. This just didn’t sense check. Not for an (at that time) 11 trillion euro economy. It shouldn’t have survived a figurative kick of the tyres. The EU-wide tax to GDP ratio is around 40%. By Murphy’s logic one in every five euros of tax was being avoided using offshore finance. That’s not just not true, it’s plainly not possible. Complete Horlicks. Yet, unchallenged it went.

To win a debate, one first sets the terms of the debate. I don’t think that’s Sun Tzu but it feels like it should be. Unchallenged the global tax activists have changed the narrative around corporate tax. They have been relentless and have not been squeamish with their tactics. They have captured global bodies such as the Paris-based OECD. And they have moved the narrative on. Today offshore finance is a major contributor to widening levels of global inequality.

In 2014 I, rather flippantly I admit, warned of the reverberations from the publication of Thomas Piketty’s ‘Capital in the 21st Century’. Piketty and fellow Frenchman Gabriel Zucman, author of ‘The Hidden Wealth of Nations’, have, unsurprisingly, come to dominate European Commission thinking on tax but back then I underestimated how complete would be their intellectual victory globally. In a survey published this spring for an Institute of Fiscal Studies report on income distribution, 42% of Britons agreed with the statement ‘the rich should not be able to continue to get richer, it concerns me’. Also, 58% ‘worried’ that ‘the top 1% of earners have more money than the other 99% of people’. That question looks a little specious to me. After all, the top 1% are always going to have more money. Period.

What’s concerning about this leftward march of armchair opinion is that it’s driven by a false prospectus. ‘Capital in the 21st Century’ was a polemic railing against global inequality as experienced by the USA in recent decades. The degree of economic polarisation that has taken place across the Atlantic has just not been replicated over here. A point we make in our forthcoming fiscal paper is that the share of income and wealth of the top 1% and top 10% and the bottom 50% in the UK barely changed in the quarter of a century following 1997.

Yet perceived wisdom is that inequality has run rampage for the last 25 years. The result of relentless campaigning. And it’s this reality which is the backdrop to current policy making. A continued focus on the false prospectus of widening inequality diverts attention from trying to create the economic growth that’s needed to maintain and raise living standards. Changes in the distribution of income and wealth in the UK has been of little macroeconomic consequence, yet as Kwasi Kwarteng said just a few weeks ago, ‘For too long in this country, we have indulged in a fight over redistribution. Now we need to focus on growth, not just on how we tax and spend’.

Kwasi may have crashed and burned but his sentiment was spot on. One of the most disappointing results of the political shenanigans of the last few weeks is victory of the global policy consensus. Market-pleasing groupthink is going to be the order of the day. Sadly, for us, this global policy agenda is one that global tax activists are able to leverage against us.

The UK and Guernsey have become poorer because of the economic policies of the last decade. It’s just now that it’s started to really show, though talk of IMF bailouts is perhaps wide of the mark. Mervyn King, ex-Governor of the Bank of England, is a lonely voice pointing the finger in the same direction. It’s nice to have your opinions validated. But baby steps.