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UK Tax Justice Should Mind Colonial Legacy, Report Says

By Kevin Pinner · Sep 13, 2022, 8:01 PM EDT ·

Future work linking tax reform to racial justice should explore how colonialism forged structural inequalities into the U.K.'s tax system, including how philanthropic tax deductions launder wealth, buoyed by a global tax haven network, a report published Tuesday said.

For centuries, the U.K.'s tax system extracted trillions of pounds from people throughout Britain's colonial empire, while today the Commonwealth's relatively progressive system nevertheless goes soft when taxing wealth, according to the joint report by Decolonising Economics, Tax Justice U.K. and the Tax Justice Network. Researchers and campaigners hoping to achieve racial justice through reforms to the U.K.'s tax system should do a better job recognizing how structural racism is baked into the economic system, the report said.

"Whilst the U.K. could be perceived as having a relatively progressive tax system that redistributes towards 'universal public services' such as education and the [National Health Service], the vast majority of wealth is very lightly taxed," it said.

Wealthy donors use philanthropic foundations to both reduce tax liabilities and shape the direction of policy, which undermines the relationship between citizens and the state, the report said. Imposing low taxes on wealth is a political choice, just like allowing loopholes to domestic laws and secrecy jurisdictions among trading partners to persist, according to the report.

"The report highlights how disproportionate wealth inequality is for people of color and how the U.K.'s deep and entrenched inequalities are underpinned by the tax system," Robert Palmer, executive director at Tax Justice U.K., told Law360. "And yet tax is one of the single most powerful means we share in common to 'fix' the things that are wrong in our society."

Palmer said it's clear for him that tax must be among the tools used "to right racial injustice."

Absent a framework that includes reparations, even measures like a wealth tax would do little to address the drivers of inequality, the report said. "Similarly, a financial transaction tax will support the slowdown of practices such as high-frequency trading, or can be targeted to trades on global south extraction or ecologically harmful industries," according to the report.

The U.K.'s tax system helped propel Britain's colonial empire by extracting wealth from people in the global south, which paved the way for the Industrial Revolution and investments in the modern welfare state, according to the report. Furthermore, the British welfare state continues to be paid for through extraction from countries in the global south, perpetuating structural racism in public financial institutions, the report said.

At one point, the U.K. governed more than 23% of the world's population, the report said. On the Indian subcontinent, tax practices facilitated the extraction of $45 trillion to the British government and its corporate partners, a result that "continues to operate today in a way that directly impacts Indian households," the report said.

After the British Empire fell, the U.K. restructured its economy from manufacturing to financial services, using a network of dependent territories to shape global structures, according to the report. Banks in London continued to reap interest payments from financing in the former colonies even after the British Empire had formally receded, it said.

British institutions still consistently defend tax havens from international efforts aimed at addressing their role in facilitating tax avoidance, human rights abuses and corruption, the report said. Overlooking how the U.K.'s colonial mindset and colonial history have shaped modern institutions has been a critical flaw in mainstream work aimed at achieving racial justice through reforming tax systems, it said.

Many tax justice campaigns focus too heavily on government-led reform efforts, which has led to waiting for political pressure to build while problems worsen, the report said. Instead, more focus should be placed on making ground with "voluntary taxes" from philanthropies, religious organizations, businesses and families.

The report invited the U.K.'s tax justice campaigners to better incorporate input from people situated in the global south when shaping future initiatives.

Decolonising Economics and the Tax Justice Network did not immediately respond to requests for comment.

--Editing by Khalid Adad.

Update: This article has been updated to include comments from Palmer.

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