The City of London has become a tax haven for the super-rich, overseen by Gordon Brown with, alarmingly, no complaints from Mayor Ken Livingstone. Patrick Ward looks at the history and humbug that props up the square mile and leaves neighbouring boroughs cash-starved
The reaction from much of the press to government plans for the City of London's non-domicile super-rich might make you think they were about to hand control of the square mile to the RMT. The outrage from non-domicile fat cats was coupled with threats to leave Britain altogether and for a raft of bizarre claims that London-based capitalists were being driven out of the country. Digby Jones, once CBI boss and now Gordon Brown's trade and investment minister, publicly turned on the rest of the cabinet when he said that the policy has caused "non-doms" to ask, "Does this mean they don't want us?"
The proposal is for non-domicile capitalists in Britain, but "resident" elsewhere on the planet, to pay either a one off sum of £30,000 or have their overseas income declared and taxed. The non-domicile law was introduced 209 years ago as an incentive to those who had benefited from the spoils of imperial conquest; who they had pillaged remained a private matter of conscience.
The recent proposal actually originated in Tory HQ before autumn's election-that-never-was after a YouGov poll had shown it to be a big vote winner. Seeing this, Gordon Brown quickly nabbed the policy as his own, not realising that he might have to stick to the commitment even if he managed to dodge an early election.
Considering there is currently £120 billion held by British business in overseas trusts, this doesn't sound too controversial - even the US already has similar tax structures in place. Yet when the hapless Alistair Darling attended a recent bash held by the "Worshipful Company of International Bankers" (a Livery Company of the City of London - more on these later) at which he eulogised in his speech about how great and good the super-rich are, the reaction was an attack on government tax policies and regulation from the Lord Mayor of London and for the 450 diners to bang their tables and jeer. There followed a series of U-turns as the chancellor "clarified" (ie watered down) his position. Even London Mayor Ken Livingstone - who has noticeably steered clear of the row and received only warm applause following his own fawning speech during the same dinner party - now genuflects to the City. "There isn't an ideological conflict any more," he said in an interview with Prospect magazine in April 2007. "The business community has been almost depoliticised."
Livingstone and his advisers lobbied heavily for Crossrail, the commuter rail link to ferry City workers from the Home Counties largely at the expense of residents and taxpayers, while his economic adviser, John Ross, has been defending the obscene profits, payrolls and bonuses of hedge fund managers.
The position taken by government towards the City has always been one of kneeling before it. This has made Britain in the words of the neoliberal International Monetary Fund (IMF) a tax haven, due to the way in which City authorities actively assist businesses to avoid tax. (In a telling show of arrogance, the Treasury financial secretary, Jane Kennedy, retorted that the methodology used by New Labour's usually beloved IMF was therefore "seriously flawed".)
But the City is more than just a tax haven. To really make sure that there is nothing in the way of wealth accumulation, several elements of regular local authorities must be kept at a distance. These elements include democracy.
In a parliamentary debate in November 2002 the then Tory MP (now New Labour minister) Shaun Woodward said: "The City of London is indeed unique - unique in its national role, in its size, its population, its local finance, its responsibilities, its work in the arts and its charitable work. The City is unique too, in having an electoral system that was unaffected when, in 1969, the non-residential vote was abolished for local government elections." (Incidentally, it was Labour chancellor James Callaghan who argued through this exception to the rule.)
Woodward was certainly right about the uniqueness of the City of London - it is the most undemocratic local authority in Britain. While the 7,800 residents of the square mile have the vote, business based in the City can appoint a further 32,000 voters. In November 2002 a private act of parliament, submitted by the City of London itself and gushingly (and arguably unconstitutionally) endorsed by Tony Blair, doubled the business vote from 16,000. But it doesn't stop here.
The City of London Corporation is governed by three institutions: the Court of Aldermen, the Court of Common Council and the Lord Mayor. Residents and business are allowed to vote for the aldermen and the Common Council, but only "freemen" are able to stand for election. You can become a freeman either by "servitude" (apprenticeship to another freeman), by appointment by the part-ceremonial, part-business associations of the Livery Companies, by heredity, or by payment of a £30 "freedom fine" (if the sitting Common Council accepts you). If you want to be an alderman you must also have the blessing of the Lord Chancellor. The Lord Mayor must have previously been a sheriff, and sheriffs are appointed by the Livery Companies. Additionally, standing under a party banner is severely frowned upon. This basic structure has existed since AD 886, and was preserved by William the Conqueror to maintain a degree of autonomy for European merchants.
All public expenditure comes from the interest earned on the corporation's billions of pounds of wealth, hoarded away over centuries. And just to make sure this "better than everyone else" attitude continues, it runs two private schools for the wealthy (one for boys, one for girls), and the City of London Academy school in Southwark (with its own City run curriculum of business and commerce) for everyone else.
But this is more than just another Great British anachronism - it ensures that the City is not held up to any unnecessary accountability. A democratic system might, for example, block the building of a new skyscraper or insist that the amassed wealth held inactive in its vaults be put to better use.
So with local and national government on side the City has a free rein. In 2007 City bonuses hit £14 billion, a figure equal to annual national spending on higher education - and this was up from £10.9 billion in 2006. The rationale for all this, of course, is that wealth then trickles down through the economy. But a brief look at how the City treats its own workers puts the lie to this myth (and by "workers" I mean waged labourers rather than those paid to make a few phone calls between checking the size of their wallet).
Barclays' 2007 profits were £7.08 billion. But the people who clean the bank's offices are paid just £7.50 per hour. Meanwhile, Goldman Sachs (or "Golden Sacks" as it is often known, owing to its obscene bonuses) part-owns cleaning contractor ISS who pay their workers just £5.60 per hour. Marsh, the world's leading insurance broker, recently suspended 12 cleaners in its City offices, contracted out from ISS, for demonstrating against poverty pay (only after completing their regular 12-hour shift).
There are 20,000 cleaners working in the City on similar wages, yet average pay across the board stands at £971 per week (£600 more than that of Devon and Cornwall). If the wealth has trickled down, the cleaners have obviously not managed to mop it up.
The City boasts of its contribution of 10 percent to Britain's gross domestic product. This, it claims, means it should be a special case when it comes to taxation. But what good is this contribution to the economy if even the people at its heart, vacuuming the floors and cleaning the computer screens, are paid up to £2 per hour below what Ken Livingstone himself considers a living wage? What good is having the richest square mile on the planet if the government claims poverty when it comes to paying the public sector? What good are champagne-quaffing City boys when in Tower Hamlets, a step over the border to the east of the City, two thirds of all children live in poverty?
As profits in the City increase, so does the gulf between rich and poor, and as the rich purchase obscene levels of housing as investments and drive up prices elsewhere in the capital, it is the rest of us who have to tighten our belts. And it is important to remember that they are rich through lending, earning interest and gambling with money we as workers struggle so hard to produce. So the argument that asking for a few crumbs from the Livery Hall banqueting tables will cause the rich to leave the City is like arguing that you shouldn't ask someone to stop punching you in the face because if you do they might stop punching you in the face so hard.
New Labour's attitude to the City is unsurprising. "True to his neoliberal belief in the market Gordon Brown has allowed the worst excesses of corporate greed to let rip in the City," John McDonnell, the only MP to attempt to challenge Brown for the Labour leadership, told Socialist Review. "For a decade under New Labour finance capital has been given a free hand to profiteer at the expense of many who have lost their jobs, savings and pensions through City speculation. By turning a blind eye to the award of obscene levels of City payoffs and bonuses Brown has created a scale of inequality in our society not seen for three generations."
Lindsey German, the Respect candidate for Mayor of London and the London Assembly, said, "It's time the government stopped giving such a favourable tax burden to the City. We're always told that if they are taxed any more they will go elsewhere.
"My attitude is that if they're going to use blackmail then let them leave the country, and see how well they get on somewhere else. If we want to pay for transport and housing in London then the City is the obvious place the money should come from."
The City of London is, of course, the real constituency being represented by Brown. His arrogant belief that unbridled capitalism will bring an eternal boom for the benefit of the country has led to the City being allowed to do as it likes.