Explainer

Singapore-on-Thames Is Unlikely

Britain won’t become a tax haven.

London England
The sun rises over London, England (Uncoated)

With the Brexit transition period ending in just four months, concern is rising that the United Kingdom might crash out of the EU’s common market and customs regime without a deal.

Not everyone is worried. Prime Minister Boris Johnson’s predecessor, Theresa May, argued it “wouldn’t be the end of the world” if Britain left without a deal. Right-wing economists are looking forward to setting “attractive tax rates” once the United Kingdom is free of the EU’s grasp. The UK, they believe, could become a “Singapore-on-Thames”, gain a “competitive advantage” over the EU and draw businesses and investment away from continental Europe.

That is unlikely.

Limits

Tax havens share four common characteristics: financial secrecy, loose financial regulations, loose tax rules and low tax rates. According to these measures, the UK is well on its way to becoming a tax haven in Europe.

But there are limits to how far it can go. Leaving the EU will give the UK more flexibility, but it will still have to comply with its international obligations. Notably the OECD’s Action Plan on Base Erosion and Profit Sharing, which aims to reduce the level of tax avoidance multinationals have been able to exploit by profit-shifting. The UK has already reformed its tax laws under the project, limiting whatever “competitive advantage” it might gain from exiting the EU.

In 2018, the government introduced the Sanctions and Anti-Money Laundering Act, which it made it a compulsory for firms registered in British overseas territories to publicly disclose their beneficial owners. The law improved transparency and made the United Kingdom less attractive as a tax haven.

Consensus

The present consensus on corporate profits and taxation makes it unlikely that the British public will accept a policy that enables financial secrecy and tax avoidance.

Becoming a tax haven would mean weakening the welfare state — which is one reason some on the right are keen on it. Lower corporate taxes would necessitate cuts to services like health care.

Pascal Saint-Amans, the OECD’s tax policy chief, told officials, “the mood of the people is certainly not about giving more benefits to large MNEs (multinational enterprises).”

He’s right. Better to make a deal with the EU that minimizes the economic disruption of Brexit than place Britain’s hopes is a fantasy that is unlikely to come to pass.

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