Cameron and the immorality of Unit Trusts

The leak of the Panama Papers, exposing the practices of Mossack Fonseca, have been used in Britain to harry the Tory Prime Minister, David Cameron.

The media have added this to their campaign to brand Tory politicians as corrupt and the Labour opposition has branded Cameron as “immoral”.

This story will run and run, but it seems that David Cameron owned shares in some Unit Trusts, some of which were registered in the Cayman Islands. He then sold a number of these shares. He declared them on his tax return and … err .. well, that’s about it.

It even seems that Cameron paid too much tax .

So, nothing illegal, immoral or even interesting has actually happened. Cameron’s financial arrangements say nothing about his beliefs or his character, but this episode does say something about how tax is understood.

Paying tax  is now seen by many as a good thing, as morally valuable.

Tax avoidance: the government’s approach

In some areas, the government actively encourages tax avoidance. ISAs have been established to encourage tax-free saving.

Venture Capital Trusts and Enterprise Incentive Schemes go one stage further. They give tax back to investors and encourage investment in risky start-up companies.

The government recognises that tax avoidance can drive investment which creates jobs and innovation.

Profit bad, tax good?

Companies avoid tax to increase profits.

Many companies have been criticised for not paying taxes on sales made in the UK. By registering in a country with a lower corporation tax, companies have reduced their overall tax bill.

“Profit” is seen as something bad, but is it?

Company profits are used to pay dividends to shareholders (most of the shareholders are pension funds) and to re-invest in developing the products and services they provide, as well as taxes to the government.

Who do you think would make the best use of £7 billion?

A simple example:

Option 1 – Google


Google has been heavily criticised for avoiding tax in the UK. It made $17.72 billion profit in 2015; generated £4.6 billion UK sales and paid a mere £0.13 bn tax to HMRC.

However, in the same year Google spent £6.8 / $9.8 billion  on research and development.

We are familiar with Google’s research into driverless cars and Google Glass, but Google is also leading innovation in:

  1. Data processing which reduces the time and cost for DNA sequencing. This massively accelerates research into the genes that cause hereditary and acquired disease. This creates the ground-work for potential cures for various cancers and Alzheimers.
  2. Large scale robotics and automation, so that robots can be used for construction in the real-world. This could take robotics out of the factory for use in the construction of buildings. It would vastly reduce the human effort needed to build and maintain our cities and transport infrastructure.

Google is only the 6th highest spender on research and development, Volkswagen, Samsung and Intel are the world leaders.

Option 2 – The UK Government


We know about spending on health services and education, but &7 billion is 20% of the cost of the war in Afghanistan.

  1. The State Pension increases by RPI, CPI, average earnings or 2.5 per cent, even when there is no inflation. This is costing £5.8 billion per year.
  2. £37 billion was spent on fighting the war Afghanistan since 2001. It achieved no objective and made no contribution to wealth and prosperity for either the Afghans or the British people.
  3. By contrast, mere £0.56 billion was spent on UK Innovate, the government’s innovation agency, throughout 2015

Would you rather that the money is in the hands of Google researchers and engineers or government departments? Does the long-term benefit to humanity, from the development of robotics and DNA sequencing, out-weigh the efforts of HM government?

Innovation increases the effect of every hour we work. Computing power amplifies our intelligence and machines amplify our physical efforts. The greater our productivity, the greater our wealth.  With greater wealth, we can spend money on transport, health and education. Perhaps, the “derisory” tax deal was not good for short-term government coffers, but could turn out to be better for us all.

It is morally right to reduce poverty and increase wealth for everybody. Haranguing Cameron might let off steam, but it won’t boil the kettle.

© Andy Shaw, 11th April 2016