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Tax and the City: Is our only duty to obey the law? The Stock Exchange used to be an entirely self-governing membership organisation, a club

The Stock Exchange used to be an entirely self-governing membership organisation, a club What about, and this really is old-fashioned, leading by example?

I’m finishing my next book and something is bothering me. The book will be published in September and it’s about the City. It is an attempt to place the exciting human story of Big Bang and the financial revolution in a wider historical context.

Towards the end, I’m wrestling with one question in particular, however. Perhaps there is no definitive answer, but the question, or the problem, is central to politics and economics although it is hardly new. In essence: is our only duty to obey the law?

This arises in the context of the City’s transformation because in the 1980s there was a dramatic shift that is often overlooked, towards from 1986 a more American model of regulation. Previously the Stock Exchange had been an entirely self-governing membership organisation, a club. At the Bank of England a raise of the governor’s eyebrows was deemed capable of warning off a racy firm that was trading recklessly or a bank that was lending too much. Several interviewees explained to me that the post-Big Bang dispensation entailed a true culture shock. America is a highly legalistic culture, a country built on law and documents. The question in finance in the US is simple: is it legal or is it illegal? It is then a short step from “it is legal” to “it is right”.

That was not the governing assumption in the pre-1980s City or wider society, but this new approach was imported in a hurry into Britain, although those importing it were not really aware of what the implications might be. I’m not romanticising pre-1980s “gentlemanly capitalism.” The historical evidence suggests that it is largely a myth. There was plenty of chicanery pre-Big Bang. But there is no doubt that to the Brits, the question of legality or otherwise was often only part of the question. There are also ethical or moral considerations.

And there it is today in the Panama Papers tax row. I’ve said it myself about David Cameron’s explanations. He has obeyed the law. He has done nothing wrong. So that’s okay, then, is it? Janan Ganesh writing in the FT today makes that case. Moral exhortation is nonsense, he says, and the “woolly-minded notion of fairness is no way to run a tax system.” I see what he means. But…

Try a brief thought experiment that involves accepting that our ancestors knew a lot, which they did. Ask Harold Macmillan, or Gladstone or Disraeli, or even Thatcher herself, about the tax argument, Cameron and Osborne’s affairs and law being the only point. Macmillan or many of his contemporaries would surely say that of course the law is important. Without the rule of law we’re stuffed, but what of duty to others? What of sacrifice? What about, and this really is old-fashioned, leading by example? The Second World War would have been unsurvivable without it. Yet our politicians today are forever saying they are doing “the right thing,” by which they mean they are obeying rules and laws that politicians created, although the phrase “the right thing to do” is uttered as though it is imbued with great moral force.

The philosopher Edmund Burke was surely correct that we have obligations to others that stretch far beyond strict adherence to the law, obligations to those gone and those not yet born. Interestingly, Cameron finds himself “trapped in wealth”, to borrow Charles Moore’s delicious phrase, between two quite different ways of viewing the world. He is instinctively an old shires Tory who shares the Macmillan view that there is more involved than just law and what we can get for ourselves out of life. Yet he is in power in an age when completely different standards apply.

Who’s that mysterious Russian billionaire over there with the 25 room mansion in London and a murky past in commodities? Nothing to see there. He has obeyed our laws since he arrived. Move along.

Look over there. That footballer is on £1m per week while the owners load the club with debt and screw the fans who will be there for decades to come. That’s fine. It’s all legal. Is it fair? What’s that got to do with anything? Life isn’t fair. The footballer is just taking what he can while he can, and we get to be entertained in return.

Should a former Prime Minister – let’s call him Tony, because that’s his name – be quite so obsessed with making money? Can’t he get himself another hobby? All legal. “Everyone” is doing it. Shut up.

Margaret Thatcher’s answer to this question would surely be different from a Macmillan, in that she understood that often men (almost always men) of Macmillan’s class had dressed up pre-1980s cartelisation and Establishment entitlement as duty, in which they did very nicely and everyone had a duty to know their place. Meanwhile, anti-Semitism, racism and sexism were widespread. But in seeking to dismantle the old boy network, she never (whether you are a fan or a critic) argued that there was anything other than a strong moral dimension to political and economic life. Indeed, you could argue that the moral dimension was her driving force.

I don’t know the answer to any of this yet, which must be annoying if you have read this far, but I would be most interested in the views of CapX readers, who are an unusually intelligent bunch. What is apparent is that we have just lived through a huge shift in the last three decades, with implications for British society, manners and morals that we are only beginning to comprehend.

Iain Martin is Editor of CapX

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