The Paradise Papers are not about tax. They do not focus on palm-tree islands strewn around the Caribbean. Their implications are not technical but political. What they reflect is something far bigger: the rottenness of democracy, both in Brexit Britain and across much of the west. And headline by headline, they upend the stories peddled to us about why we’re in the mess we’re in.

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Three myths govern British politics today – and the investigation by the Guardian and others pulps each one. Take first the cliche that the public in the UK, the US and elsewhere are at war with their elites. This week proves that the opposite is true – it is the elites who have been fighting trench warfare against their publics, by denying them the revenues they need for their hospitals and schools. That war is one source of this current anti-elite mood.

Tax avoidance is now so systemic that the Queen’s own wealth managers apparently see nothing wrong with her receiving £82m a year from taxpayers while shunting £10m into the Caymans and elsewhere. Shuttling between tax havens is so commonplace that economist Gabriel Zucman describes it as an “elite sport” – a sport in which the loser each time is the rest of society, which sees its taxbase shrink. These papers are aptly named: they outline a model that is paradise for the super-rich and purgatory for the rest of us.

The second myth of British politics is that austerity was the only correct response to the high-living of the New Labour boom. That was always opposed by some of us – now it is exploded with each new tax investigation. Drawing in part on data from last year’s Panama Papers and the HSBC files leaked in 2015, Zucman recently co-published a study that found wealthy Britons have stashed about £300bn – equivalent to 15% of our GDP – in offshore tax havens.

Three hundred billion quid would more than cover our entire education budget for the rest of this decade and into the 2020s. Or, if you prefer, it is the equivalent of £350m being paid into the NHS every week for the next 16 years. Instead, it is funnelled offshore and used to buy yachts and mansions and other baubles – tax efficiently, of course.

The economics of David Cameron and George Osborne can be summed up simply: punish the poor, but reward the rich for fear they will flee offshore. To that end, they scrapped the 50p tax rate for millionaires, they drove down corporation tax to a record low, and cut sweetheart deals with companies such as Google who couldn’t be bothered to pay even that much.

The result is that London has more super-rich residents than any other city – yet however soft the kid gloves with which they are treated, our wealthiest 0.01% stick 30-40% of their wealth offshore. In high-tax Sweden, by contrast, the rich do not use havens half as much. The logic that has underpinned our tax system over this entire decade is rubbish.

Which brings us to the final myth of today’s politics: that the public in Britain, America and elsewhere has been spoiled by a surfeit of democracy. They are feckless in referendums, and too easily entranced by populists, whether Donald Trump or Jeremy Corbyn. The Great Unwashed have had too much of a say.

Each tax leak shows the reverse. Those with least connection to Britain have the most say over its future. Those not resident here, who don’t pay their fair share of taxes here, are the ones who decide what happens to the rest of us. Take this week’s revelations about one of the most influential figures in rightwing politics, Michael Ashcroft. A billionaire, he has ploughed millions into the Tory party and stuck £500,000 behind Theresa May’s election campaign this summer.

Twice denied a peerage, he was finally granted ermine after promising to give up his non-dom status. Then-Tory leader William Hague crowed to the Commons that his ennoblement would “benefit the Treasury tens of millions of pounds a year in tax”. Yet Ashcroft continued to shelter millions offshore, even while advising Cameron and Osborne. His money was in a Bermuda-based trust, yet the trustees had so little control over it that one lawyer complained: “We seem to be told nothing.”

Perfectly legal this may be, but the upshot is of a billionaire moulding policies to which he will not be subject. Sadly, that is no anomaly: from newspapers to finance, our democracy is a bidders’ market in which the offshore super-rich can determine the lives of us, the little people.

Think of Telegraph owners Sir David and Sir Frederick Barclay on their 80-acre island hideaway of Brecqhou, complete with custom-built fort. Or consider the 4th Viscount Rothermere, the inheritor of the Daily Mail empire and of non-dom status. Or remember the US government report in 2008 that found Rupert Murdoch’s News Corporation had 152 subsidiaries, including 62 in the British Virgin Islands, 33 in the Caymans and 15 in Mauritius.

Cameron scraped into government in 2010 with the help of the shadow-banking sector, which chipped in half the funds for the Conservatives’ election campaign. Even while speechifying about the need for tax transparency, Cameron was funded by a sector whose business model relied on tax arbitrage. He rewarded them handsomely, not just by cutting their taxes but by torpedoing EU efforts to reform finance – even flouncing out of summits. He insisted offshore trusts such as those used by Ashcroft remained under a veil of secrecy. He also slashed the number of HMRC staff by 11,000. Theresa May plans to cut that by another 8,000.

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Most of all, Cameron convened summits to denounce corruption, without tackling the corruption facilitated by Britain. Add the City of London to Britain’s crown dependencies such as Jersey and the Isle of Man, and overseas territories such as the Caymans, and Britain’s tax havens account for nearly a quarter of the entire offshore financial industry. According to Deutsche Bank, London itself receives about £1bn a month in what it calls “hidden capital flows”, much of it Russian. It ends up in Stucco-fronted houses and fine art.

Much of this could be changed, and quickly. Britain has previously ordered the Caymans and other overseas territories to decriminalise homosexuality and abolish the death penalty. It could do the same with tax transparency, in an Order of Council that, a Mayfair tax lawyer recently told me, need be no longer than two sides of A4. We could change the rules on Lords and Commons’ members’ interests so that all offshore holdings would have to be registered.

These are the fixes, but a real solution is ultimately political. We must accept that Big Finance and runaway inequality are incompatible with either a functioning democracy or a sustainable economy. Britain either shrinks the City of London, or the City of London will swallow Britain.

• Aditya Chakrabortty is a Guardian columnist