Tax Havens Are Causing Poverty

James Henry, expert on tax havens, has compiled the most detailed estimates yet of the size of the offshore economy in a new report, The Price of Offshore Revisited.

He shows that at least £13 trillion - perhaps up to £20 trillion - has leaked out of scores of countries into secretive jurisdictions such as Switzerland and the Cayman Islands with the help of private banks, which vie to attract the assets of so-called high-net-worth individuals.

Their wealth is, as Mr Henry puts it, ''protected by a highly paid, industrious bevy of professional enablers in the private banking, legal, accounting and investment industries taking advantage of the increasingly borderless, frictionless global economy''.

According to Mr Henry's research, the top 10 private banks, which include UBS and Credit Suisse in Switzerland, as well as the US investment bank Goldman Sachs, managed more than £4 trillion in 2010, a sharp rise from £1.5 trillion five years earlier.

The detailed analysis in the report, compiled using data from a range of sources, including the Bank for International Settlements and the International Monetary Fund, suggests that for many developing countries the cumulative value of the capital that has flowed out of their economies since the 1970s would be more than enough to pay off their debts to the rest of the world.

Oil-rich states with an internationally mobile elite have been especially prone to watching their wealth disappear into offshore bank accounts instead of being invested at home, the research suggests.

Once the returns on investing the hidden assets is included, almost £500 billion has left Russia since the early 1990s when its economy was opened up. Saudi Arabia has seen £197 billion flood out since the mid-1970s, and Nigeria £196 billion.''The problem here is that the assets of these countries are held by a small number of wealthy individuals while the debts are shouldered by the ordinary people of these countries through their governments,'' the report says.

The sheer size of the cash pile sitting out of reach of tax authorities is so great that it suggests standard measures of inequality radically underestimate the true gap between rich and poor. According to Mr Henry's calculations, £6.3 trillion of assets is owned by only 92,000 people, or 0.001 per cent of the world's population - a tiny class of the mega-rich who have more in common with each other than those at the bottom of the income scale in their own societies.