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The study of equity has to take seriously the way in which trusts are abused by the rich and powerful. The scale of this problem, and what can be done about it, are central to legitimizing ways of holding wealth, discuss.
In most parts of the world, it is quite clear that tax evasion and misusing trusts are both generally beloved hobbies of the rich and powerful. Even in the UK, this practice has not gone unseen, the Duke of Westminster is guilty of the act. While winning the infamous case of 1936, and that case has been used as both the foundation and justification for most wealthy people in the UK to continue what the Duke pulled off. Many researchers affiliated with the study of equity take the issue of abusing trusts lightly. This allows the powerful and rich population of the UK to continue to exploit the system. The problem is one of the main reasons as to why it becomes difficult for the government to hold wealth. As such, the problem should be taken seriously and a proper solution should be deduced. The following paper is going to take a stab at the issue, trying to legitimize its importance as well as discuss means to solve the problem.
In the 1936 case against the Duke of Westminster, there was one man that gained the Duke a lot of fame due to his opinion on the subject. That man was Lord Tomlin, who was appointed to be the ruling authority on the case. During his judgment he utters the now-famous lines;
“Every man is permitted if he can to order his affairs so that the tax attracted under the appropriate action is less than it otherwise would be. If he succeeds in ordering them so as to secure this result, then, however unappreciative the Commissioners of Inland Revenue or his fellow taxpayers may be of his ingenuity, he cannot be compelled to pay an increased tax.” (Murphy, 2016).
This single statement gave many rich and powerful people in the UK the green light for tax evasion and abusing trusts. This is evident due to the fact that the sixth duke left an estate that has a worth of around £10 billion. Despite that fact, the tax that was paid on the overall estate was £325,000. Furthermore, more and more, wealthy families are moving away from using trusts as a part of their financial planning. Primarily, that is due to the increased tax rates that they do not wish to pay. According to the statistics from HM Revenue & Custom of 2017, showcased another drop in the number of trusts. This drop was the third consecutive fall for trusts as in 2017 there were around 160,000 trusts and that number fell from almost 170,000 trusts in the year before.
Going back to the famous and wealthy people of the United Kingdom, it appears that the sixth Duke went far beyond the second Duke in abusing trusts. This is because the sixth Duke was able to avoid paying off taxes that sum up to around £4 billion. Similarly, he outdid the fifth Duke how was able to go free of all charges that were placed on his estate in the 1960s.
How the Wealthy Abuse Trusts
Abusing trusts and evading taxes has almost become a profession at this point, the people that are related to the field of economics call it “wealth management” (Harrington, 2015). This phenomenon is something that both the state and international revenue agencies are well acquainted with. That is because it is their jobs to try and prevent this concept from accruing. Understandably, for one to delve in the profession of wealth management they have to be in a high net-worth ranger. People that have around £10 million or more laying around that they can invest as assets are included in that category (Harrington, 2015). These individuals employ professional wealth managers that have only one job to perform and that is to help these wealthy individuals avoid taxes, legal judgments, debts and other obligations (Harrington, 2015).
Ironically enough, all of the aforementioned financial obligations are enforced on the common man. This creates an atmosphere where the wealth remains at the top of the ladder, never paying any significant amount on their earnings. Whereas, the small fish has to divide his/her earnings even further in all forms of taxes. This helps the wealthy hinder the flow of capital to leave their midst, while the common citizen who does not have much, to begin with, further loses his monetary gains. To the general public, these professions of wealth management and the experts that practice it does not exist (Harrington, 2015). This is because there is no coverage of these individuals as well as this profession in economic studies nor in biographies of the wealthy and powerful. For a wealth manager to be a capable one, they need to have a low profile and their clientele to remain unknown. In a recent estimation by renowned journalist, there are around 20,000 wealth management professionals in the world (Harrington, 2015). This number is kept so low as this position is one where massive amounts of important legal data and information are available to the individual regarding the most powerful people in the world. Therefore, these people would like the general public has no clue as to what is happening behind closed doors. As such, controlling the number of wealth management officials is a way to accomplish this. Even so, these individuals are on the radar of various money regulatory agencies. This is because of their role in helping top names in various businesses to avoid taxes and abuse their trusts. An example of such a case in the past has been the National Westminster Bank Plc vs Rosemary Doreen Jones in 2000 (Belhomme, 2016). According to the historical documents;
“…following extravagant advice of a professional expert in asset protection is National Westminster Bank Plc v Rosemary Doreen Jones et al 2000. A desperate Welsh farming family under the advice of such professionals entered into complex arrangements using various legal devices such as companies in a desperate attempt to escape the loss of their farm and home which had been in Mrs. Jones’ family for over a century. This case is also of interest as it was found that the agreements were artificial, but were not shams” (Belhomme, 2016).
How This Impacts the General Population of the UK
With the wealthy avoiding and abusing their power in relation to their taxes and trust funds, the society is faced with economic inequality. The general public has no say in this, as such they have to accept the situation that is presented to them. According to a study on economic inequality, there is a host of negative outcomes within an increase in economic inequality. According to a survey conducted, in 2015 it was noted that most of the wealth that was in the possession of just 62 wealthy and powerful individuals, was equivalent to the population of poor people of the world. The figure below from the study better elaborates the results found.
Figure 1(Cobham, and Gibson, 2016)
The study goes on to establish that;
“…research by Oxfam has shown that, in 2015, just 62 rich individuals had the same wealth as 3.6 billion people – the poorest half of the world’s population.And while the wealth of the richest 62 people has risen by more than half a trillion dollars since 2010, the wealth of the world’s bottom half has fallen by more than a trillion dollars in the same period” (Cobham, and Gibson, 2016).
It was also noted that the poor would be faced with most of the consequences of this economic inequality. The study states that;
“While extreme inequality hits the world’s poorest hardest, it is a growing problem in richer countries too. Analysis of Credit Suisse data for the UK shows that total net wealth has increased dramatically in the past 15 years, from £6.4 to £10.1 trillion. More than a quarter of the total national increase in wealth over the past 15 years has amassed to the richest 1% of the UK population – who now have an average wealth of £3.7m each, an increase of £1.5m each since the millennium. Meanwhile, the average wealth of someone in the bottom 10% was just £1,600 last year, making them on average only £500 wealthier than at the turn of the century” (Cobham, and Gibson, 2016).
In other words, almost a quarter of the total national wealth increase over the past 15 years was seen to be accumulated by the top 1% of the UK. This is a highly alarming situation, as the level of inequality is massive and there are no serious actions taken against these individuals by the government of the United Kingdom. When all things considered, the general public is being subjected to worse living standards than they should. This notion is not only for the people who are among the most deprived group of people in the general population. Instead, this is a fact for all people who do not categorize as that elite 1% of the world.
What Can Be Done To Solve This Issue
At the end of the day, dealing with these issues should be focused on removing as much of the economic inequality as possible from society. Therefore, one of the ways this problem can be dealt with is an increase in the minimum wage (Stiglitz, 2016). According to research on the issue, if such a law is passed than around 4.6 million people can be moved above the poverty line (Stiglitz, 2016). This will also help in increasing a billion pounds to the nation’s overall income. The benefit of this approach is that doing so will have no negative side effects on the economic growth of the country. Furthermore, increasing the minimum wage will only better the employment situation. Another action that the government can take is expanding the income tax that it earns (Stiglitz, 2016). With an increase in the EITC, more and more people can be removed from the population living under the poverty line (Stiglitz, 2016). This is evident as research has shown that the EITC has been successful in doing the same thing for almost 5 million children in the past. The EITC can also help provide assistance for people that are financially struggling (Stiglitz, 2016).
Most of these issues come from the wealthy avoiding their civic duty to pay taxes, as such the government needs to employ a more progressive tax code (Stiglitz, 2016). One of the most ironic aspects of income tax rates is that people that have the most wealth and income tend to have the least share of tax. The data suggests that this is due to the quality of tax policies utilized by nations all over the world (Stiglitz, 2016). There are various tax codes that offer more value to investment income than the actual work. The rates of the capital gains taxes have to be addressed in order to reduce the economic inequality of the country (Stiglitz, 2016). A better tactic would be to change the savings incentives as a refundable tax credit. In doing so it will form a situation where every pound is treated equally. In that way, all of the people including the people on or below the poverty line can be given an equal benefit.
The issue of the wealthy playing the system has been a dominant issue since the early stages of this country. This issue is one that is shared all over the world as the majority of the nations of the world have that small group of people who possess most of the wealth of the country. Furthermore, there are highly negative consequences of this practice continuing as it is in the modern world. Almost all of with will fall upon the poor population of the nation who already have a difficult time making ends meet. Furthermore, there are methods which can be employed to better the situation to some degree and make it more sustainable. With the incorporation of these methods into the legal system, the government can make a difference for the common man.
- Belhomme, R., 2016. The Inexplicable Case of the Sham Trust.
- Cobham, A. and Gibson, L., 2016. Ending the Era of Tax Havens: Why the UK government must lead the way.
- Harrington, B. 2015. Inside the Secretive World of Elite Wealth Management. Retrieved from https://www.theatlantic.com/business/archive/2015/10/elite-wealth-management/410842/
- Murphy, R. 2016. Trusts keep wealth in the hands of the few. It’s time to stop this tax abuse | Richard Murphy. Retrieved from https://www.theguardian.com/commentisfree/2016/aug/12/trusts-wealth-tax-abuse-duke-of-westminster
- Stiglitz, J.E., 2016. Inequality and economic growth. In Rethinking Capitalism (pp. 134-155).
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