Nasty, solitary and brutish: How the UK undermined its own social contract

Alex Cobham

A poll in May 2023 found that 62 per cent of those questioned agreed with the statement, ‘The social contract in Britain is broken’. Just eight per cent disagreed. The question posed in this issue: ‘Who pays, who benefits?’, is the key to understanding how the UK got here – and why, perhaps, tax justice points the way forward.

A new volume, Imperial Inequalities, edited by Gurminder K Bhambra and Julia McClure, connects directly to practical questions of tax justice today, as Quinn Slobodian highlights in the Preface. It is motivated by thinking through how a new fiscal sociology conceives of a ‘web of generalised reciprocity’ emerging in communities subject both to ‘relations of extraction’ (that is, taxation) and to relations of distribution (welfare). The question is this: how is that ‘web of generalised reciprocity’ affected, once we recognise that the populations subject to relations of extraction and distribution are very often not the same?

Colonial histories, as the many chapters show, are replete with such cases – from the British welfare state, built on extraction from colonial citizens largely denied its benefits, to the many and complex stratifications of colonial populations with differential tax and benefit treatments. The case of a single population subject to closely mapping relations of extraction and distribution would be the exception, far from the norm.

The emergence of a relatively ‘pure’ web of generalised reciprocity may then be equally atypical. That is: those who pay, and those who benefit, are rarely identical. For colonial populations, a common response is the rejection of taxation unaccompanied by either representation or meaningful distribution. The emphasis on taxation in post-independence state-building, and its frequent presentation as patriotic, reflects the resulting need to reclaim the legitimacy of taxation.

The problem is less immediately visible in the metropolis. It may be largely unknown and sometimes openly denied. But it has the potential to be equally damaging to the maintenance of an effective state, and perhaps also to the web of generalised reciprocity.

The corrupting power of imperial bounty

In the framework of the 4 Rs of tax, the main benefits of effective taxation are identified as revenue; redistribution; repricing (e.g. of tobacco consumption and carbon emissions); and the 4th R, often overlooked, representation (Cobham).

One of the only consistent associations to be found with improving political representation and reducing corruption, is that of the share of taxation in government spending (e.g. Prichard et al.). That is, when governments rely more on taxing [their own] citizens, they tend over time to be more responsive and accountable to that same population. When significant spending is based instead on for example natural resource wealth, or sustained high levels of foreign support, the longer-term effects on governance are pernicious.

A population that sees government spending as a bonus if it benefits them, and otherwise deems it irrelevant, has a quite different sense of (tax) citizenship than one that considers government to be spending their own money, and holds it accountable on that basis. Over time, unsurprisingly, it is the latter scenario that results in better and more inclusive governance.

In the context of these findings, we can speculate on the results when populations of (former) imperial powers and settler states benefit from relations of distribution that are built upon relations of extraction that encompassed many others. The cumulation of colonially extracted wealth underpinning the introduction of the welfare state in the UK, effectively implies a share of taxation in government spending that is lower than the apparent figure. That in turn would imply that the UK – for example – is on a weaker governance trajectory than might have been understood from the long-term association noted above.

In other words: the ‘bounty’ of empire may be a corrupting influence on the UK.

The corrupting power of tax havenry

My chapter in Imperial Inequalities, ‘Imperial extraction and “tax havens”’, explores the UK’s global dominance, across three imperial ages of illicit financial flows. In the first of these, the age of formal empire, we see illicit extraction by violence. That extraction very often takes the form of taxation – including by colonial administrations and by imperial charter companies, in each case operating with the force of arms, as well as via local figureheads.

The second age of illicit flows occurs in the first half or so of the 20th century. Growing and increasingly successful calls for independence gave rise to fears that those who had expropriated wealth under empire, may find it re-expropriated by newly independent states. At the same time, the rise of direct taxation (and war) in the metropolis created a liability if wealth were to be fully repatriated.

The twin fear of expropriation and taxation results in what Vanessa Ogle has aptly labelled ‘funk money’, and provides the driver for the first real tax havens to emerge: jurisdictions within empire, and ultimately backed by the same military power and legal institutions, but that are able to engineer forms of ownership for these illicit flows, that are defended from the twin threats of expropriation and taxation.

British institutions including the Treasury and Bank of England reacted to and sometimes encouraged further developments in 1950s and 1960s, in part motivated by a desire to reduce aid to dependent territories and to bolster the City of London’s position; while at the same time concerned over tax abuse if it would affect the UK (Shaxson). Sævold’s detailed exploration shows the haphazard nature of policymaking in this regard, and the absence of a deliberate, overall strategy.

This set the basis for the third age of illicit flows – in which we are all living today – that we might label ‘tax haven empire’. The provision of financial secrecy and low- or zero-tax regimes became increasingly widespread, as a growing number of dependent territories, US states, and countries including the Netherlands, Luxembourg and Ireland, competed to commercialise their sovereignty (in Ronen Palan’s resonant term). By offering their legislation for hire, these jurisdictions allowed international law firms, banks and accounting firms to design and put in place the ideal conditions for illicit flows including corporate profit shifting.

The UK and its network of dependent territories (the UK ‘spider’s web’) emerges consistently as the most damaging single actor worldwide – whether by measures assessing the risk of illicit financial flows broadly or of corporate profit shifting in particular, or through direct estimates of the tax losses imposed on others (some $189 billion, or 39% of the global total).

The UK also suffers, of course, and not only through its own exposure to tax losses. The ‘finance curse’ (Christensen, Shaxson & Wigan) posits the existence of mechanisms similar to the natural resource curse, for economies that become highly dependent on financial services. These can include exchange rate appreciations that make other sectors internationally uncompetitive; property price and other inflation that makes the cost of living oppressive for those outside of the leading sector; and a reliance on revenues from that sector. Over time, this weakens the role of other taxation and can, again, weaken the state-citizen relationship.

A key channel beyond those of the natural resource curse is that maintaining a bloated financial services sector increasingly requires legislation and regulation to be put at the sector’s disposal – which gradually disenfranchises citizens, as the political space for progressive changes is restricted by policymakers. In addition, the reliance on financial secrecy to facilitate tax abuse and other corruption elsewhere, makes it increasingly difficult to maintain basic transparency and institutional accountability at home. The corrupting nature of tax havenry may be more immediately evident in smaller jurisdictions like the British Virgin Islands or Jersey, but a larger economy like the UK is not exempt.


If the existence of a web of generalised reciprocity linking those who pay and who benefit is the basis for a functioning social contract, what can we expect from a state based on explicit violations of that reciprocity?

One answer might be a commitment to exclude. Recognising the range of peoples who have paid, and how often this can be characterised as illicit or violent extraction, a state might take an increasingly aggressive stance to limit those who it allows to benefit. This exclusion might influence not only policies around migration (physical access), but also those on institutional access (who is uncounted?) and stigmatisation (social access).

On the latter point, many high-income countries are characterised by narratives that stigmatise poverty and the access to benefits of lower-income households – while at the same time often failing to pursue abuses at the other end of the distribution. The UK has reached an extreme point in its divergent treatment of tax fraud and benefits fraud. On the government’s own conservative estimate, tax fraud costs the UK nine times as much – but the government dedicates three and half times as many staff to benefit fraud, delivering 23 times as many criminal prosecutions and more than eight times as many custodial sentences (TaxWatch UK). It is estimated that benefits due to households but unclaimed in the UK now stand at £19 billion per year (Clegg et al.).

Successive cuts have weakened the capacity of the tax authority, despite consistent evidence that each £1 spent here brings in multiples more in additional revenue (Advani et al.) – because the returns are so high to audits of major companies and high-income households, who can otherwise act with impunity. Estimates of the resulting tax losses range widely, but are in the many billions of pounds.

The weakness of progressive taxation in law, and the additional failure to ensure compliance at the top end, is also at the root of the way that tax systems, including in the largest economies like the UK and US, tend to exacerbate rather than ameliorate the existing inequalities that affect women and racialised groups (Brown; Decolonising Economics; Elzayn et al.) – including, disproportionately, people whose family origins trace back to (former) colonies and enslaved populations.

A path back to the social contract?

The UK’s role at the heart of three ages of illicit financial flows has created an unrepayable debt. But even for those theoretically on the over-receiving side of the unbalanced web of reciprocity that has been build on the proceeds, many are in practice excluded and there is a powerful sense that the social contract is failing. 

The UK’s debt extends not only to people and countries who have faced its illicit extraction, but also to the jurisdictions within the spider’s web. The case for the UK to end its global role in tax abuse is clear. At the same time, however, it must take responsibility for the vulnerability of dependent territories whose people suffer a more intense dependency on an exploitative financial sector than even the UK itself. Support is needed – and owed – for those territories to develop and pursue alternative economic models, just as the UK itself must do. And while ending its role in tax abuse cannot repay the UK’s debts, it can at least stop the clock on the debt’s continuing growth.

The same steps would create the possibility for the UK also to reset its own approach to tax and benefits. Winding down the reliance on finance, rejecting further proceeds of illicit extraction and committing to tangible reparative justice measures, would also create the opportunity to re-establish a more balanced form of the web of generalised reciprocity.

In doing so, the UK could start to reverse the exclusionary and ultimately self-corroding nature of its social contract.  As has been suggested to King Charles III, newly crowned head of state for the spider’s web, an insufficient but necessary first step would be the start of a full public discussion over the extent of the UK’s past and continuing role in imperial extraction and tax abuse – and the overlapping inequalities that persist as a result.

Alex Cobham is an economist and chief executive of the Tax Justice Network. He is also a founding member of the steering group of the Independent Commission for the Reform of International Corporate Taxation, and of the technical advisory group for the Fair Tax Mark. He has been a researcher at Oxford University, Christian Aid, Save the Children, and the Center for Global Development, and has consulted widely, including for the Economic Commission for Africa, UN ESCWA, UNCTAD, UNDP and the World Bank. He has published two books: The Uncounted (Polity Press), and Estimating Illicit Financial Flows: A Critical Guide to the Data, Methodologies, and Findings, with Petr Janský (Oxford University Press, open access). A new book is forthcoming in 2023 with Sage Publishing, titled ‘What do we know, and what should we do about tax justice?’

Header Image Credit: Word cloud of words selected to describe Britain (New Britain Project polling by More In Common, May 2023)


Cobham, Alex 2023. ‘Nasty, solitary and brutish: How the UK undermined its own social contract’ Discover Society: New Series 3 (3):