No one can be neutral on the issue of wealth. You have it, or you don’t. You applaud it, or you don’t. You aspire to it, or maybe not. It is, and always has been, a divisive issue. That division does, of course, extend to philanthropy, which is a direct by-product of wealth accumulation.

In recent history wealth has been seen to be a good thing. The philosophy of John Locke – that wealth is acceptable if based on the value a person has by their own labour, added to a naturally occurring resource – has been adapted by neoliberal philosopher Robert Nozick. He dropped Locke’s notion of the value added of the wealth owner’s labour by suggesting that wealth may be accumulated from the effort of others so long as those others were not coerced in the process. Nozick’s contemporary, John Rawls, disagreed. He condoned wealth only if it can clearly be shown that it benefits the poorest in any community.

Modern attitudes to wealth
The deep dividing lines in modern attitudes to wealth are writ large in the difference between Nozick and Rawls: the latter with a bias to the poor, the former assuming they would not have any reasonable claim on the wealth that their labour produces even if it were available to them. Many would like to think all philanthropists have a bias towards Rawls’ position but the reality is that the accumulation of much of the wealth used in modern philanthropy is philosophically justified by Nozick at the point of accumulation while being publicly lauded on the basis of a narrative of personal endeavour based on Locke’s thinking, even if that has little credibility in a modern integrated economy. It is important to note that all this thinking occurs before tax is taken into account in wealth accumulation – tax being the major concern of much of my work.

Of course, many of the old philanthropic foundations were created in the era of low taxation that pre-dated the Second World War, but since then many have sought to emulate that advantage in ways that I would question. Modern wealth accumulation, particularly in the era of lax capital controls post 1980, has been heavily associated with what I would call tax abuse.

The role of tax havens
Wealth accumulation now very often takes place offshore though the use of tax havens, or arises from investment in companies that have used aggressive tax avoidance techniques to avoid the tax liabilities that might arise in the countries where their revenues have been earned and their staff employed.

I, and my colleagues in the Tax Justice Network, have argued that tax havens have deliberately created imbalance in the world. Ignoring for a moment the criminal dimension to their use, the opacity they have provided, and the subversive tax legislation they have created for the benefit of what will always, inevitably, be an elite few, they have also deliberately created imbalances in our economies. Those imbalances favour multinational companies over national ones, large companies over small, well-established enterprises over new ones, while also allowing the possibility of rapid capital accumulation in a tax-free environment. None of this has occurred by chance; it is the outcome of design, based on a logic that the few who are able or willing to use such places deserve the resulting outcomes, which should be denied to the rest of society.

That some have had ethical concerns about this is appropriate. While it is has always been possible to use tax havens legally, the fact is that the same mechanisms that have been used to accumulate wealth have also been used to facilitate international and organized crime on an unprecedented scale. A small part of this is in the form of the corruption that has blighted many developing countries. More is crime we all recognize, such as money laundering, drug trafficking and people trafficking. Then there is financial crime: commercial bribery, insider dealing and tax evasion have all taken place through tax havens. The biggest losses of all have, however, almost certainly been the cost to developing countries of multinational corporations stripping profits from those countries into tax havens through the mechanism of transfer mispricing, which Christian Aid has estimated may cost them more per annum than the total world aid budget.

What about philanthropy?
When so much modern wealth accumulation is associated with such methods, is it any wonder that we, and others, have questioned the role of the modern philanthropist in tackling the issues that the modern world faces – many of them created by those very same structures that have assisted the philanthropist’s wealth accumulation? In addition, many foundation endowments are invested in the shares of companies that go to such lengths to avoid paying tax.

There are other concerns too. The fact that not all are equal in charitable giving is obviously troubling. In the UK, as elsewhere, higher-rate taxpayers carry unequal votes in directing what causes benefit from tax relief even though there is no evidence that as a proportion of disposable income they give more to charitable causes than others, and some evidence to the contrary. This leads to the likelihood that the interests of those who are better off are over-represented in philanthropic activity – a likelihood whose probability is increased by the fact that the UK tax system gives a direct, personal reward to the philanthropist who is a higher-rate taxpayer by way of a partial tax refund on the sum donated when there is no such rebate for the basic-rate taxpayer. This increases the incentive to those with higher incomes to give, but also increases the chance that they will direct the resulting largesse to causes that concern them and not necessarily society at large.

Does philanthropy distort outcomes?
That leads on to the obvious question as to whether this distorts the outcomes that philanthropy seeks to promote. Is there an inherent bias towards maintaining the status quo in a society that has, inevitably, worked well for the philanthropist? When a charity wishes not just to relieve poverty but to ask why the poor suffer the injustices society heaps upon them, both here in the UK and around the world, is tax relief being used to constrain charitable activity? Asking such questions can move a charity into that dangerous arena of ‘politics’ that is denied to those who wish to receive tax relief.

Is this simply a mechanism for enforcing control on a part of society that should be asking the important questions about the real changes needed – including to tax law – that would eliminate so many of the problems that charities exist to tackle? And as such is tax relief in practice acting as a powerful tool for maintaining the status quo that the biggest absolute givers (by amount, if not by proportion of either income or wealth) would rather not challenge?

Do tax incentives play a useful role?
For all these reasons, I am not persuaded that tax incentives play a useful role in philanthropy. Those tax incentives might cost up to £2 billion a year in the UK, with much of the use of that money inevitably being dictated by donors rather than those in need. If that annual sum was instead dedicated to relieving poverty – by, say, funding a microfinance bank in the UK – might it not do more to relieve poverty than giving it in tax relief to those not in need of it?

That question is rarely asked and the suggestion, in 2012, that tax relief at higher rates for wealthier donors should be capped gave rise to a furious backlash, mainly from those enjoying the tax relief. But in the current, less febrile political environment I still think this question has to be asked – not least because that 2012 debate revealed the power that the wealthiest donors and their foundations wield in this debate, and the power they exercise over the recipients of their largesse, who queued up to support tax relief from which often only the wealthiest can benefit – despite, in some cases, having as their charitable purpose the relief of poverty, which means that, by implication, they should tackle inequality.

Nor am I convinced that the association of the benefactor, seen as the person of exceptional ability independent of the society in which they live, and philanthropic action, as justified by Locke, can be defended in modern society where wealth creation is almost invariably the result of the coordinated action of many people, and not just that of one exceptional individual who may, as often by good fortune as much as ability, have had opportunity to direct that team of people. Philanthropy should instead be predicated on a principle that no harm should have been done in the accumulation of the wealth on which it is based, as Rawls argued. This, though, poses serious questions for those who run foundations, including:<br />

• Is charitable status and the tax relief it grants consistent with the social objectives we seek to promote?
• Have the funds we manage been taxed fairly?
• Can we be sure that the funds we manage come from a source that was taxed appropriately before being donated?
• How can we achieve social goals that conflict with the conditions of the tax relief we enjoy as a charity?

Questions about tax governance are now at the core of the tax justice debate when it comes to major corporations. Maybe the time has come for this to apply to foundations too. For those brave enough to take this issue on, though, be warned; this issue goes to the very heart of the debate about where power lies in our society, and the answers may not be comfortable.

Richard Murphy was one of the founders of the Tax Justice Network and directs Tax Research UK. Email richard.murphy@taxresearch.org.uk