Islamism in Britain: what is the threat?

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1:03The Economist.

1:10Rosie Blau:Hello and welcome to The Intelligence from The Economist. I'm Rosie Bloor. And I'm Jason Palmer.

1:19Rosie Blau:Today on the show, America seeks to tax business profits made overseas. and the glory of corporate training videos.

1:35But first...

1:42There was a telling bit of news earlier this month about anti-Muslim sentiment in Britain. Stop that vote! Stop that vote! Stop that vote! Hundreds of thugs in balaclavas blocked access to the port of Dover, chanting, stop the boats, and Christ is King. A lot of this anti-migrant angst is actually anti-Islam. A poll last year suggested that more than half of people agreed that Islam is incompatible with British values. But at least some of those respondents were failing to make an ever more important distinction.

2:19Sonny Loughran:The idea that Muslims are somehow incompatible with British culture is nonsense. Some of it, frankly, is racist. Sonny Loughran is a Britain correspondent for The Economist. But the rise of these views is also the result of Britain's long-standing failure to distinguish between the religion of Islam and the political ideology of Islamism, which are very different things. very much a case of definitions being the important thing here so let's start with that what exactly is islamism so islamism is a political ideology that believes government and society should be guided by islamic principles basically that sharia law should become the law it's often authoritarian it rejects integration into western society and opposes things like pluralism, free expression and equal rights.

3:12Sonny Loughran:That can lend itself to violent tactics, but jihadis are just one particularly extreme subcategory of Islamists, who a lot of the time aren't actually violent and instead look to influence politics through lobbying and protests. So while Britain knows what to expect from violent extremism, the government has generally struggled to know how to deal with or respond to non-violent Islamism. And as you say, Islamism is not Islam. Let's talk about how much of the British Muslim population has sympathy for Islamist ideas. Well, it's really hard to say. Polling minority groups is always really difficult, so you have to take any polling results with a big pinch of salt.

3:53Sonny Loughran:But we can say with some confidence that British Muslims are more socially conservative than the general public. A poll we commissioned found that majority think same-sex relationships are morally wrong, for example. but being a social conservative doesn't make you an islamist nor does it make you a threat to british values we have plenty of non-muslim social conservatives here in britain as well including it's probably worth saying many people on the right who hold the same views as the muslims they would criticize when it comes to islamism specifically counter-extremism experts you speak to will give you a rough guesstimate that somewhere between 10 and 20 percent of British Muslims have Islamist sympathies.

4:33Sonny Loughran:And our poll found that a third of Muslims support the view that Islamic principles should guide public life, laws, politics and government. But most of the Muslims I've spoken to in my reporting have never met an Islamist and honestly they barely even know what Islamism is. Although sometimes the line can be a bit blurry. One imam I spoke to in Bradford told me that it was stupidity to want Sharia law in England but you look on his Facebook account and he's calling for Muslims to do more to create the caliphate. Osama, a young Islamic studies teacher in Manchester who was as progressive as any graduate, he completely rejected the idea that Sharia law is relevant to 21st century Britain.

5:12Sonny Loughran:But even he would say that in an ideal world, laws based on revelation would obviously be preferable. So the question becomes whether Islamism is really a problem in Britain or is an issue about fear and perception? Well, it's a bit of both, and it kind of depends what you mean by a problem. So Ken McCallum, head of MI5, says that about 75 % of MI5's counter-terror workload is on Islamist extremism. But as I say, most Islamists aren't actually violent. In the West, they generally prefer a strategy of entryism, which is basically the idea that a small group of ideologues can wield an outsized amount of influence by hiding their true beliefs and occupying positions of power.

5:54Sonny Loughran:For the far left in the 1970s, that meant securing seats on local councils and the youth wing of the Labour Party. Islamists are equally interested in getting their guys in schools, getting their mosque listened to by the police. And Gaza is a flashpoint because it produces this quite odd alliance between Islamists and the far left. I think that the impact of these networks is most obvious in how local authorities respond to issues of faith. So in 2021, a school teacher in Yorkshire received death threats after showing a cartoon of the prophet in a religious studies lesson. There was an autistic schoolboy in Wakefield who received similar threats after he allegedly dropped a Quran.

6:31Sonny Loughran:And after protests by local imams supported by local councillors, both the teacher and the schoolboy were suspended and those issuing death threats faced no serious police action. And why do you think the response is what it is in that way? I think it comes back to what we discussed earlier, which is this conflation between Islamism and Islam. I think the police response in those kind of cases only really makes sense if you think that all Muslims share these religious sensitivities, and therefore that these are the kinds of issues that can really spiral out of control and lead to the kind of widespread disorder that the police are very keen to avoid.

7:07Sonny Loughran:And some counter-extremism researchers worry that a similar process happens nationally too, that Islamist framings can be allowed to dominate policy debates when they're presented as the view of the Muslim community. So earlier this year, the government published a new definition of anti-Muslim hostility, which some critics, including many Muslims, say undermines free speech by conflating criticism of Islam with bigotry against Muslims. And there are not entirely unreasonable suggestions that it was drafted with input from Islamist-leaning campaign groups who claim to represent the Muslim community at large.

7:44Sonny Loughran:And you see similar things around PREVENT, which is the government's counter-radicalisation programme. Islamists and others, it's worth saying, but especially Islamists have campaigned for scrapping PREVENT on the basis that it discriminates against Muslims. But actually, Islamist extremism accounted for only 8 % of referrals last year, and an independent government review in 2023 found that the narrative that PREVENT discriminates against Muslims had led to a hesitancy around reporting Islamist-related concerns. One thing that is beyond doubt, though, is that there is a higher and higher fraction of the population in Britain that is Muslim, and that presumably leads necessarily to an increased number of Islamists among them, right?

8:29Sonny Loughran:I think so, yes. And there's a big campaign to elect more independent Muslim MPs, which has been backed by former leaders of now prescribed Islamist groups. And it's entirely plausible that an increasing Muslim population, as you say, might elect more Muslim MPs put forward by these kind of groups. Although mostly, I think, these kind of Islamist networks thrive in dense, segregated Muslim communities. And though, if you look at segregation nationally across Britain, rates of segregation have actually fallen, there are more of these kind of neighbourhoods than ever before, which is a bit confusing, but both can be true at once.

9:07Sonny Loughran:Also, one thing to bear in mind is that in these places, the main victims of Islamism tend to be other Muslims. Secular Bangladeshis in East London have often been a target, minority sects as well. Women are particularly vulnerable. The government reckons that there could be 85 Sharia councils in Britain, which are voluntary bodies for settling family disputes mainly, but some women campaigners argue that they enable coercion and misogyny. and that the police are often reluctant to intervene. And in that sense, this tension grows on both sides of the debate. It's a sort of self-feeding phenomenon.

9:44I mean, what should governments do to break that cycle?

9:46Sonny Loughran:I think the most important thing is to reject this narrative of incompatibility. It's one thing that Islamists and the far right agree on, is that Islam is fundamentally incompatible with Western civilization. But there's no reason that has to be true. Islam is what Muslims make of it, and Islamism is one relatively recent strand of Islam, which we shouldn't feel awkward about criticising in the name of cultural sensitivity. Plenty of liberal Muslim scholars already do. So it's about calling out entryism and bigotry of all forms, I think, whether that comes from Islamists who bully other Muslims or the far right who want to brand all Muslims as some kind of threat to Western civilisation, which, if you've met many Muslims, is clearly nonsense.

10:32Thanks very much for joining us, Sunny.

10:34Sonny Loughran:Thanks, Jason.

10:40Rosie Blau:And you can hear more on Islamism in Europe and how politicians of all stripes are responding on the most recent episode of The Insider, our video offering. You'll need to be a subscriber.

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12:10For decades, American businesses have faddened their bottom lines by shifting their profits to subsidiaries in low-tax jurisdictions abroad, otherwise known as transfer pricing.

12:21Rosie Blau:Shira Aviona is The Economist's U.S. business correspondent. Last year alone, U.S.-based companies saved at least$11 billion through tax havens, according to an advocacy group, the FACT Coalition. But now the government wants some of that money back. Shira, this sounds like good old-fashioned tax dodging to me. What exactly is transfer pricing and how does it work? It's not necessarily tax dodging. So transfer pricing can generally refer to when companies operate across many jurisdictions, as multinationals do, they need to transfer assets between them. However, this can be quite a good tax planning strategy.

13:04So say you have a subsidiary in a tax haven or even just in a jurisdiction where taxes are lower than in your main place of business. You can sell assets to that subsidiary at quite a low price and then book enormous profits in a place where they won't be taxed very much. And this can be a great way to shift various assets and dollars around a multinational empire very efficiently, even though it's not what you're supposed to be doing.

13:37Rosie Blau:$11 billion, though, is a massive shift. Why is the US government only now trying to crack down on this? So the roots of today's campaign actually stretch back to the Obama administration. But it takes a very long time for even a single case against a large company to move through both investigation and the legal system. And so the U.S. government has been trying very hard to figure out what to do about this for a long time, but it's difficult. So Biden signed up to an OECD international agreement that was supposed to combat this through various means. But then Trump has abandoned that, but he hasn't abandoned the domestic push.

14:20So the IRS is continuing or even starting new tussles with big companies like United Health, like Amgen, which is a biotech giant, like Meta. But its largest case, the one that tax experts call the Super Bowl of transfer pricing, is against Coca-Cola, the world's most valuable drinks company. And that's been ongoing for more than a decade and may finally reach a conclusion with an appeals court ruling in the coming months.

14:50Rosie Blau:Okay, so tell me about the Coca-Cola case. In the world of transfer pricing, the stakes of the Coca-Cola case could not be higher. In 2015, the IRS said that Coca-Cola owed an additional$3.3 billion in tax for the previous audit cycle, which covered the years 2007 through 2009. And the IRS, which for decades had been losing this kind of case in court, actually won a stunning victory against Coca-Cola about five years ago. Coca-Cola then has appealed that and meanwhile has actually continued to use the same tax formula that the IRS originally had criticized back in 2015. And that and interest has made the money at stake really pile up.

15:36So what started as$3.3 billion covering a three-year period, if the IRS wins on appeal, could now stretch to a total bill covering the whole case for Coke of$20 billion. Coca-Cola, for its part, argues that it shifted profits appropriately because its subsidiaries in various countries have made valuable marketing investments. It also says that the IRS had agreed to the formula that it used in 1996. but this will be a matter for judges to decide basically who's right. And it doesn't just have implications for Coke, although I don't think any company would like to pay a total of$20 billion in extra taxes.

16:18But it also has become a symbol of whether or not the IRS can win meaningful cases against America's largest companies.

16:28Rosie Blau:It sounds like Coke is pretty confident that it will win though. Why is that? They are indeed incredibly confident. And you can see that in their disclosures to investors. So as of July, they had put away$530 million for a potential$14 billion extra tax bill if they, in fact, lose on appeal. The reason why it's$14 billion and not$20 billion is that they've already paid the IRS$6 billion, and that would be refunded if they win. But you can see how the numbers can add up. And actually, Amgen, another one of the companies that the IRS is pursuing, is similarly confident. They had to settle an investor lawsuit that had accused them of being quite blasé in their disclosures about their fight with the IRS.

17:16Rosie Blau:Shira, you seem to be suggesting that despite the symbolism of these cases, whatever happens, the IRS is now finally going to push on in its crusade against transfer pricing. Can it succeed? We'll see. Its budget has really been slashed under Trump. And it is struggling personnel-wise just to maintain the current caseload. because you can imagine government lawyers are quite under-resourced compared to the kind of bevies of very smart tax lawyers and accountants that work at American multinationals. But in the long term, because the money at stake from transfer pricing is so big, it's likely that in any future administration, it will continue to be among the IRS's biggest priorities, if not its biggest priority in terms of figuring out how to squeeze more taxes from America's largest companies.

18:14Another thing that should push the IRS toward more transfer pricing cases is simply that it's become a lot easier to do it as more and more of corporations' profits are not in a physical factory where it's obvious where it's located, but in intangible assets, such as intellectual property, algorithms, AI models, and so on. And as America's debt continues to soar, the incentive for the taxman to figure out ways to more efficiently address corporate profits and to try to get its share of the pie will only become greater. Even under Trump, who is not known for being in favor of stringent tax enforcement, shall we say.

18:57His desire to bring American multinationals home in many ways is also reflected in tax enforcement. He may want American companies to pay lower rates of tax, or he may believe in that, but he wants them to pay whatever tax they do pay in America and not abroad.

19:14Rosie Blau:Sure. Thank you very much. Thank you very much, Rosie.

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