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Tax Havens, Conservatives and the Developing World

2 November 2010

After the recent investigation by Channel 4 Dispatches programme that Conservative Ministers, Andrew Mitchell the International Development Secretary amongst them, store their wealth in off-shore bank accounts, the question of the harm done by these locations and their practices are now being asked.

The figure quoted in the Dispatches investigation is that for every £1 that goes into the developing world via aid and trade, £10 goes into off-shore tax havens. That is a staggering amount of money that is being re-directed away from where it could of use to world’s poorest. There has been a growing acceptance in the international community that more needs to be done to ensure that fair and accountable tax regimes become common practice. The G20 meeting in April 2009 set a clear set of targets to see these practices clamped down on, due in part to the damage they do to the developing world, stating that they aimed ‘to make it easier for developing countries to secure the benefits of a new cooperative tax environment.’

The OECD in late 2009 looked into the progress being made to achieve the aims set out by the G20 and found that 42 signatories had yet to implement the internationally agreed recommendations – one of these being the favoured tax haven of the now International Development Secretary, the British Virgin Islands (a British Overseas Territory).

Closer to home the House of Commons International Development Select Committee has stated that tax havens are a severe hindrance to the developing world. In its report in October 2009 ‘Aid under Pressure’ it had the following to say on tax havens;

“114. Tax evasion is a major problem faced by developing countries in attempting to raise tax revenue. Tax havens facilitate tax evasion by operating lax regulations; providing companies with anonymity through bank secrecy; and by failing to co-operate on tax matters with authorities from the country in which the funds originated.”

Given that the G20, the House of Commons and the OECD all agree that tax havens damage the developing world, its increasingly curious that the Development Secretary feels it is acceptable to benefit from using their services.

Furthermore, the question of fair taxation is not only a problem within developing nations, its also a problem within aid-giving states. If the money that wealthy UK citizens and companies stored overseas were repatriated to the UK not only would our GDP increase (and the amount of money that constitutes the target of 0.7% of GDP going into development would substantially increase) we would also have more taxable income that could be re-directed into DfID’s budget.

It is very simple economics, but economics that substantially harms the developing world. That the international community has already stated its clear aim of dealing with the problem of off-shore tax havens, it is therefore concerning that members of the UK government are indulging in these practices, particularly those whose remits are to tackle the very problems that tax havens are exacerbating.

The Secretary of State has said he has done nothing illegal, and that is true. But that does not exonerate him from the charge that he, and by extension his government, are unwilling or incapable of tackling the practices that are in part responsible for underdevelopment in many parts of the world. In fact, they are taking part in and enjoying the benefits of those practices. Whilst leaders in the developed world fail to understand why underdevelopment takes place, and whilst they are unwilling to seriously deal with these problems and lead by example, the depravity that those in the developing world face will continue to worsen.

Lee Butcher is a Parliamentary Researcher to a Labour MP – views expressed are done so in a personal capacity.

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