Tax Havens, Conservatives and the Developing World

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.

Congratulations to Ed Miliband

LCID congratulates Ed Miliband MP on becoming the new leader of the Labour Party.

We look forward to working with the former Secretary of State for Energy & Climate Change to ensure global poverty stays high on the parties agenda in the coming years.

During the Leadership campaign we asked Ed about his views on global poverty. You can watch his answers here.

Could the Government be about to destroy the International Development Act?

By Margaret Dantas Araujo

Some of the UK’s biggest charities, Oxfam, CAFOD, and Save the Children, have publically raised concerns about the growing threat of securitisation of the aid budget. The use of aid for political reasons would be in direct contravention of the International Development Act 2002.  The act,  explicitly states,

(1)The Secretary of State may provide any person or body with development assistance if he is satisfied that the provision of the assistance is likely to contribute to a reduction in poverty.
(2)In this Act “development assistance” means assistance provided for the purpose of—
(a)furthering sustainable development in one or more countries outside the United Kingdom, or
(b)improving the welfare of the population of one or more such countries.
(3)For the purposes of subsection (2)(a) “sustainable development” includes any development that is, in the opinion of the Secretary of State, prudent having regard to the likelihood of its generating lasting benefits for the population of the country or countries in relation to which it is provided.

On DFID’s website an explanation is provided of the act which states, “The 2002 Act is drafted in such a way that a policy such as “tied aid” (and the Aid and Trade Provision), in which assistance is given for the purpose of promoting UK trade or for other commercial or political reasons, would now be challengeable in the courts.”

The International Development Act was drafted following consultations with the NGO community.  Now fears are being raised by the NGO community that the government is freezing them out of crucial decisions.   In a public letter to the Guardian they stated,

“Last week the secretary of state, Andrew Mitchell, gave assurances that there would be comprehensive consultation about the future direction of development policy. These documents seem to suggest to some extent this direction has already been set. We urge him to immediately clarify the purpose of these documents and reassure the public that aid will continue to be used to reduce poverty where the needs are greatest. Reducing global poverty will contribute more to long-term stability than focusing on short-term security interests.”

DfID has a stellar international reputation and brings the UK considerable soft power.  Moving away from the International Development Act would have serious repercussions on how the UK is viewed by international community..  There is increasing pressure on Andrew Mitchell and the Tory government to divulge publically their plans for DfID and to open discussion up to the wider public and NGO community.

Conservatives plan foreign office raid on DfID

By Margaret Dantas Araujo

Poverty reduction in the world’s poorest and most vulnerable countries is best achieved when DfID is directing the deployment of our aid budget. However, yet another leaked memo has shed light on Tory intentions to bring Dfid cash under the control of the Foreign Office by requesting that UK security be considered in all aid proposals.

The National Security Council, which now overseas all foreign policy, urges that overseas aid be used to maximise UK security, a ruling that may be in direct breach of the International Development Act of 2002.  The memo sent to staff responsible for drawing up aid proposals states, “the ODA budget should make the maximum possible contribution to national security consistent with ODA rules.  Although the NSC will not in most cases direct DfID spend in country, we need to be able to make the case for how our work contributes to national security.”  The document goes on to state, “We need to explain how DfID’s work in fragile states contributes to national security through ‘upstream’ prevention that helps to stop potential threats to the UK developing (including work to improve health and education, provide water build roads, improve governance and security).”

NGOs argue that the use of aid as an arm of foreign policy will divert aid from humanitarian goals focused on improving health and education to defence projects and tying aid to the purchase of British products.
The shadow international development minister, Gareth Thomas, agrees stating, “This document is deeply worrying, as it confirms the fears of many in the international development and humanitarian community that the government plans to securitise the aid budget, and weaken its focus in prioritising resources on the poorest people and countries.”

A previous leaked document showed DfID cutting 80% of its budget commitments including free healthcare. Thomas said: “It is now becoming clearer why the Tories have abandoned over 80 of our key international commitments – including the pledge to put millions more children into school – as less resources will be available, with money being diverted to security priorities.”  It will also allow Tories to continue to claim DfID is ring fenced by shifting funding from the Ministry of Defence and DECC (for climate change adaptation and mitigation) to DfID.

The UN has recently criticised countries for spending the bulk of their aid on post-conflict states.  “The distribution of development assistance remains highly skewed. Although the share of ODA flows allocated to the poorer countries increased somewhat between 2000 and 2007 … most of the increase in ODA since 2000 has been limited to a few post-conflict countries, including Iraq and Afghanistan. Together, these two countries received about a sixth of country allocations from DAC [Development Assistance Committee of OECD] countries, even though they account for less than 2 per cent of the total population of the developing countries. African aid lags far behind commitments and far behind needs.”

The use of aid for geopolitical and commercial interests is in-step with the previous Thatcher/Major Governments which saw aid drop to its lowest levels and oversaw the infamous Pergau Dam scandal.  The Cameron administration looks set to follow suit.  It is now vital to make the case to the Coalition Government that aid should be used for poverty reduction is the world’s poorest countries and not for own selfish motives.

Where is the coalition’s leadership, vision and ambition on aid?

by David Taylor, for Left Foot Forward

Yesterday The Observer reported that it had received an email confirming that only eight of Labour’s 100 commitments are to be saved. They come as part of the Tories’ drive for ‘value for money’ for UK aid, something we at Left Foot Forward have consistently argued is a bonfire of straw men.

Pakistan-floodsAs we reported on Friday, the Department for International Development is already a world leader in aid effectiveness – yet the implementation of the key commitment on Aid Effectiveness is one of 100 that have been dropped.

The Tories said DfID must be independently audited, and we showed that it already is. They said we are wasting away money to Russia and China, and we showed how Labour was already ending those programmes. They claimed DfID wasn’t focused on results, we reported how it was, and how an over reliance on outputs can mean long term solutions are overlooked.

The transparency initiative the Coalition have launched deserves praise. But beyond that, where is the vision? Where is the leadership? Where is the ambition?

We’ve seen the prime minister let the Gleneagles promises on aid be dropped at this year’s G8, no clear plan for the Millennium Development Goals summit which is just weeks away, and now the dropping of key commitments that would have – and in some cases actually have been – making a huge difference to poor people’s lives.

It is no good for DfID to remain silent on these leaked documents when they pose so many questions:

Health and education

• What now for budget sector support? If £8.5 billion and £6bn on education and health respectively are to be dropped, how are governments going to be supported to develop their own national systems (and thus become less reliant in the medium-long term on foreign aid?

• Eight million in school by 2010, 55 million with access to water – what ‘outputs’ based targets are these to be replaced by?

• DfID is to drop its commitment to abolish user fees. Does this mean the Tories will push through support for ‘vouchers’ for private schools and the privatisation of health care as outlined in their Green Paper (and slammed by NGOs)?

Trade

Trade has been moved out of DfID, and now commitments are to be dropped to quadruple support for fair trade, provide £1bn a year for growth and trade, and support the International Labour Organisation on workers’ rights. They have also dropped a pledge to work with international partners to provide $10bn (£6.42bn) a year for infrastructure in Africa.

Shadow international development minister Gareth Thomas told Left Foot Forward that Andrew Mitchell’s decision to drop these crucial commitments was “a massive step backwards for fairer trade for the world’s poorest farmers and producers”, adding:

“This relatively small amount of UK aid spending was helping some of the world’s most vulnerable in Africa, Asia and Latin America. It is a further signal that the coalition is failing to show real leadership on development.”

• Labour removed forced trade liberalisation as a requirement of UK aid – will aid be kept untied from commercial interests as promised in the coalition’s Programme for Government?

• Why drop support for aid for infrastructure, growth and trade when they provide long term routes out of poverty?

Climate Change

The Programme for Government said nothing on climate change finance. The leaked documents suggest they will keep Labour’s Fast Start climate finance commitment, but they are dropping a raft of other measures.

• How is the Coalition to address climate change, when it is dropping a strategic review on how to integrate climate change adaptation into our aid programmes? Or when it drops commitments to help developing countries develop low carbon technologies and reduce deforestation?

• Will future climate aid be additional – or is just going to be sucked from existing funds?

Conflict and humanitarian aid

• Why has support an International Arms Trade Treaty been dropped when the commitment was one promised in the coalition’s Programme for Government?

• Why is the Government to scrap support to the UN’s Central Emergency Response Fund (CERF) – just at a time when the UN is struggling to raise the funds needed to deal with the devastating floods in Pakistan?

The Government promised the aid budget would be ring fenced; if these commitments are to be cut, where and how then is the money to be spent?

Mitchell has said aid should be redirected from other projects to Afghanistan. He’s now dropped a commitment to allocate aid on the principles of “country income and population size”. So how is aid to be distributed in future, exactly how much will be redirected to Afghanistan?

And who is going to spend it? Will aid be re-directed to the MoD, or to the Home Office to pay for immigration costs and student visas, as OECD guidelines allow? Last month the Labour Campaign for International Development (LCID) wrote a letter to the Treasury to ask if the level of aid spent through DfID will remain at 88 per cent – they have still not replied.

Mitchell recently described one of his party’s manifesto commitments on aid as “the sort of thing you say in opposition then rather regret in government… ” some of the world’s most poorest people may yet feel the same about the coalition’s entire approach to aid.

• Donate to the Disasters Emergency Committee Pakistan floods appeal by logging on to http://tinyurl.com/pak-floods

New Statesman: Mitchell’s “silent withdrawal” of aid budget ringfencing

This from the New Statesman, full story here:

In a recent interview with the New Statesman, Mitchell admitted that the promise to ringfence the development budget was “the sort of thing you make in opposition, then rather regret in government.” As the autumn spending review looms, the pressure on departments to find spending cuts is growing, and it seems that even the supposedly protected development budget is not safe. Despite what Mitchell calls the “double duty” imposed on his department by its protected status, a silent withdrawal from the ringfencing policy seems to be underway.

Mitchell’s ‘ouput-based’ crusade risks trying DfID in knots

by David Taylor, for Left Foot Forward

Earlier today Left Foot Forward publishedleaked document from the Department for International Development showing a list of nearly 100 public commitments recommended for the chop. But behind the headlines, International Development Secretary Andrew Mitchell’s “focus on outputs and outcomes” raises two key questions.

Firstly, if close to 100 ‘input’ based commitments are to be dropped – what are the ‘output’ based commitments that will replace them if DfID is to avoid failing its commitments to the world’s poor?

The Coalition Programme committed DfID to support actions to achieve the Millennium Development Goals (MDGs) by prioritising aid projects that ensured access to clean water, sanitation, healthcare, and education. Fast forward two months, and DfID is proposing to drop commitments to spend £8.5 billion on education, £6 billion on health, and £1 billion on water and sanitation. And not just ‘inputs’ too – output-based commitments to help 8 million children go to school in Africa and 55 million people gain access to water and sanitation too.

So how exactly is the Coalition to make progress on the MDGs in the absences of these commitments? The signs are worrying. The upcoming UN Summit on the MDGs should be an opportunity to continue Britain’s leadership in this area. Yet despite repeated questioning in Parliament, the Coalition has failed to set out clear red-lines and objectives for the Summit, merely talking about how they seek agreement on an ‘action agenda’. In a Parliamentary Answer Andrew Mitchell admitted that he and Nick Clegg have only met once formally to discuss the Summit.

Secondly, why the obsession with “outputs”, when DfID is already considered a world leader in aid effectiveness?

Just last month a major independent review by the OECD praised DfID’s effectiveness under Labour. It said:

“[DfID has gained] national and international recognition for its professionalism and ability to deliver its aid programme effectively…

“The UK performs well against the key aid effectiveness indicators … DFID’s ability to implement its aid effectiveness commitments is supported by its decentralised model, and by significant use of general and sector budget support.”

In addition, the One campaign’s 2010 Data report outlined that “the UK leads all other G7 countries on ODA [aid] effectiveness”.

The new Coalition government risk putting this leadership at risk. A move towards ‘results’ based aid may seem appealing as pressure intensifies to demonstrate value for money, particularly when the aid budget is growing whilst other departments are cut. But as NGOs including Save the Children have pointed out, this can actually reduce aid effectiveness:

“[Results based aid] works best for interventions that involve a discrete output, such as the construction of a road, and less well for more complex structural changes – like civil service reform – where judgements about progress are more subjective.”

Today’s leaked documents are deeply worrying. DfID’s recommendation to drop key commitments is bad enough – but Mitchell’s push for ‘results’ is a crusade against straw men that risks trying DfID in knots, reducing the effectiveness of UK aid and failing to achieve the one thing he seems to care about most – value for money.