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.

Mitchell in bother

The Guardian has an article on its website about Andrew Mitchell stepping in to help have a trading ban lifted in Ghana, despite it being outside his remit. The firm had been banned from trading for allegedly smuggling cocoa.

This would appear to be evidence that the International Development Secretary has overstepped the mark. It remains to be seen what will come of it.

You can read the full article here: http://www.guardian.co.uk/politics/2010/oct/31/andrew-mitchell-ghana-cocoa-armajaro

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.

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.

Questions grow over DfID’s ‘ring-fenced’ budget

Rumours over the security of DfID’s budget have been mounting over the last few weeks. Today in the Guardian, Madeleine Bunting raises questions over the pressure coming from the Right for Cameron’s government to change their approach to the international development budget.

The Coalition Government came to power promising to ring-fence international development spending, yet doubts have already begun to emerge over the ways in which money will be spent and, now, whether the pressure to cut will overwhelm Cameron and his team.

Such a move would not only run counter to 13 years of progressive aid policy, but jeopardise the UK’s reputation as a leader in international development.

Interestingly, Bunting notes that:

“The best defence of DfID he can’t – won’t – use. It’s a department which went from strength to strength under a succession of passionately committed ministers under Labour and, now not only has a much bigger budget than the Foreign Office but has assumed much of the prestige and status, both at home and abroad, of its former parent department. Last week the Organisation of Economic Co-operation and Development (OECD) gave a stunning end-of-term report, praising DfID for its “capable, mission-driven and decentralised development ministry … [it] makes continuous efforts to improve its efficiency and effectiveness”, and has achieved “national and international recognition for its professionalism and ability to deliver its aid programme”.”

Voices from the Right might, therefore, win over. But this will be nothing short of a betrayal of the world’s poor. The truth of the matter is:

“DfID can point to a string of achievements. British aid pays for 5 million children in primary school, a comparable figure to the number of British primary school children for a fraction of the cost, just 2.5%. Or take the much smaller but fascinating example of M-Pesa, the mobile phone money-transfer scheme launched by a £1m DfID matching grant with Vodaphone. In its first three years in Kenya it expanded to 8 million users; now it is being adopted in countries all over the world, including Afghanistan, to transfer small amounts of money for those who don’t have sufficient resources to be served by the formal banking system. DfID has dozens such stories of how aid has to be part of any sensible strategy for Britain’s role in the world, trying to help countries break out of a poverty trap to achieve prosperity and stability. The sums involved are tiny: DfID’s total budget is £7bn, only 2% of total government spending; it’ a fraction of what the country spends on gambling, alcohol or defence.”

Calls to scrap DfID’s budget, or the Department itself, have come from some notable Tory grandees, but they are, quite simply wrong. Andrew Mitchell would do well to ignore them. 

You can read the article in full on The Guardian website.

UPDATE: There is a second article in The Guardian today calling on the Government to protect aid. According to Larry Elliott, Labour’s legacy is strong: “It was not just that Labour worked hard at home and abroad to push for debt relief and a doubling of G8 aid, it was also that Brown and Tony Blair changed the political weather when it came to development.”

Foreign Office “planning a raid on DfID’s cash and on its turf”

The Financial Times website today carries a disturbing story on the future of DfID funding. This comes just weeks after an election when the now-Government pledged to ringfence DfID funding and that principle’s affirmation in the Coalition Document.

According to Sue Cameron at the FT, the Foreign Office is “planning a raid on [DfID’s] cash and on its turf.” She says:

“They talk of a “bleed” of Difid money to teams that include FCO and Defence Ministry people – not least in places like Iraq and Afghanistan. “Nothing will be taken out of the Difid budget,” one diplomat assured me. “It’ll just be spent on things over which Difid has no control.” And it is hard to see what Difid can do about it.”

LCID has already warned of the dangers of diverting DfID money that would better be spent on Overseas Development Aid, in a letter printed in the Guardian. Yet, Sue Cameron states that Andrew Mitchell, Secretary of State for International Development, is only free to act in his role “within the strategy set by Hague.”

Every penny diverted from poverty alleviation causes harm. It is becoming ever-clearer that the pre-election promise to ringfence the development budget was a false one. As the new Government’s policies come into action, LCID will be scrutinising them, to hold the Government to account on its poverty alleviation promises.

The full article can be found on the FT website.

By Tim Nicholls