Tax justice must be on the agenda for the post-2015 development goals

Anything else would be dodging the problem.

As the 2015 deadline approaches for achieving the "Millennium Development Goals" – the global benchmarks for tackling poverty – questions are growing louder about how far we’ve come, and what we do next. David Cameron is to co-chair a UN High-Level Panel on this "post-2015" agenda. At conference tables, across the blogosphere and in an avalanche of reports, donors and development experts are starting to haggle over the future of aid and development.  

Cameron has set out his stall already, describing his vision of a "golden thread" of development through tackling corruption; securing rights; and shifting focus from aid to economic growth, led by business and private enterprise. Cameron’s co-chairs, Presidents Susilo Yudhoyono of Indonesia and Ellen Johnson Sirleaf of Liberia, also want to look beyond aid to unlock wealth through “economic growth, trade, tackling corruption, effective government and open societies”.

There’s no denying that a re-think is needed. The world has profoundly changed since the MDGs were conceived in the 1990s. With persistent crises in wealthy economies, global aid levels fell last year for the first time since 1997. The UK government is still rightly committed to reaching the UN agreed target of spending 0.7 per cent of national income on aid, and though it will remain vital for many years to come, it’s high time to also look for new resources to fight poverty.

At the same time, we’ve witnessed a seismic shift in the geography of economic growth and potential. It’s now clear that Asian and African economies will continue to grow far faster than in Europe and North America. The boom is far from universal, but nor is it confined to the new "big beasts" of the global economy. In the last decade some sub-Saharan African countries have experienced growth rates higher than Brazil and China – but with health, education and incomes lagging far behind in many places. 

Cameron and his co-chairs rightly acclaim the world-changing potential of this economic transformation – but the poorest citizens are yet to see its impact.  Certainly efforts to tackle poverty must draw more from developing countries’ own growth and resources, far more reliable than volatile aid flows. But the global development challenge is now neither simply to increase aid, nor just to help developing countries to attract private investment and promote growth. It is to convert the rewards of investment and growth into jobs, incomes, health and education for citizens. 

This can only happen if developing countries are able to raise their own revenue fairly, and spend it equitably. Financing the fight against poverty requires companies, investors and wealthy individuals to pay their taxes due. Yet the OECD has estimated that developing countries lose more to tax havens than they receive in aid. ActionAid estimates that just one multinational company we investigated, the FTSE100 drinks giant SABMiller, has avoided £20m a year in taxes across Africa and Asia – enough to put an extra 250,000 children in school – helped by shifting profits through a network of companies in Switzerland, Mauritius and the Netherlands. 

Most developed countries collect between 30 and 50 per cent of their GDP in tax revenue. In sub-Saharan Africa the average is just 17 per cent. How can we help bridge the gap? Aid can help. Assistance to revenue authorities in developing countries to combat tax dodging is some of the most cost-effective aid imaginable. The Rwanda Revenue Authority was set up in 1998 with the help of a £20m grant from the UK – the same amount it now collects in revenues every four weeks. Equally vital is funding to help citizens hold government spending to account, scrutinising budgets and social programmes and ensuring that they’re meeting the needs of the poorest. 

Closer to home, the IMF, UN, World Bank and OECD have all urged developed countries to make sure changes to their own tax regimes don’t damage those of developing countries. Yet the Finance Bill currently going through Parliament threatens to open up a major new loophole in the UK’s 'Controlled Foreign Companies’ rules, making it easier for multinational companies to shift profits into tax havens. ActionAid estimates this rule change is likely to cost poor countries £4bn a year, on top of nearly £1bn to the UK’s public finances annually. This flies in the face of the need to support developing countries’ efforts to become dependent of aid.

And at a global level, the fight against international tax avoidance has slipped steadily down the agenda of the G8 and the G20 over the last 18 months, despite its potential to stabilise public finances in the developing and the developed world alike. The "post-2015" re-think is an opportunity to put it back on the agenda. At stake is the future of the fight against poverty. 

High life - but at what cost? SABMiller has avoided tax across Africa. Photograph: Getty Images

Mike Lewis is a tax justice campaigner at ActionAid

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Let's turn RBS into a bank for the public interest

A tarnished symbol of global finance could be remade as a network of local banks. 

The Royal Bank of Scotland has now been losing money for nine consecutive years. Today’s announcement of a further £7bn yearly loss at the publicly-owned bank is just the latest evidence that RBS is essentially unsellable. The difference this time is that the Government seems finally to have accepted that fact.

Up until now, the government had been reluctant to intervene in the running of the business, instead insisting that it will be sold back to the private sector when the time is right. But these losses come just a week after the government announced that it is abandoning plans to sell Williams & Glynn – an RBS subsidiary which has over 300 branches and £22bn of customer deposits.

After a series of expensive delays and a lack of buyer interest, the government now plans to retain Williams & Glynn within the RBS group and instead attempt to boost competition in the business lending market by granting smaller "challenger banks" access to RBS’s branch infrastructure. It also plans to provide funding to encourage small businesses to switch their accounts away from RBS.

As a major public asset, RBS should be used to help achieve wider objectives. Improving how the banking sector serves small businesses should be the top priority, and it is good to see the government start to move in this direction. But to make the most of RBS, they should be going much further.

The public stake in RBS gives us a unique opportunity to create new banking institutions that will genuinely put the interests of the UK’s small businesses first. The New Economics Foundation has proposed turning RBS into a network of local banks with a public interest mandate to serve their local area, lend to small businesses and provide universal access to banking services. If the government is serious about rebalancing the economy and meeting the needs of those who feel left behind, this is the path they should take with RBS.

Small and medium sized enterprises are the lifeblood of the UK economy, and they depend on banking services to fund investment and provide a safe place to store money. For centuries a healthy relationship between businesses and banks has been a cornerstone of UK prosperity.

However, in recent decades this relationship has broken down. Small businesses have repeatedly fallen victim to exploitative practice by the big banks, including the the mis-selling of loans and instances of deliberate asset stripping. Affected business owners have not only lost their livelihoods due to the stress of their treatment at the hands of these banks, but have also experienced family break-ups and deteriorating physical and mental health. Others have been made homeless or bankrupt.

Meanwhile, many businesses struggle to get access to the finance they need to grow and expand. Small firms have always had trouble accessing finance, but in recent decades this problem has intensified as the UK banking sector has come to be dominated by a handful of large, universal, shareholder-owned banks.

Without a focus on specific geographical areas or social objectives, these banks choose to lend to the most profitable activities, and lending to local businesses tends to be less profitable than other activities such as mortgage lending and lending to other financial institutions.

The result is that since the mid-1980s the share of lending going to non-financial businesses has been falling rapidly. Today, lending to small and medium sized businesses accounts for just 4 per cent of bank lending.

Of the relatively small amount of business lending that does occur in the UK, most is heavily concentrated in London and surrounding areas. The UK’s homogenous and highly concentrated banking sector is therefore hampering economic development, starving communities of investment and making regional imbalances worse.

The government’s plans to encourage business customers to switch away from RBS to another bank will not do much to solve this problem. With the market dominated by a small number of large shareholder-owned banks who all behave in similar ways (and who have been hit by repeated scandals), businesses do not have any real choice.

If the government were to go further and turn RBS into a network of local banks, it would be a vital first step in regenerating disenfranchised communities, rebalancing the UK’s economy and staving off any economic downturn that may be on the horizon. Evidence shows that geographically limited stakeholder banks direct a much greater proportion of their capital towards lending in the real economy. By only investing in their local area, these banks help create and retain wealth regionally rather than making existing geographic imbalances worce.

Big, deep challenges require big, deep solutions. It’s time for the government to make banking work for small businesses once again.

Laurie Macfarlane is an economist at the New Economics Foundation