Tax dodging by foreign companies risks rendering aid pointless

The amount lost to foreign countries through tax dodging far outstrips the aid budget – and it could get worse.

From caravans, to pasties and grannies, the tax U-turns performed by the Government after the Budget last March have been well documented. But a much more fundamental shift in tax code, which will make it far easier for the biggest multinationals to make even greater use of tax havens has gone almost unnoticed.

Changes to obscure sounding Controlled Foreign Company (CFC) rules radically weaken the UK’s anti-tax haven abuse regime. Not only will they cost the UK almost £1 billion in lost revenues, ActionAid estimates they could also cost developing countries £4 billion a year.

Following a nine month investigation into the importance of tax revenues for developing countries, the cross-party International Development Select Committee are today calling on the Government to drop its CFC changes if a Treasury assessment finds that it will do harm.

Sir Malcolm Bruce MP, Chair of the Committee, argued that "it would be deeply unfortunate if the Government’s [aid] efforts were undermined by its own tax rules." A loss of £4bn is roughly half the British aid budget.

At present, the Treasury refuses to undertake an impact assessment – in spite of recommendations from IMF, World Bank and UN, alongside calls from thousands of ActionAid supporters around the country.

The International Development Committee (IDC) report also recognises the fundamental importance of helping developing countries to increase their own tax revenues, enabling them to put more teachers in schools and nurses in hospitals. Ultimately, improving their ability to collect tax will enable poor countries to end aid dependency.

The committee calls on the Department for International Development to give a higher priority to helping the developing world improve its tax base. Ministerial oversight is vital to ensure that future moves by the Treasury don’t come at the expense of some of the world’s poorest countries.

The report echoes the calls of tax justice campaigners for much greater transparency in the way both multinational companies and tax havens operate. In particular the report highlights the need for the Treasury to press the Channel Islands and the Isle of Man to make the financial accounts of subsidiary companies registered there publicly available.

The OECD currently estimates that developing countries lose three times more to tax havens than they receive in aid each year. Any measures which help prevent this vast out-flow of vital resources could have a transformative effect on the lives of millions of poor people.

The challenge to Government laid down by the IDC is clear. The question is – will they listen?

Uncanny Valley: George Osborne and Mitt Romney spoke during the latter's visit to Britain. Photograph: Getty Images

Chris Jordan is a Tax Justice Campaigner for ActionAid

Photo: Getty
Show Hide image

The rise of the green mayor – Sadiq Khan and the politics of clean energy

At an event at Tate Modern, Sadiq Khan pledged to clean up London's act.

On Thursday night, deep in the bowls of Tate Modern’s turbine hall, London Mayor Sadiq Khan renewed his promise to make the capital a world leader in clean energy and air. Yet his focus was as much on people as power plants – in particular, the need for local authorities to lead where central governments will not.

Khan was there to introduce the screening of a new documentary, From the Ashes, about the demise of the American coal industry. As he noted, Britain continues to battle against the legacy of fossil fuels: “In London today we burn very little coal but we are facing new air pollution challenges brought about for different reasons." 

At a time when the world's leaders are struggling to keep international agreements on climate change afloat, what can mayors do? Khan has pledged to buy only hybrid and zero-emissions buses from next year, and is working towards London becoming a zero carbon city.

Khan has, of course, also gained heroic status for being a bête noire of climate-change-denier-in-chief Donald Trump. On the US president's withdrawal from the Paris Agreement, Khan quipped: “If only he had withdrawn from Twitter.” He had more favourable things to say about the former mayor of New York and climate change activist Michael Bloomberg, who Khan said hailed from “the second greatest city in the world.”

Yet behind his humour was a serious point. Local authorities are having to pick up where both countries' central governments are leaving a void – in improving our air and supporting renewable technology and jobs. Most concerning of all, perhaps, is the way that interest groups representing business are slashing away at the regulations which protect public health, and claiming it as a virtue.

In the UK, documents leaked to Greenpeace’s energy desk show that a government-backed initiative considered proposals for reducing EU rules on fire-safety on the very day of the Grenfell Tower fire. The director of this Red Tape Initiative, Nick Tyrone, told the Guardian that these proposals were rejected. Yet government attempts to water down other EU regulations, such as the energy efficiency directive, still stand.

In America, this blame-game is even more highly charged. Republicans have sworn to replace what they describe as Obama’s “war on coal” with a war on regulation. “I am taking historic steps to lift the restrictions on American energy, to reverse government intrusion, and to cancel job-killing regulations,” Trump announced in March. While he has vowed “to promote clean air and clear water,” he has almost simultaneously signed an order to unravel the Clean Water Rule.

This rhetoric is hurting the very people it claims to protect: miners. From the Ashes shows the many ways that the industry harms wider public health, from water contamination, to air pollution. It also makes a strong case that the American coal industry is in terminal decline, regardless of possibile interventions from government or carbon capture.

Charities like Bloomberg can only do so much to pick up the pieces. The foundation, which helped fund the film, now not only helps support job training programs in coal communities after the Trump administration pulled their funding, but in recent weeks it also promised $15m to UN efforts to tackle climate change – again to help cover Trump's withdrawal from Paris Agreement. “I'm a bit worried about how many cards we're going to have to keep adding to the end of the film”, joked Antha Williams, a Bloomberg representative at the screening, with gallows humour.

Hope also lies with local governments and mayors. The publication of the mayor’s own environment strategy is coming “soon”. Speaking in panel discussion after the film, his deputy mayor for environment and energy, Shirley Rodrigues, described the move to a cleaner future as "an inevitable transition".

Confronting the troubled legacies of our fossil fuel past will not be easy. "We have our own experiences here of our coal mining communities being devastated by the closure of their mines," said Khan. But clean air begins with clean politics; maintaining old ways at the price of health is not one any government must pay. 

'From The Ashes' will premiere on National Geograhpic in the United Kingdom at 9pm on Tuesday, June 27th.

India Bourke is an environment writer and editorial assistant at the New Statesman.

0800 7318496