Why Indian tax evasion costs the UK

Though increased tax justice could help both developed and developing nations, it is unlikely we can

The UK Uncut protests have put tax justice on the agenda as never before. But, while we tend to see this as a problem of domestic policy -- equating amounts dodged in corporate tax to amounts cut from the public sector -- could it also hold the answer to reducing our aid budget, as well as decreasing developing nations' reliance on charity?

The UK's decision to continue aid to India, recently confirmed in its 2011 bilateral aid review by International Development Secretary Andrew Mitchell, has been controversial to say the least, especially given that other areas face deep spending cuts.

In these straitened financial times, countries across the spectrum are having their aid stopped, from incredibly poor nations such as Burundi, Niger, and Lesotho, to burgeoning economic powerhouses China and Russia. So why will aid continue to India at a cost of around £280m a year to the UK?

India has nuclear and space programmes, and has enjoyed above 8 per cent growth over the last four quarters. However, the argument for continued aid goes that poverty in India is clearly endemic, and is not improving despite the country's continued economic growth. The Multidimensional Poverty Index shows that of its population of roughly 1.1bn, there are still around 645m people living in poverty in India, 421m of whom live in the eight northern states alone.

In a sense, the UK could be seen as morally obliged to continue aid to India as a result of the effects of its colonial legacy. However, at the G20 Finance Ministers summit which took place in Paris on the 18th and 19th of February, the Indian minister Pranab Mukherjee pointed out that if tax evasion could be clamped down on, developing countries could begin to take full responsibility for their own affairs without the need for aid.

The extent of India's tax problem -- and the similarities it bears to that in the UK -- are illustrated by Vodafone. The company, targeted by UK Uncut protestors for dodging up to £4.8bn of taxes here, is also charged with evading £1.7bn of tax in India.

In a recent report entitled Illicit Financial Flows from Developing Countries: 2000-2009, Global Financial Integrity (GFI) estimated that India had lost a reported $104bn in tax evasion between 2000 and 2008. In another report, The Drivers and Dynamics of Illicit Financial Flows from India: 1948-2008, the GFI estimated that India had lost a total of $462 billion in tax evasion from independence in 1948 till 2008.

In an attempt to close this gap, India recently joined the Task Force on Financial Integrity and Economic Development. The Task Force advocates improved transparency and accountability in the global financial system, and the halting of actions like capital flight and transfer mispricing, which are developing countries' main problems with tax. India is now also pushing for a removal of the distinction between 'tax evasion' and 'tax fraud' which facilitates the evasion of tax, and impedes effective exchange of tax information between countries.

Nonetheless, India and many other developing countries still need the help of other G20 members in getting tax information exchange agreements, which would help in countering tax evasion. This would include pressuring the International Accounting Standards Board to act seriously on tax dodging. Such actions could then eventually lead to a reduction in the amount of aid required, halting charity and helping developing nations to become financially independent.

The UK itself seems to be unsure where it stands on tax evasion. Furthermore, with George Monbiot's claims that the government are making obscure changes to tax laws to benefit the rich, and Nicholas Shaxon's exposure of the UK's tax haven in the guise of the City of London Corporation, it is hard to imagine that developing nations, including India, will ever see their tax evasion rates decrease.

Liam McLaughlin is a freelance journalist who has also written for Prospect and the Huffington Post. He tweets irregularly @LiamMc108.

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The DUP scored £1bn for just ten votes – so why be optimistic about our EU deal?

By March 2019, we’re supposed to have renegotiated 40 years of laws and treaties with 27 ­countries.

If Theresa May’s government negotiates with the European Union as well as it negotiated with the Democratic Unionist Party, it’s time to cross your fingers and desperately hope you have a secret ­Italian grandfather. After all, you’ll be wanting another passport when all this is over.

The Northern Irish party has played an absolute blinder, securing not only £1bn in extra funding for the region, but ensuring that the cash is handed over even if the power-sharing agreement or its Westminster confidence-and-supply arrangement fails.

At one point during the negotiations, the DUP turned their phones off for 36 hours. (Who in Westminster knew it was physically possible for a human being to do this?) Soon after, needling briefings emerged in the media that they were also talking to Labour and the Lib Dems. In the end, they’ve secured a deal where they support the government and get the Short money available only to opposition parties. I’m surprised Arlene Foster didn’t ask for a few of the nicer chairs in Downing Street on her way out.

How did this happen? When I talked to Sam McBride of the Belfast News Letter for a BBC radio programme days before the pact was announced, he pointed out that the DUP are far more used to this kind of rough and tumble than the Conservatives. Northern Irish politics is defined by deal-making, and the DUP need no reminder of what can happen to minnows in a multiparty system if they don’t convince their voters of their effectiveness.

On 8 June, the DUP and Sinn Fein squeezed out Northern Ireland’s smaller parties, such as the SDLP and the Alliance, from the region’s Westminster seats. (McBride also speculated on the possibility of trouble ahead for Sinn Fein, which ran its campaign on the premise that “abstentionism works”. What happens if an unpopular Commons vote passes that could have been defeated by its seven MPs?)

The DUP’s involvement in passing government bills, and the price the party has extracted for doing so, are truly transformative to British politics – not least for the public discussion about austerity. That turns out to be, as we suspected all along, a political rather than an economic choice. As such, it becomes much harder to defend.

Even worse for the government, southern Europe is no longer a basket case it can point to when it wants to scare us away from borrowing more. The structural problems of the eurozone haven’t gone away, but they have receded to the point where domestic voters won’t see them as a cautionary tale.

It is notable that the Conservatives barely bothered to defend their economic record during the election campaign, preferring to focus on Jeremy Corbyn’s spending plans. In doing so, they forgot that many of those who voted Leave last year – and who were confidently expected to “come home” to the Conservatives – did so because they wanted £350m a week for the NHS. The Tories dropped the Cameron-era argument of a “long-term economic plan” that necessitated short-term sacrifices. They assumed that austerity was the New Normal.

However, the £1bn the government has just found down the back of the sofa debunks that, and makes Conservative spending decisions for the rest of the parliament fraught. With such a slim majority, even a small backbench rebellion – certainly no bigger than the one that was brewing over tax-credit cuts until George Osborne relen­ted – could derail the Budget.

One of the worst points of Theresa May’s election campaign was on the BBC ­Question Time special, when she struggled to tell a nurse why her pay had risen so little since 2009. “There isn’t a magic money tree that we can shake that suddenly provides for everything that people want,” the Prime Minister admonished. Except, of course, there is a magic money tree, and May has just given it a damn good shake and scrumped all the cash-apples that fell from it.

That short-term gain will store up long-term pain, if the opposition parties are canny enough to exploit it. In the 2015 election, the claim that the SNP would demand bungs from Ed Miliband to prop up his government was a powerful argument to voters in England and Wales that they should vote Conservative. Why should their hospitals and schools be left to moulder while the streets of Paisley were paved in gold?

The attack also worked because it was a proxy for concerns about Miliband’s weakness as a leader. Well, it’s hard to think of a prime minister in a weaker position than May is right now. The next election campaign will make brutal use of this.

Northern Ireland might deserve a greater wodge of redistribution than the Barnett formula already delivers – it has lower life expectancy, wages and productivity than the British average – but the squalid way the money has been delivered will haunt the Tories. It also endangers one of the Conservatives’ crucial offers to their base: that they are the custodians of “sound money” and “living within our means”.

Labour, however, has not yet quite calibrated its response to the DUP’s new-found influence. Its early attacks focused on the party’s social conservatism, pointing out that it is resolutely anti-abortion and has repeatedly blocked the extension of equal marriage through “petitions of concern” at Stormont.

This tub-thumping might have fired up Labour’s socially progressive supporters in the rest of the UK, but it alienated some in Northern Ireland who resent their politicians being seen as fundamentalist yokels. (Only they get to call the DUP that: not Londoners who, until three weeks ago, thought Arlene Foster was the judge who got sacked from Strictly Come Dancing.)

And remember: all this was to get just ten MPs onside. By March 2019, we’re supposed to have renegotiated 40 years of legislation and treaties with 27 other European ­countries. Ha. Hahaha. Hahaha.

Helen Lewis is deputy editor of the New Statesman. She has presented BBC Radio 4’s Week in Westminster and is a regular panellist on BBC1’s Sunday Politics.

This article first appeared in the 29 June 2017 issue of the New Statesman, The Brexit plague

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