Calling time on tax havens

Fifty pound notes

Margaret Hodge deserves real recognition for the way that she has led the political charge on tax dodging.  Her forensic questioning of Starbucks, Google and Amazon executives has left many of us agog as the companies make a whole range of outlandish claims about why their tax affairs are so. Public anger is at boiling point – polling shows that some 80 per cent demand more action, regardless of which political party they vote for.

For the Labour party, things have moved on significantly since I last wrote for Progress calling for Labour to establish a muscular narrative on this subject. Ed Miliband has made an important intervention and Ed Balls and Catherine McKinnell have upped the pressure on the government, which has seen tax dodging race to the top of the political agenda.  The launch of the Progress Tackle Tax Avoidance Charter is an important contribution to what needs to be done at a domestic level.

Internationally, in just over a fortnight, David Cameron has promised that he will lead G8 action on tax dodging. Whether he is doing the groundwork to galvanise an outcome with the required ambition remains to be seen. One of the points that Ed Miliband made recently was, ‘If everyone approaches their tax affairs as some of these companies have approached their tax affairs we wouldn’t have a health service, we wouldn’t have an education system.’ In this, he makes a very important point – for this is exactly the case in many of the world’s poorest countries.

The appalling truth is that developing countries lose three times more money to tax dodging than they receive in aid every year. Imagine what a difference that money could make if it was funding schools, hospitals and roads across Africa rather than being spirited away to the offshore accounts of multinational companies. It could be transformative – helping poor countries to become self-sufficient and stand on their own two feet.

But huge changes are needed if this is ever to happen. As the Progress Charter recognises, companies need to operate much more transparently, showing where they actually do business and pay tax around the world. And as part of domestic action, the UK must deal with the 10 tax havens – some of the crown dependencies and overseas territories – that it is responsible for. Tax havens are the life support system for tax dodging; it simply could not happen without the secrecy they provide. They play no useful role in the global economic system and act as leeches, sucking away the vital funds needed for public services in developed and developing countries alike.

At ActionAid, we found that the taxes lost to Zambia from the tax haven transactions of just one UK company, Associated British Foods, was a sum of money 19 times larger than the amount of UK aid given to Zambia to tackle hunger – or enough money to send 48,000 Zambian children to school each year.  Scandalous.

So tax havens must be given no choice but to clean up their act and start to play by the same rules as other countries. In the case of the 10 UK havens, this means forcing them to join the existing multilateral convention by which countries exchange tax information. This would help rich and poor countries alike to claw back some of the funds lost to them. But it also means a landmark new agreement at the G8 which strikes a terminal blow to tax havens across the world. Crucially, poor countries must be part of this from day one. If, as ActionAid fears, the G8 were to strike a deal with tax havens which left poor countries out in the cold, then this would be a victory for self-interest and continued subordination of the world’s poor, rather than progress towards justice.

As an international poverty campaigner, I know from experience that it’s not every day that developed and developing countries face a common scourge in the way that they do with tax avoidance and the structures like tax havens that facilitate it. We must be clear that domestic and international action are two sides of the same coin. The G8 must act in a couple of weeks’ time but that is just the beginning, and not the end, of what is truly needed.

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Melanie Ward is head of advocacy at ActionAid UK. She tweets @melanie_ward

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Photo: taxbrackets.org

Join Margaret to discuss Tackling tax avoidance: How can the government get a grip? at 6pm, Monday 3 June in the House of Commons.

Margaret Hodge MP Chair, Public Accounts Committee
John Woodcock MP Progress vice chair
Melanie Ward ActionAid
Chair Oona King Progress vice chair

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