British aid joins up its thinking

The UK's parliament has produced a new report entitled Aid Under Pressure: Support for Development Assistance in a Global Economic Downturn.

The language and content of this document marks a remarkable turnaround from the recent past, when aid was about focusing on getting (relatively small amounts of) money into developing countries, and ignoring the (much larger amounts of) money coming out. So we are delighted to see these comments, which show joined-up thinking at last. First, as we have long noted:

"Tax revenue provides a long-term and sustainable source of funding. Taxation also facilitates financial planning, and plays an important role in strengthening good governance. Building the capacity of countries to raise their own revenue through taxation is therefore essential if they are to reduce their dependence on aid."

And then this.

"The ending of tax havens is necessary, not only for reasons of justice but also to promote good governance and robust management of public finances in poor countries."

Excellent, excellent.

"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."

This is so good that we would have been proud to have written it ourselves. And:

"Whilst the maintenance of aid flows is vital, developing countries must also be assisted to derive the maximum benefit from their own resources. They lose billions of dollars each year to tax evasion by international companies. The strong message on enforcement of international tax standards sent out by G20 countries at the London summit was welcome."

Yes, good, though as we've noted, we are wary of the note taken by the G20 of the OECD standards, which are far too weak. And now a welcome confession from the UK:

"The challenge now is to ensure that this agreement is implemented. The UK has a clearresponsibility to address this issue in relation to those British Overseas Territories which are tax havens. The Foreign and Commonwealth Office must assist these territories to conform to international standards as a matter of urgency."

There is more. Try this.

"The G20 countries committed themselves to developing proposals by the end of 2009 “to make it easier for developing countries to secure the benefits of a new cooperative tax environment.”202 The Secretary of State emphasised that the G20 agreement represented “an opportunity which I think we must seize [...] to ensure that more of those revenues are kept within developing countries”

Very good!

"Developing countries suffer disproportionately from the existence of tax havens which prevent them receiving much-needed tax revenue which they should derive from economic activity within their borders. . . .The UK has an opportunity to make amends for its previous failure to address this issue by taking urgent steps now to ensure that British Overseas Territories cease to be tax havens. We do not believe that the Prime Minister writing to the territories concerned is sufficient; more direct action must be taken. We request that, in response to this Report, the Department provides us with an update on progress with the FCO’s work with Overseas Territories towards their achievement of the OECD’s taxation standards."

This is tremendously welcome. This, one might think, represents real, fundamental change.

Not so fast, however. The British government is in utter disarray right now. As we have noted, the opposition Conservative Party, currently licking their lips at the prospect of taking power, which seems possible very soon and likely within the year, are the party that is most supportive of Britain's offshore role.

What has happened here is an outbreak of information and understanding on the offshore issue - whereas nobody previously thought about it much. This is more than we could have hoped for even a year ago. But let's not forget that real and long-lasting change has a long way - a very very long way - still to go.

One last thing. The report also mentions that:

"There are varying estimates of the value of revenue lost to developing countries through tax evasion: Oxfam have estimated it to be $120 billion while Christian Aid has stated that poor countries lose $160 billion a year in tax evasion by corporations. When we questioned the Secretary of State about this in January he said that “the veracity of some of these figures was [...] open to dispute”, but that the Department was “already working with the Treasury to see whether we can get to a clearer evidence base to establish figures in which we would have confidence.” When he appeared before us again in April, Mr Alexander told us that he still could not give us a figure for the taxes lost to developing countries but that “real progress has been made”.

We are happy about that. One of the main purposes of our issuing estimates of the scale of the problem is to provoke debate and research, where none existed before. We are glad that is happening. We hope, and will insist, that the methodology for calculating figures that emerge in future are outlined in a fully transparent manner.