Tax (Developing Countries)

Alan Duncan Excerpts

Thursday 17th January 2013 Westminster Hall

[Rushanara Ali (Bethnal Green and Bow) (Lab)]

I congratulate the Chair of the International Development Committee, the right hon. Member for Gordon (Sir Malcolm Bruce), on opening the debate. I commend the work of the Committee members on this important report and its insights into and contribution to the subject of tax in developing countries. The Opposition very much welcome the nature of the report and its hard-hitting recommendations. Alongside the recommendations already adopted by the Government, we hope that the Minister and her colleagues will look hard and closely at the others discussed by hon. Members, including my hon. Friend the Member for Birmingham, Northfield (Richard Burden), which have the potential to make a significant contribution if furthered by the UK Government.

Government Members and my hon. Friend have highlighted in the debate and through their work in the Committee and elsewhere that tax and public finance are the backbone of governance, state-building and effectiveness in any society. They are a vital component of public accountability and democracy. If the international community can do one thing to transform positively the politics and governance of developing countries, enabling them to become self-sufficient, it is to support efforts to collect the correct tax revenue and to ensure that it is spent properly, free from corruption.

The right hon. Member for Gordon mentioned a number of examples of progress being made thanks to investment over a number of years by DFID and others. Countries such as Rwanda and Tanzania, among others, give us signs of hope about how much progress can be made if we make the right investments and help with capacity building, supporting those countries to make the transformative changes to build their states and systems so as to be able to generate the kind of revenues to which they are entitled but which are currently being lost. As made clear by the Committee, we can therefore genuinely look forward to the opportunity for developing countries to be much less dependent on aid, which is surely in the best interests of the countries concerned, as well as of those countries contributing to the aid budget. It would not mean that developing countries will not need our support, but it would mean that they become more independent and self-sufficient, which is exactly what people in those countries want. Our duty is to ensure that we make the contribution and the changes, and to show the leadership required to enable that to happen.

A legitimate and accountable system for tax revenue is therefore critical to alleviating poverty, which my hon. Friend the Member for Birmingham, Northfield highlighted eloquently in his speech. He also spoke highly of the contributions of campaigning organisations such as Christian Aid, and I want to mention the campaign efforts of ActionAid, which has done a great deal of work with political parties across the board and with the Committee.

The report points out that in excess of $13 trillion may be hidden in tax havens and that the estimated cost to developing countries per annum is likely to be around £160 billion, a figure far exceeding the global aid budget. Imagine what could be achieved if that money was available to deal with global poverty.

I want to focus on a number of themes, some of which have already been discussed. I shall pick out three key recommendations of the Committee. I want to discuss controlled foreign companies and the Government’s response to the Committee’s recommendation of UK candidateship of the extractive industries transparency initiative. Hon. Members have raised both issues, but I have a few questions. The third area is the Government’s response to the Committee’s recommendation on the Commonwealth Development Corporation.

The report addresses the Government’s relaxation of their anti-tax-haven law—the controlled foreign companies rules. As my hon. Friend said, the Prime Minister demanded bold steps from his fellow G8 leaders when the UK took over its presidency. He pledged that the UK chairmanship would, among other things, focus on tackling tax dodging. However, the current reforms to CFC rules do not meet the Government’s rhetoric. Although we appreciate the need to reform those rules to provide certainty and an attractive climate for businesses based in the UK, there are, as the report and hon. Members here today pointed out, real concerns among Members of Parliament and organisations that campaign on the issue that that will lead to a setback and damage the prospect of developing countries being able to raise the sort of revenue that they have raised in the past.

Action Aid said of the changes that

“a significant deterrent that discourages UK-based companies from shifting profits from developing countries to tax havens”

will be lost and estimates that reforms may cost developing countries as much as £4 billion. If that is true, as many have indicated is likely, it is a scandal that the Government will preside over the change, and shameful that they will not consider the matter and take on board the Committee’s recommendation to carry out the impact assessment. That recommendation was also made by my party during discussion of the 2012 Finance Bill when an amendment was tabled to ask the Government to reconsider.

Will the Minister work with her colleagues in the Treasury and consider the matter again? As hon. Members have said today, the climate is right, and the opportunity exists—the British public are becoming increasingly aware of the dangers and immorality of tax avoidance as well as tax evasion—for the Minister to work with her colleagues to ensure that the change does not damage prospects for people in developing countries and that the loss of revenue does not happen. The sum is £4 billion, although the Government dispute that, but even if it is less it is a significant sum, which could make a difference to some of the poorest people in some of the poorest countries in the world.

The hon. Member for Mid Derbyshire (Pauline Latham) raised the important issue of the EITI, and I want to reiterate her point. Given the leadership role taken by the former Labour Secretary of State, Clare Short, and others—the British Government are recognised as having achieved this important development—it is right and it is time that the Government signed up to the EITI. We would show not only that we were the initiator, but that successive Governments have led by example, and this seems to be an opportune time to do so. Will the Minister work with her colleagues to reconsider the recommendation, and move from disagreeing to agreeing?

The right hon. Member for Hazel Grove (Andrew Stunell) referred to a key recommendation on CDCs, and it is clear that there are inconsistencies in what the Government are saying. Surely it is more appropriate and sensible to put serious weight behind transparency, and this is an important way in which to do so. Will the Minister say whether the Government will reconsider? The issue is tied in with country-by-country reporting by multinationals, not only in the extractive industries, but multinationals generally. Many are increasingly under public scrutiny for some of their actions, which people believe are unethical, and are attempting to improve their behaviour. The Government should show leadership, and one way of doing so is to increase country-by-country reporting and transparency. I hope that the Minister will look at the matter again, consider the views represented in the Chamber and expressed by the Select Committee, and rethink the Government’s position.

To reiterate a point that others have made, this issue is critical, but some people will say that it is not the most—

[The Minister of State, Department for International Development (Mr Alan Duncan)]

Sexy.

[Rushanara Ali]

The Minister used the word, and I will not repeat it. The issue is significant. If we get it right, tax and revenue raising for development will be a major contribution. It is not a magic bullet, but if there were something close to one, this is it. The Select Committee’s contribution in pulling the evidence together and highlighting the scope for action comes at an important moment. The public are leading the debate through their campaigning in the domestic arena, and people are increasingly recognising the immorality of tax evasion and avoidance, and this is an opportunity for the Minister and her Government to consider how to close those tax loopholes and to ensure that countries receive the revenue that is generated but that they are losing. The Government must provide the necessary support to make that happen. I hope that she will take on board the questions and issues that have been raised today.