Developing Countries: Impact of Multinational Companies’ Financial Practices and UK Tax Policies

Lord Bishop of Derby Excerpts

Tuesday 11th December 2012 Lords Chamber

Asked By

[The Lord Bishop of Derby]

To ask Her Majesty’s Government what assessment they have made of the impact of multinational companies’ financial practices and the United Kingdom’s tax policies on developing countries.

[The Lord Bishop of Derby]

My Lords, I am very glad to have secured this debate on what has come to be known as tax justice. The point is to ask Her Majesty’s Government what assessment they are making of the impact of the policies of multinational companies in terms of taxation, the effect that that has on developing countries, and the impact of our own tax policies on developing countries. They are the issues that I am inviting your Lordships to discuss.

I declare an interest. I am a trustee of Christian Aid, which does a lot of work in this area. I put down for this debate a long time ago and suddenly it has become very topical, with Starbucks, Amazon and others bringing it to the fore. That should remind us that we are talking about citizenship—corporate citizenship, in this case. People recognise that as individuals and companies create wealth and income, it is only right that a proportion of that should be invested in the country in which it is created for the well-being of its resources and development.

We know that in our own country the cost of health, education and infrastructure is high and very difficult to maintain so everybody should make a contribution. That is why there is such an outcry about Starbucks and other companies. In developing countries, the need for those basic things is much greater. As rich countries are getting richer, poor countries are getting poorer. Therefore, the need for health, education and very basic infrastructure is enormous. It is estimated by Christian Aid and others that developing countries, through not collecting tax revenue that they might be expected to collect, are losing something like £160 billion a year. That is more than the whole flow of international aid into developing countries. The figures can be debated and disputed, but the point is that the scale of the loss of revenue through taxes not being paid in developing countries is massive at a time when there is enormous social need.

We should not be surprised that the Chancellor himself says that tax justice is a moral issue. We should not be surprised that concern comes from these Benches because, in the Christian tradition, Jesus and Paul make it very clear that there is a duty to pay taxes to contribute to what we would call the common good and the common life. Each country needs the resourcing to provide a common good and a common life. What happens is that multinational companies are able to create wealth in developing countries, but then shift the wealth often to secret tax havens and other locations, making very little contribution to the needs and resourcing of the country where the wealth is created.

There are a number of key issues that I want to offer to frame this debate. The first is about corporate citizenship. What is the moral duty on organisations and companies that gain wealth from being in a particular country if they shift it away to other places to minimise their tax payments and the wealth that was created does not contribute to the society that created it? Secondly, surely it is in the interests of multinational companies in developing countries to have more stable structures and a better health and education provision for the workforce, so that the businesses they are trying to run are better resourced. It would seem to be sensible for multinational companies to contribute more to the better infrastructure and resources of developing countries.

Thirdly, it must be in the interests of companies working in developing countries, and of our Government, that these countries are resourced well enough to be stable politically, economically and socially, because poverty creates instability. For companies operating in a country, and for Governments like ours, we want to encourage a resource base that allows stability and security. An increasing number of people in our society think that tax justice is a very high priority as a moral issue. In a recent poll, 58% of people in this country want tax justice to be recognised as a moral issue. The Prime Minister himself has said that as we go into the G8 next year he wants tax justice to be an important issue. People are recognising it as an issue. The question is: what are we going to do about it?

Within Parliament, the International Development Select Committee, which is a cross-party grouping, has recently produced a report about tax resources needing to be paid in developing countries to combat poverty, promote stability and create better conditions for business. The committee makes a number of specific recommendations which highlight what we could be doing and what we could be contributing towards. The first recommendation is that we should support country-by-country accounting for greater corporate transparency. In each country, we should try to gain information about profits, the payment of tax and where money is coming from. The second recommendation is that there should be an improved exchange of tax information. Many developing countries do not currently have the civil service infrastructure to gain this information or even to ask the questions that might help them discover what is going on. As we can develop information from companies that have their headquarters here then we might have information that can help other Governments. Many developing countries have multinational companies within them that are subsidiaries of major companies based in this country and in the City of London. We would therefore be in a position, as we gain more information and transparency about the movement of money and where tax is paid, to share it with other Governments. Thirdly, besides a new country-by-country accountancy for greater corporate transparency, besides improved exchange of tax information, the committee recommends that in our own tax practices we assess as we make policy the impact they will have on developing countries.

The Government have accepted the recommendations about capacity building in developing countries to handle matters of tax better but they have yet to give a clear steer on their response to the recommendation about the exchange of information that would help developing countries better perceive the wealth that is being created and ask for a proper share of it. I have a major concern that we are developing bilateral conversations with countries such as Switzerland about exchange of tax information. That may be helpful in the short term on some fronts for us domestically but it is creating agreements from which developing countries are excluded. It therefore makes it more difficult rather than easier for developing countries to know about the wealth that is being created within them and any tax revenues they may be able to claim a share of.

I welcome the fact that in 2013, through the G8, our Government are going to take a lead in this area. I welcome the Government’s commitment to reaching the 0.7% aid target. However, I want to offer two perspectives to frame this short debate. The first is the point I made about corporate citizenship. Many subsidiaries of companies that operate and extract wealth and resources from developing countries have a base in the UK. If we develop a sense of transparency here then our corporate citizenship that these companies must be challenged to step up to must include a governmental approach to citizenship that shares that information.

My second strand comes in the form of questions to the Minister. Will the Government consider provision in UK tax policy to assist developing countries to collect the taxes that they might be due? Would a Treasury Minister be willing to meet a delegation of interested people from this House and other agencies so that we can look at the impact of our tax policies on developing countries? What concrete steps will the UK Government take to tackle secrecy and the lack of transparency which allows this huge outflow of wealth and stops countries getting the deserts that they might claim? Finally, what steps will the Government take to consult global civil society, including the churches, to gather intelligence, recognise needs and see how they can be put together?

I look forward to contributions to the debate.