Tax (Developing Countries)

Lord Stunell Excerpts

Thursday 17th January 2013 Westminster Hall

[Andrew Stunell (Hazel Grove) (LD)]

I am delighted to take part in this debate. I have been away from the real world for the past two and a half years, but I have now returned, which gives me an opportunity to join in with some of these things that have wider significance.

Before the last general election, I spent an interesting and helpful year on the Select Committee on International Development. I remember a number of reports from that time, but two seem relevant to the report before us. One was “Aid Under Pressure”, which considered the pressures of the worldwide downturn and climate change. That report stated that development needs in the third world are as pressing now as they ever have been and that significant problems must be confronted. The second relevant report was on urbanisation, which documented the fact that we are now at the tipping point where half the world’s population lives in urban areas. We live not in an agricultural world, but an urban one. In many cases, there are far more small-scale enterprises with productive outputs, with the possibility of their raising revenue for public services. The challenges of doing that are immense, because so many of those enterprises are informal and the land that they are on is often held informally. I remember visiting Nigeria and looking at a DFID project to facilitate the registration of land rights. Property cannot be taxed if the owner is not known. A business cannot be made to pay tax on anything if its existence is not known. The report is a logical follow-through on that, considering the next steps that need to happen.

In so far as establishing my credentials goes, I should say that I, too, met the Christian Aid bus when it came to my constituency. Perhaps hon. Members present who did not meet the bus should draw that to our attention!

Successive UK Governments should take pride in the achievements of the UK in supporting and promoting international development and in the aid targets we have set ourselves and are now, under this Government, achieving. But as the hon. Member for Birmingham, Northfield (Richard Burden) said eloquently, not all our constituents think we are on the right track. They are critical of many aspects of our aid programme. It is therefore important not only that we assert the reasons for having an international development programme, but that we require countries that we are helping to have systems of governance, public administration and taxation that are robust enough to support development in their own right, as far as they can. This document’s recommendations seem to point in the right direction. I will make some points about that in a moment.

All this has to be underpinned by a much wider understanding inside the UK about why it is important to support international development. There is a moral case—many people, perhaps including those on the Christian Aid bus, would put that well at the front as the best reason—but we must recognise that for many of our constituents the moral case is ambiguous at best and, at a time when our economy and public services are under pressure, it is not self-evident in every respect.

We need to make the utilitarian argument as well. If we want less worldwide conflict and migration and we want growth in UK trade and more exports and jobs, we need a peaceful, well-developed world. It is in the UK’s interests to support that and to encourage it to happen.

Of course, those who would criticise the international aid programme would always centre on the criticism that says that it is all wasted and that corruption and, as this report documents, evasion mean that the people there are not doing all they can to help themselves. I go strongly on the moral case, but I always think it is important to say to my constituents that there is an essential utilitarian case for aid as well.

This document goes some way to showing that you can have your cake and eat it. Part of the aid and development programme is about helping countries stand on their own feet and showing how our aid and development programme, and the UK’s policies, can contribute to that desirable aim of having free-standing, self-supporting third world countries that can prosper without the need for subventions from this country or others.

The report contains 16 recommendations. The Government have accepted seven, partially accepted six and disagreed—they do not say “rejected”, which would be too abrupt—with three. Seven yeses, six maybes and three noes. Not all of the 16 recommendations are of equal significance or importance in terms of getting us in the right direction. I am delighted that the Government have accepted seven. Having looked at the recommendations and the Government’s responses, there is nothing that I need to comment on. However, I am sorry about the other nine recommendations and I want to spend a little bit of time picking out one or two of those.

On the partial agreement on getting sound, transparent tax regimes, recommendation 4 states that the Treasury should be pressing Crown dependencies to meet those standards. Clearly, what is good enough for the United Kingdom ought to be good enough for our Crown dependencies as well. The Government’s somewhat wishy-washy response about whether they thought it was a good thing, an achievable thing or anything to do with them was a little bit disappointing. I hope that my hon. Friend the Minister, whom I also welcome to her role, will be a little bit more robust than the Government have been in their formal response and will say that this transparency question is important.

The Government say that they do not want to go any further than the global forum concept, but that does not seem sufficient. They have described it as not being the most fruitful way forward. I encourage my hon. Friend the Minister to tell us what is the most fruitful way forward and how the British Government intend to adopt that, instead of the Committee’s recommendation. Obviously, if the recommendation is being rejected because the Government want to go further, I am with them on that. But it is a good idea for them to spell that out to us more solidly.

The Government disagree with recommendation 6, relating to the UK getting something comparable to the US Foreign Account Tax Compliance Act, saying that they are

“fully committed to tackling tax evasion and”

see

“transparency and information exchange as key tools but”

do not think that this is an appropriate means to achieve it. There is some wording that I am almost certain the Minister did not put in—it sounds as though Treasury civil servants added it—saying that that Act

“has created significant difficulties for the US”.

Perhaps the Minister could spell out what those significant difficulties are. The US does not seem to think that it has significant difficulties. It is fine to turn down the best machine tool we have because we think that the blade is a bit blunt, but if the people using the tool find that it is working perfectly well, we should have an independent assessment of that or a reassessment by the Government.

The Government response says:

“The aim of this overall approach is to develop a comprehensive network of tax information exchange agreements which will enable the UK”—

Government—

“and others to gain access”.

It seems as though they are offering to do everything that does not do anything, and not getting down to the nitty-gritty of what will make a difference. The Committee came up with a valuable, practical and operational way of doing it, which the United States Government are putting in place. It is for this Government to say more distinctly what they intend to do instead, not simply that they do not think that that is appropriate to UK circumstances.

Recommendation 10 is about ministerial responsibility. My hon. Friend the Minister and I, until fairly recently, had some shared experience of ministerial responsibility. I tempt her to agree that the time has come to set up yet another of those inter-ministerial groups, which draws together people from different Departments to consider in the round and with professional support exactly how the Government can do things. Unless I am very much mistaken, my hon. Friend has a piece of paper in front of her stating that the Government are always joined up, they always work together and nothing ever drops the gaps. I entirely support her interpretation of events, but a minor reinforcement of the process by the setting up of an inter-ministerial group could be a further helpful step in the right direction.

Recommendation 13 relates to CDC, which has had what might be called a chequered media profile, and I remember some discussions from when I was on the International Development Committee, as well as the media comment. It is disappointing that the Government have not sought to turn CDC into a much more outward-looking and ethical institution. It ought to be a transparency exemplar when promoting commercial aid and development projects in different countries. There ought to be no question of stuff not being automatically available. Indeed, the Government response is in partial agreement:

“CDC is committed to obtaining further improvements in tax transparency and disclosure, but this will take time.”

Basically, implementation of the Committee’s recommendation would result in CDC overall doing less, not more investment in poorer countries. Paradoxically, however, the response goes on to state that the CDC will continue

“to ensure…fair and full payment of taxes by its investee companies to the countries in which they are based.”

That is fine, but the problem that the Government seem to be claiming is inhibiting their adoption of the Committee recommendation is that they do not want to put the companies at a commercial disadvantage by making them more transparent in their tax affairs, yet they go on to say that they will ensure that those taxes are paid.

For a company that is supported or invested in by CDC and that is performing in such a country, to pay all its taxes as it should would put it at a commercial disadvantage to every other company in that country, which would not be paying its taxes. The disadvantage is in whether it has paid the tax and not in whether it tells people that the tax is paid. The Government have somewhat confused themselves, and I would like them to convert their partial agreement into full agreement with recommendation 13. We have a particular piece of kit—CDC—that is in British Government hands and ownership, so it should be used as the absolute paradigm of good behaviour and best practice in promoting investment.

I hope that gives a flavour of how I believe the Government should respond, but I also want to make a point to do with the lobbying—the presentation—by my good friends in Christian Aid and the consortium; it relates to the £160 billion. No one, and I am sure that the Government do not make this mistake, should imagine that the £160 billion is floating around, waiting to be used for development in third-world countries. If the money comes from somewhere, it will presumably come from the profits of the companies—some would say no bad thing—but if it comes from those profits, the companies would be less profitable, which itself has implications. I am afraid, although it is not necessarily a zero-sum game, it is certainly not a £160-billion-sum game, and we need to be realistic about that. [Interruption.] With the embarrassing noises going on in the background, I draw my remarks to a close.