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Melanie Ward

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The Lib Dems are missing a trick when it comes to tax

Posted: 24/09/11 18:15

For the second year running, talking tough on tax dodging was a big theme of the Liberal Democrat party conference. Danny Alexander warned those who don't pay what they owe that he "will find you and your money", and Vince Cable criticised "those British billionaires who demonstrate their patriotism by hiding from the taxman in Monaco or some Caribbean bolt hole".

In these economic circumstances nobody likes a tax dodger. The public is rightly angry at those with great wealth who decide that the regular rules of society need not apply to them, and use elaborate financial tools to avoid paying their way. But it's not just the UK which is losing out from the financial trickery of the tax dodgers. Poor countries lose more money each year from tax dodging than they receive in aid, the OECD estimates. Just imagine what a difference this money could make to the lives of the world's poorest people. For example, a recent ActionAid report found that just one company, SABMiller, shifts an estimated £100 million out of Africa and into tax havens each year. If it paid its taxes properly then there would be enough to fund a quarter of million children to go school in Africa.

Without a Liberal Democrat minister at DFID, some have been asking where the party's influence is when it comes to the fight against global poverty. In fact, the 2010 Lib Dem manifesto and their international development policy paper passed by last year's party conference, "Accountability to the Poor", outlines exactly the sort of policies needed to make sure that all of Whitehall would contribute to international poverty reduction. The central thesis of the party's policy is that development is fundamentally political. It emphasises the need to tackle the structural causes of poverty - the things that will always keep poor countries poor - alongside the vital giving of aid. Specifically, it called for transparency measures that, if put in place, would lift the cloak of secrecy which allows the current tax situation to prevail.

Such policy prescriptions have had backing from the highest levels of the party. In April last year, Nick Clegg made the need to deal with the impact of tax dodging on poor countries the main argument of his keynote election campaign speech on global poverty. Two years ago in a Guardian piece, Vince Cable did not criticise only those who avoid British taxes. He was strident about the need to do far more to make sure multinational companies stop dodging taxes in developing countries, and urged the then Labour government to lead on this issue at the G20. Last Thursday, news leaked from the G20's development working group revealed that the potential progress on this agenda at November's Leaders' Summit is in jeopardy. The government would be well advised to step forward and get progress back on track.

So it is difficult to understand the silence in this area from both coalition parties but particularly the Lib Dems, given their previous enthusiasm. Action would be exactly in line with the coalition agreement, which refers to tackling tax dodging generally and not only in a domestic sense. Worryingly, proposed changes to the UK's anti-tax-avoidance rules (known as the Controlled Foreign Companies regime) fly in the face of the previous welcome words. They are likely to have the effect of actually encouraging companies to avoid taxes in poor countries. ActionAid has been calling on the government to simply undertake an assessment of the likely impact that these rule changes will have on developing countries but, so far, they won't even agree to this.

The government does deserve credit for its work to build the capacity of revenue authorities in developing countries, and for its support for new EU rules to make oil, gas and mining companies be transparent about the payments they make to foreign governments. These rules are a copy of US legislation known as the "Dodd-Frank Act" and if passed they will be a significant step forward. But they won't touch the activities of SABMiller and others like them. What is really needed to make a dent in the billions of tax revenue avoided is a truly multilateral approach which will apply to all companies equally - new accounting standards and an end to tax haven secrecy.

And the coalition is absolutely right to be sticking to our 40 year old promise to spend 0.7% of GNI on aid. Having decided to do so though, it makes even less sense to ignore the billions that leak out of poor countries due to the activities of the tax dodgers. Ending poor countries' dependency on our aid is in all of our interests. So whether your motivation is the struggle for global justice, achieving value for money for the British taxpayers who fund the aid budget - or both - the current position is a sum that doesn't add up. The Lib Dems, and the government as a whole, are allowing the trickery of the global tax dodgers to continue. If they act now, the forthcoming G20 Leaders' Summit gives British Ministers the chance to work some magic of their own.

 

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