Supplementary written evidence submitted by ActionAid

 

Summary

 

1. ActionAid estimates that developing countries will have lost $414 billion in lost growth by 2010 as a result of the financial crisis. Meanwhile aid volumes are under pressure; not from the public, but from the broken promises of governments in wealthy countries. Despite high public support for official development assistance (ODA), many governments are reneging on their development promises. While the UK continues to show leadership on development issues, for example through the launch of the International Aid Transparency Initiative, its failure to establish a timetable for meeting volume commitments undermines its credibility on the international stage.

 

2. Many European countries will not meet their promises to increase aid levels, and ODA quality is deteriorating as donors turn to self-interested phantom aid such as concessional lending and technical assistance. The very definition of ODA is under attack, and the UK government must resist a "whole of country approach" being pushed by some governments in Europe. The March EU Development Council meetings, and London G20 meeting, will be critical moments for ring fencing aid promises and ensuring the voices and priorities of developing countries are reflected. This task must be shared with colleagues in the Treasury.

 

3. Beyond aid, Christian Aid estimates that governments in poor countries are losing over $160 billion in revenue every year as a result of aggressive tax avoidance and tax evasion by multinational companies - some of them British - operating within their borders. The UK government must act now to end banking secrecy (especially in its own Crown Dependencies and Overseas Territories) through international action to require all jurisdictions to adhere to strong standards on financial transparency, including the automatic exchange of information between tax authorities. It should also promote the establishment of country-by-country international accounting standards.

 

4. DFID's various strategies for keeping the public informed about aid are successful, and complemented by the activities of the wider development sector which receives high levels of public support. Attitudinal research shows that people in the UK want the government to keep its aid promises, but they also want it to do more to make aid effective. There is a well acknowledged lack of research into the impact of DFID's aid - future improvements must start by learning from past experiences.

 

 

 

 

 

 

 

 

 

 

 

The impact of the financial crisis on international support for development, including levels of official development assistance, foreign investment, trade policy and innovative sources of finance

 

5. At the G8 Finance Ministers meeting this February in Rome, Italy, G7 governments committed to avoid protectionist trade measures, refrain from raising new trade barriers, and work towards quick and ambitious conclusion of the Doha round.[1] On the back of low engagement and hollow promises of donors at the recent Doha Financing for Development (FFD) meeting, ActionAid remains sceptical. Despite high public support for aid and the growing impact of the financial crisis, it is clear that wealthy governments will continue to break promises to poor people.

 

6. Italy (less 56 percent) Ireland (less 10 percent) and Latvia (100 percent cancellation) have all announced dramatic cuts in their aid budgets since the FFD meeting only four months ago. It is also clear from several governments' medium term finance frameworks that their existing promises for more aid are unlikely to be met (Greece, Portugal, France and possibly Germany). The UK government is yet to publish a timetable for reaching 0.7 percent of GNI, despite cross-party support for its commitment to achieving the goal in 2013. This reticence undermines UK leadership in development at the regional level, and on the international stage.

 

7. In poor countries, exchange rate fluctuations have already seen the value of UK official development assistance fall by between 20-25 percent over the past six months. The falling pound has similarly reduced the value of the UK public's charitable donations which were over £1.06 billion in 2007/8.[2] CAFOD has estimated that in conjunction with the contraction of the UK economy, over $41 billion will be wiped off the value of UK aid over the next seven years, even if the government meets its 0.7 percent promise..[3]

 

8. At the same time the quality of aid is deteriorating with increases in phantom aid (that does not support poverty reduction). New concessional lending facilitates and tied aid packages have been announced by key donors such as Germany and Spain, adding to the poor quality aid from countries such as Greece (where two thirds of aid is tied).[4] Meanwhile some European governments are pushing for the European Union to adopt a "whole of country" approach which would effectively broaden the definition of ODA to include trade, immigration and military activities not specifically focused on development.[5]

 

9. While the value of aid falls, developing countries continue to lose large sums of government revenue through aggressive tax avoidance and tax evasion by multinational companies - some of them British - operating within their borders. Christian Aid estimates that developing countries lose at least $160 billion in revenue annually due to transfer mis-pricing and false invoicing by multinational corporations. This is one and a half times more than the total ODA disbursed in 2007. This foregone revenue could be used to maintain key social and economic investments as the financial crisis leads to a fall in development financing.

 

10. There are measures that can be taken now to stop these outflows and ensure developing countries retain the revenue that is rightfully theirs. First, many multinational corporations use tax havens in their corporate tax structures to avoid or evade taxes. It is the banking secrecy in these jurisdictions, aside from the low tax rates that is most attractive. With limited information collected in these jurisdictions regarding company accounts and beneficiaries, it is difficult for tax authorities to build a case against any given company suspected of avoiding or evading their taxes. Recognising the challenges this poses for financial regulation, leaders called for enhanced information exchange on tax matters between jurisdictions in the G20 November communiqué. Gordon Brown and a number of his European counterparts have committed to taking strong coordinated action against tax havens at the G20 Summit in April.

 

11. The G20 Summit held in London in April is an opportunity for leaders to show their commitment to removing banking secrecy and support international action to require all jurisdictions to adhere to strong standards on financial transparency. To allow developing countries to tackle tax evasion and aggressive avoidance, such international action should:

 

· Be based on compliance with a more stringent set of standards than those existing in, for example, the OECD blacklisting mechanism

· Be enforced through a regime of naming, shaming and sanctions

· Include the principle of automatic information exchange between tax authorities.

· Be set and assessed on an objective and quantifiable basis

· Be designed to cover tax evasion and aggressive avoidance by multinational companies as well as by individuals.

 

12. In particular, we are calling on the UK government to support automatic information exchange between tax authorities in all jurisdictions, including tax havens. We would like to see the UK government compel the Crown Dependencies and Overseas Territories currently under review by the Treasury to participate in systems of automatic information exchange. The system has already been functioning under the European Savings Directive and has proved effective in standardising the information collected and shared between tax authorities. Discussions are underway to close some of the ESD's loopholes in what will inevitably be an evolving effort to clamp down on tax evasion. The OECD has also developed a guide to automatic information exchange in addition to the bilateral information agreements it encourages member states to negotiate with tax havens.[6]

 

13. Removing banking secrecy is one step in combating tax evasion; another is to demand greater transparency of multinational corporations' accounts. ActionAid wants to see International Accounting Standards used to make the operations of multinationals transparent, particularly their operations in tax havens. This could be done by promoting the creation of a country-by-country accounting standard through the International Accounting Standards Board (IASB). Such a standard would oblige multinational corporations to list their subsidiaries, profits, losses and taxes paid in every country where they operate. A country-by-country reporting standard for companies operating in the extractive sector is currently under discussion at the IASB.

 

14. The OECD Development Cooperation Report 2009 states, "On the whole, the taxation system in developing countries needs to be strengthened, and taxes need to be based on the ability-to-pay principle. At the same time, developing countries still suffer the loss of enormous revenues through tax evasion and avoidance."[7] At the previous enquiry the Secretary of State for International Development spoke of the commendable support DFID is already providing to tax administrations in developing countries; between 2001 and 2006 DFID committed £159 million for tax-related projects in 44 countries. ActionAid recognises that strengthening the capacity of tax authorities to collect and redistribute revenue is important. However, the aid and technical assistance provided can have only a limited impact if UK Treasury does not push harder on international collaboration to remove banking secrecy in tax havens, and call for greater disclosure of multinational companies' accounts.

 

The effectiveness of the Department for International Development's advocacy strategies in encouraging other donors to fulfil their international aid commitments

 

15. The UK, through DFID, is internationally recognised for its leadership on efforts to improve aid quality, most recently via the launch of the International Aid Transparency Initiative (IATI). DFID staff have worked hard behind the scenes to garner support from the OECD Development Assistance Committee (DAC) Secretariat and its members, and also to engage a range of stakeholders including civil society. This strategy has seen at least sixteen donors sign up to an ambitious vision for implementing aid transparency and advancing accountability since its September 2008 launch. At a meeting with the UK Aid Network in November 2008, the Chair of the OECD DAC emphasised that DFID is a progressive donor which needs to take leadership without appearing to dominate other donors. The IATI exemplifies this approach. As part of its institutional strategies, DFID should continue to review its engagement with bilateral and multilateral donors against objectives, to assess impact, and to take forward learning from elsewhere across the organisation.

 

16. DFID's engagement at the European level has borne fruit as Member States and the Commission have developed increasingly progressive aid effectiveness positions.[8] This pressure at the Commission must be sustained at the forthcoming March Development Council meetings - particularly in light of the damaging push to erode the importance of aid. The UK must also show leadership on ensuring that developing countries voices and priorities are reflected in the outcome of the London G20 meeting in early April, and in the current reform of the OECD Development Assistance Committee. Particular attention must be given to ensuring that officials in Treasury are aware of donor government promises when in talks with peers in counterpart countries.

 

The impact of the economic downturn on public support for development expenditure

 

17. Attitudinal research consistently shows that the around three quarters of the UK public is concerned about poverty in developing countries and that there is nearly two thirds of the public robustly support UK government aid, despite their concerns about the quality of aid.[9] In general, the public prioritises UK government support through: i) aid; ii) action to reduce conflict; iii) creating a fairer trading system; iv) towards debt cancellation. ActionAid's research has shown that the majority of people believe that the government is providing about the right amount or too little aid, and that they support planned increases in the official aid budget despite their questions about its quality.[10] There is a clear expectation that DFID and the wider UK government work harder to improve the effectiveness of aid.

 

The effectiveness of DFID's strategy for strengthening public support for its work

 

18. Public support for official development assistance is high in the UK. One contributing factor is the high-quality development education in the UK curriculum, supported by DFID and delivered in conjunction with non-governmental organisations.[11] Another factor is the public work and engagement of development NGOs - which 60 percent of the public believes make a major contribution to poverty reduction. They gave ten percent of all charitable donations - over £1 billion - towards poverty reduction in 2007/8.

 

19. Beyond development education and the public profile of NGOs, DFID has taken steps to improve and extend the reach of its communications, and particularly to share good news stories. There is a well acknowledged lack of research into the impact of official aid; DFID's aid research should start by looking how to learn from experience on the ground.

 

 

Questions

How does DFID propose that the UK address the falling value of UK aid in developing countries? Is there support for bringing forward achievement of 0.7 ODA/GNI?

What is DFID doing to illustrate to peers across Whitehall and publically, the impact of the financial downturn on people in poor countries?

How is DFID working with other key Whitehall departments, particularly Treasury, to ensure aid volume and quality commitments are respected at the forthcoming European Council of Development Ministers and G20 London meetings?

In the lead up to the G20 Summit, how is DFID working with Treasury to support greater tax information exchange that would also help developing countries retain valuable revenue?

At the previous enquiry, DFID stated it is was working with Treasury to estimate the value of capital flight - what are the terms of reference for the research and when will it be completed?

 

 

Recommendations

UK must show European leadership and publish an annual timetable for meeting aid commitments before the May 2009 General Affairs and External Relations Council meeting.

UK must support efforts to lift the veil of secrecy in tax havens at the G20 Summit by pushing for international action to require all jurisdictions to adhere to strong standards on financial transparency, including the automatic exchange of information between tax authorities It should be enforced through a regime of naming, shaming and sanctions, and be set and assessed on an objective and quantifiable basis

UK should urge the IASB to recommend more descriptive company reporting standards that will oblige companies to list their activities on a country-by-country basis. If it is not possible to achieve this within the existing IASB structure, it should be reformed to make it more representative and accountable.

 

 

 

 

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[1] Statement of G7 Finance Ministers and Central Bank Governors Rome, Italy, February 14 2009

[2] Estimate based on data from UK Giving 2008: an overview of charitable giving in the UK in 2007/8 which suggests that total charitable giving in 2007/8 was £10.6 billion, of which 10 percent was overseas aid http://www.cafonline.org/pdf/UK%20Giving%202008.pdf

[3] CAFOD calculations on the basis of DFID funding increasing from its 2007 value of £5 billion: http://www.cafod.org.uk/news/double-whammy-2009-02-03

[4] In the UK over 80 percent of contracts still go to UK companies according to DFID's own 2007/8 Annual Report

[5] Development Initiatives http://www.devinit.org/PDF%20downloads/development%20initiatives_memo%20to%20idc%20on%20financing%20for%20development.pdf

[6] OECD. 2006. Manual on the implementation of exchange of information provisions for tax purposes http://www.oecd.org/dataoecd/61/19/40502506.pdf

 

[7] OECD. 2009. Development Cooperation Report 2009. http://titania.sourceoecd.org/pdf/dac09/432009011e-01.pdf

[8] In fact in May 2008, the General Affairs and External Relations Council asked Member States to publish binding timetables on aid targets by end 2009, to ensure that the EU meets the 0.56% ODA/ GNI commitment by 2010, and 0.7% by 2015

[9]Office of National Statistics 2006; OECD DAC 1998, ActionAid International December 2006

[10] http://www.actionaid.org.uk/doc_lib/poll_summary.pdf

[11] For example, ActionAid's Chembakoli programme which has been running for twenty years and was awarded Highly Commended at the Geographical Association's 2007 conference