Campaign blog

How to catalyse development: vision vs reality

Ruth Kelly's picture Ruth Kelly Programme Policy Manager

The new OECD Development Cooperation report has a vision for the radical transformation of economies across the developing world. But the recommendations, which emphasise ‘leveraging’ private sector investment, are unlikely to get us there.

Myanmar's National Economic and Social Advisory Council economic development forum
Ha Joon Chang and ActionAid's Rick Rowden speak to senior officials in Myanmar about economic development
Photo: National Economic and Social Advisory Council, Myanmar

Supporting nascent domestic industry

The launch of the OECD report in London last Thursday kicked off a debate on how to finance implementation of the goals that will replace the Millenium Development Goals.

In his introductory remarks, Erik Sonheim, chair of the OECD’s development assistance committee, praised South Korea’s leaders for ‘getting the politics right’. Today, their citizens are 390 times richer than they were in 1953.

As Ha Joon Chang describes in his 2002 book Kicking Away the Ladder, the South Korea story was built on state support for nascent domestic industry. The UN Committee on Trade and Development’s 50th anniversary report showcases the efforts of a handful of developing countries to take a similar approach.

By regulating trade, by providing incentives and concessional loans, and by sourcing from domestic suppliers, governments in the South are helping to establish a robust and well-rooted domestic private sector.

The middle-classes in developing countries are growing rapidly, providing these businesses with new markets to serve. The taxes they pay on their profits allow governments to support more domestic businesses, as well as investing in crucial services like education.

But these efforts are the exception, not the rule.

Throwing money at investors already thriving

The South Korean approach to development has been under attack for many years. Liberalisation has left governments without trade policy tools. The idea of a small state is so pervasive that it is almost heretical to argue – as ActionAid often does – that the state should play a more prominent role.

More and more, aid is being used to ‘leverage’ private sector investment. Donors claim that without this support, the businesses involved would struggle to get access to capital, or choose not to invest in a given sector.

But there is almost no evidence to back up donors’ claims.

Most support goes to big businesses that are already thriving. Many investors say that they would have invested anyway, even without donor support.

Big business doesn’t need aid to encourage it to invest in developing countries – it can already see the potential. The recent spate of “Africa Rising” stories is not a PR exercise by development professionals, but a reflection of commercial opportunity.

Helping big business to capture the market

Multinational companies have enormous power in a liberalised world. They are less rooted in an economy than domestic firms – they can and often do move on if workers demand better conditions or a living wage. Their complex business structures allow them to avoid tax, putting domestic firms at an enormous competitive disadvantage.

Donor finance, and the political support that goes with it, increases that power.

There is an irreconcilable contradiction at the heart of the OECD report. A new South Korea story will not be built on anti-competitive market capture by multinational giants.

Undoubtedly there are cases where investment by big business has a positive impact on growth and poverty reduction. But aid and development finance should not be used to support it unless there is clear evidence that this support is needed.

All the political parties spoke about tackling tax dodging at their Party Conferences this month. The question is - will any Party insist that the poorest countries benefit from global tax reforms?

Barry Johnston, ActionAid's Head of Advocacy with Tessa Munt MP at the Liberal Democrat Party Conference
Barry Johnston, ActionAid's Head of Advocacy with Tessa Munt MP at the Liberal Democrat Party Conference
Photo: Caroline Jones, ActionAid

The ActionAid Advocacy team took our Party Conference show on the road one last time last week, heading to the Liberal Democrat Conference in Glasgow. As Party faithfuls gathered to vote on Liberal Democrat policy and regroup ahead of next year’s General Election, the air was one of quiet confidence in another coalition after the Polls in May.

Hot off the heels of George Osborne’s announcement of ‘the Google tax’ – a tax to stop technology companies from dodging corporation taxes - the Lib Dems were, unsurprisingly, keen to take some credit for their efforts as part of the coalition, with Danny Alexander making his own announcements on clamping down on tax avoidance.

A race to the top on tax avoidance?

Tessa Munt MP, Parliamentary Private Secretary to Vince Cable at the Department of Business, Innovation and Skills, took a strong stance at our fringe event on tax dodging, 'Race to the Top on Tax Avoidance in 2015'. In her speech she said that the Conservative Conference had indicated that “tax was for the little people”.

Deborah Hargreaves of the High Pay Centre spoke about corporate capture of the tax system, writing tax legislation, “in its own interests.” The event and our Tax Justice Campaign received a ‘cautious’ stamp of approval from speaker Carl Bayley, Chair of the Institute of Chartered Accountants of England and Wales’ Tax Faculty, who called for a "fair and transparent tax system where everyone pays their fair share".

It isn’t just politicians who need to worry about public anger 

Half the audience had boycotted companies accused of tax avoidance. In fact, we know that 84% of the public are angry at corporate tax avoidance, blaming politicians as well as companies. Politicians know this too. Ed Balls, Ed Miliband, George Osborne, David Cameron, Danny Alexander and Vince Cable all briefly referred to clamping down on tax dodging during their conference speeches.

Nick Clegg was no exception. Wrapping up conference season on Wednesday, tax dodging made a brief appearance, with a pledge to “close loopholes that unfairly benefit those at the top.” What ActionAid supporters want to know is, will the poorest countries that need these funds the most be a part of this process?

Talking to Party members, one thing is clear. Anger at the colossal injustice of multinationals finding ways to contribute less while ordinary people foot the bill isn’t going anywhere. The question is, will the political Parties heed the public’s call and put tax dodging front and centre of their policies? Any Party that does, and means it, will reap the rewards.

Take action now to keep up the pressure on Party leaders. Get your community on board the Towns Against Tax Dodging Campaign

Photo: ActionAid.

How I made sure your voices were heard at the Liberal Democrat conference

Sophie Wills-Virk's picture Sophie Wills-Virk Campaigns Local Organiser (Volunteer)

After a seven hour journey from London to Glasgow, I arrived at the Liberal Democrat Party conference, where I was to spend the next couple of days talking to party members and MPs about the Towns Against Tax Dodging campaign.

Sophie with her MP Lynne FeatherstoneSophie with her MP Lynne FeatherstoneI made it just in time to catch the end of an event involving my MP, Lynne Featherstone. I asked her a question about how the Liberal Democrats would make tackling tax dodging a priority, should they win the general election next year, and how they would make sure developing countries are included in their plans to close tax loopholes. I also spoke with her after, and explained that I was from her constituency before I invited her to our event the next day. Unfortunately she was very busy but she did agree to a photograph with our Towns Against Tax Dodging placard.

Towns Against Tax Dodging

Sophie takes the Towns Against Tax Dodging campaign to the Liberal Democrat conferenceSophie with the Towns Against Tax Dodging map showing support across the countryThe next day I went to an event with the Association of Liberal Democrat Councillors where I spoke to the panel and audience about the thousands of supporters across the UK who had emailed their councillors, urging them to pass a motion of support for our campaign. To my surprise many of the councillors knew what I was talking about and I was approached by Councillor Anders Hanson from Sheffield who wanted more information - which was a great result and shows that your messages have really gotten through!

Later on it was time to do our own event. We took photos of people with the brilliant 3D map (right), which represents over 9,000 of us who have emailed our Councillors about tackling tax dodging, and we signed up people who wanted to be more involved. We had a great turnout,  and a overall it was a great event with a lively discussion at the end.

From this experience I've learned that it's really important to meet with councillors, MPs and influential figures and you don't have to be an expert in your campaign. Many of the people I spoke to, particularly councillors, were keen to find out more about the issues that their constituents were campaigning on, and what they could do to help.

Join me in Haringey

Later in October I will be holding an event in my local area - Love Haringey Hate Tax Dodging, and I will definitely be letting my councillors and MP know how it went. For any of you who want to find out more about tax dodging and what we can do about it, you're more than welcome to come along, it would be great to see you there.

There are Towns Against Tax Dodging events happening all over the country.

Last Sunday, the Conservative Party Conference kicked off in Birmingham. I was there with ActionAid, asking politicians what they were going to do to tackle tax avoidance in the run up to the 2015 election.

Desmond SwayneGeorge Osborne promises tough action to tackle tax avoidance

On Monday, Chancellor George Osborne announced what has begun to be known as the ‘Google Tax’ – a measure that will be introduced by the government to prevent large technology firms such as Google and Starbucks from getting away with paying little or no tax in the UK.

We will have to wait until the Chancellor’s Autumn Statement to hear more details, but this is an encouraging step in the right direction to tackle tax avoidance on a global scale.

Diarmid O’Sullivan, ActionAid’s Policy Advisor summed it up by saying

"The government has been prominent in calling for action on tax dodging in poor countries. We now urge it to help those countries design similar rules, while beefing up the UK's own anti-tax haven rules."

Making a buzz about tax dodging

Tax continued to be the hot topic at our joint event with Oxfam and Christian Aid that evening.

Michael Izza, Chief Executive of the ICAEW (The Institute of Chartered Accountants in England and Wales), Jim Waterson, the Deputy Editor of Buzzfeed, Oxfam’s Chief Executive Mark Goldring and Jeremy Lefroy MP all spoke to a packed room about what needs to be done to tackle the tax dodging that has a negative impact on developing countries.

It was great to see a mix of politicians, NGOs and companies all engaging with each other about this topic!

How can we keep the debate alive?

There was clearly a buzz about tax amongst politicians at conference, and the Prime Minister warned companies again in his closing speech: ‘We have cut your taxes – now you must pay what you owe’.

Now we need to make sure that we keep the attention on this topic up and encourage more debate about what actions the next government needs to take to make sure developing countries get at a better deal.

Help us to keep up the pressure on politicianscontact your councillor and MP and tell them how vital it is that more is done to tackle tax avoidance!

Ensuring Afghan women take their place at the debating table

Last but certainly not least we held a fringe event on the need to keep speaking out about the importance of securing Afghan women’s rights in the run up to the joint UK - Afghanistan government Conference in London this November; where the UK will decide its engagement in Afghanistan after our troops have withdrawn. It is essential that women participate into these discussions, and that everything is done to protect really hard won rights.

Photo: Desmond Swayne, Minister of State for International Development, pointing to his constituency where many of our supporters wrote to their councils and MPs asking them to take actions against tax avoidance

What it's like to campaign at a party conference

Jo Gikuyu's picture Jo Gikuyu Campaigns Local Organiser (Volunteer)

My name is Jo and I am the ActionAid Local Organiser for Wimbledon. For the last couple of days I have been at the Conservative Party conference to take the message of our Towns Against Tax Dodging campaign to attendees.

Jo at the Conservative party conference
Jo at the Conservative Party conference
Photo: Ema Jackson/ActionAid

Having never been to a party conference before, I had a mixed bag of expectations for the conference. I knew there was going to be a lot of issues competing for the interest of party members but I expected to be able to engage and lobby a few of them on tackling tax dodging. I was also looking forward to meeting and learning from ActionAid's team at the conference.

The Rt Hon Desmond Swayne MP, Minister of State for International Development with the Towns Against Tax Dodging mapDesmond Swayne MP, Minister for International Development with the Towns Against Tax Dodging mapWhen I arrived at the conference, as expected there was a lot going on, with members seemingly always rushed off their feet. Often I got very small windows of opportunity to engage and hand out leaflets. We had a big map showing the support for the Towns Against Tax Dodging campaign across the country  which was great at attracting attention. This gave me the opportunity to lobby party members, helping them to buy into the campaign. We also got councillors and MPs to take pictures with the map to show their support, including Minister for International Development, Desmond Swayne.

Through ActionAid I invited my local MP Stephen Hammond to come see the Towns Against Tax Dodging map and hear about the campaign but unfortunately he was busy. I hope to arrange a meeting with him after the conference.

I also attended the Tackling Tax Avoidance fringe event that was organised by ActionAid and others such as Christian Aid and Oxfam. It was great to see a packed room of people who really care about this issue and very interesting to hear from the speakers Jim Waterson, Deputy Editor at Buzzfeed, Michael Izza, Chief Executive of ICAEW (a membership organisation for accountants), Jeremy Lefroy, MP for Stafford and Mark Goldring, CEO of Oxfam. 

From the conference I will be taking increased momentum, knowledge and skills to campaign against tax dodging which continues to be detrimental to UK citizens and small businesses as well as damaging for international development. I will put this energy into organising the event I am putting on in my local area of Wimbledon to discuss further the campaign to tackle tax dodging. Please do come along.

ActionAid campaigner Jo Gikuyu promoting Towns Against Tax DodgingThe announcement by Chancellor George Osborne this week of a new tax, aimed at giant high-tech companies like Google which pay relatively little tax in the UK, could be an important precedent for developing countries as they try to collect their own fair share of tax from multinationals.

Osborne hasn’t yet spelt out what this new “Google tax” will involve – the details will be released in the autumn. But government sources are briefing that the tax will target the so-called “Double Irish” and other complex arrangements involving strings of offshore companies and transactions.

These arrangements, which play on the differences in tax rules between one country and another, have been used by big internet companies to ensure that the taxable profits from their billions of pounds of UK sales are booked in countries where they face little or no tax. (We should note that Britain itself has long been a very big player in the offshore tax avoidance industry).

How effective is the "Google tax"?

It’s hard to know how effective the “Google tax” will be until we see the detail, because there are various different ways for a multinational to shift profits on paper from one country to another. If the new legislation is too narrowly-defined, then it could end up being little more than an invitation to the fertile minds of the tax avoidance industry to figure out clever ways around it. But if the new tax is broadly and robustly designed, it could be used to cut through the thickets of legal and accounting complexity which some big companies hide behind to avoid tax without breaking any laws.

Corporate tax dodging in developing countries

The new measure is intended to protect Britain’s tax base from sharp-but-legal practices by foreign multinationals and it has no direct implications for developing countries. But it could be symbolically important as an example of the kind of simple, effective legal tool which these countries could adopt in response to similar practices by multinationals.

Most developing countries are destinations for foreign investment and they have struggled in a global tax system which is biased towards the home countries of investors, including Britain. Osborne’s proposal is striking because it tacitly recognises that Britain, despite its massive advantages in the world economy, also struggles with tax dodging by multinationals.

The “Google tax”, if it’s properly designed, could be a model for developing countries as they try to raise the corporate tax revenues they need to pay for health, education, roads and other public goods which will help to lift their people out of poverty. So, tax authorities around the world will be watching with interest to see what Britain comes up with.