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Tax Avoidance and Evasion

It is a great pleasure to speak under your chairmanship, Mr. Hancock. I am grateful to Mr. Speaker for selecting this vital subject for debate in a long slot, especially as it precisely coincides with this year's Christian Aid week. I shall focus my opening remarks on the international development implications of tax avoidance and evasion and then highlight the impact on the UK Exchequer and our society of the corporate culture of tax avoidance that has taken root in this country. As the Finance Minister of South Africa, Trevor Manuel, has said:""the correct spelling of the word 'aid' is 'T-A-X'"." It should be a source of consensus, or a no-brainer as the tedious phrase goes, that tax is the most sustainable source of finance for development work in poor countries. It promotes accountability and allows Governments to generate revenue from their nations' economic activity to invest in their own infrastructure, health care and education. A broad tax base improves representation and accountability between states and citizens. It encourages good governance, as Governments who depend on their citizens for revenue are more likely to act in the interests of the people. Because promoting economic development for all means greater revenues for the state, Governments have a vested interest in ensuring that economic growth is shared among the population. Progressive taxation also benefits the poor by redistributing wealth through society, and it can limit consumption that has harmful effects on society or the environment through the levying of heavier taxes on products and services. Angel Gurría, the head of that international free market acolyte the OECD, certainly believes that. He has observed that""taxes provide the long term financial platform for sustainable development. Taxes are the lifeblood of state services."" It is estimated that between $500 billion and $800 billion of illicit capital flows from developing countries every year. Of that, $160 billion is lost through commercial tax evasion—or £20 million during this 90-minute debate. It is about twice the annual bill for global aid from rich countries to poor countries. It is also several times larger than the $40 billion to $60 billion that the World Bank estimates will be needed annually to meet the United Nations millennium development goals, which are intended to halve poverty by 2015. If that money—that avoided tax—was allocated according to present spending patterns in poor countries and with the same degree of effectiveness, the additional revenues could, among other things, save the lives of 1,000 children under the age of five every day. There is much discussion about the role of tax havens in facilitating these capital transfers. It is recognised by, among others, the current Pope—he must be infallible—that offshore centres play a major role in the imbalances of development, causing a gigantic flight of capital that is the result of tax evasion. Christian Aid estimates that, between 2005 and 2007, £35 billion of illicit capital flowed from non-EU countries to the United Kingdom as a result of trade mispricing—a practice whereby multinational companies sell goods and services across borders at inflated or sometimes deflated prices to minimise their tax burden. Of that, £5 billion of illicit capital flowed into the UK from the world's 49 poorest countries. That is almost equivalent to the Department for International Development's entire programme budget for 2006-07. The estimable researcher on these matters, Professor Prem Sikka, has pointed out that transfer pricing is used as a "key mechanism" for dodging tax by multinationals all over the world, yet its abuse is scarcely on the political agenda. These are not abstract figures. They represent essential services that the world's poorest people are being denied by merciless and venal exploitation, not just of individual states but through the lack of regulation applied to the global movement of capital.