Tax (Developing Countries)

Debate between Charles Walker and Baroness Featherstone

Thursday 17th January 2013 Westminster Hall

[Lynne Featherstone]

I thank the hon. Gentleman for his intervention. I cannot give him the comfort that he seeks that it is the Government’s intention, if what he refers to works, to extend it right across the world, but we are extending it and looking at it. If it provides a good model, we will obviously look at it again to see what application it might have in which jurisdictions.

My right hon. Friend the Member for Gordon raised the issue of Pakistan. I believe that hon. Members may have taken representations or evidence this morning. I understand that that is a real issue, because Pakistan has one of the lowest rates of tax collection, averaging only 10% of GDP in recent years. An improved tax regime is the key priority for DFID in Pakistan. The importance of improving Pakistan’s tax-to-GDP ratio is raised regularly in our engagement with senior Government representatives there, as it is by the IMF and other donors. We raise it; the issue is trying to get an effect and a change in the circumstances there. DFID is involved in strategic dialogue about the World Bank’s support on revenue at federal level and also contributes analytical work—for example, on the political economy of tax reform. We are supporting wider public financial management reform in some provinces. That includes the strengthening of revenue policy. This is a major issue, on which we are putting a lot of emphasis.

There was frustration about the willingness of elites to pay tax in developing countries. It is true: the elites are very reluctant to pay. How can we expect everyone else to be paying tax in a country if the elites are not setting an example? As an example, I refer to what DFID has done in Burundi. As ever, I hear what my right hon. Friend says about the Select Committee’s view on Burundi. He has made that case both publicly and privately on many occasions. However, there is the recent example of DFID supporting the Office Burundais des Recettes. A public outcry has led to MPs and Ministers paying tax for the first time. It is something if one can raise the issue to the point at which there is a public voice about the accountability of the Government in terms of setting the prime example. My right hon. Friend made the point that if Prime Ministers and MPs do not pay their taxes, it is pretty hard to say to the rest of the country and to the elites, “You should be paying tax.”

I do not want to go on for too long. The Chair has changed—it is a great pleasure to speak under your chairmanship, Mr Walker—and my right hon. Friend the Member for Gordon must introduce the second debate. However, I want to address a couple of things. One issue that was raised quite often was the Starbucks effect and what we are doing in this country about that. The Government are taking significant steps to ensure that everyone, including multinational companies, pays their fair share of tax. The response is twofold. There is support for international action. Alongside France and Germany, we are providing additional resources to the OECD to speed up the international efforts on dealing with profit shifting by multinationals and erosion of the corporate tax base at global level. The OECD will deliver a progress report to the G20 in February 2013 on actions to tackle base erosion and profit shifting.

There is also further investment in HMRC. HMRC will expand its risk assessment capability across the large business sector and increase its specialist transfer pricing resources to speed up its work to identify and challenge multinationals’ transfer pricing arrangements. The Government relentlessly challenge those that persist in avoiding tax and have recovered £29 billion of additional revenues from large businesses in the last six years, including £4.1 billion in the last four years from transfer inquiries alone.

A number of hon. Members raised the issues brought up by Christian Aid and ActionAid in relation to the costs of evasion and avoidance. As has been discussed, the estimates are numerically disputed, but the bigger point is that, despite suggestions that the estimates of tax evasion and avoidance have been agreed by the OECD, the figures have not been endorsed by any of the OECD’s committees. The key point is that evasion and avoidance are undoubtedly significant challenges for developing countries and that the Government are committed to providing support, but as I have said, tax capacity building and technical assistance are the primary issues.

I want to deal with the country-to-country reporting model or rather the broader one, not the one that is being considered for the EU directive, which is for the smaller view. The big ask is the model whereby all multinationals disclose information that goes beyond payments to Governments. This model has been discussed in the OECD task force on tax and development without any consensus being reached on its merits. The Government believe that the case has not been made for the effectiveness of this model in achieving its objectives while minimising costs to business. It is not being called for by developing countries, but the Government do agree that many developing countries do need to improve their ability to assess transfer pricing risk and detect abusive profit shifting and that other options, such as the transfer pricing transaction schedule described in recommendation 7, could offer more proportionate and effective help.

A number of hon. Members raised the issue of a DFID Minister for tax. I have to say, as my right hon. Friend the Member for Hazel Grove rightly predicted I would, that the development impact of UK tax and fiscal policy is a collective responsibility for all members of Government. DFID, the Treasury and HMRC all work together. [Laughter.] Did my right hon. Friend read my brief? However, the UK is committed to helping developing countries to build robust, fair and sustainable domestic taxation systems and, having listened to what was said, I propose to consider the proposal that was made for an inter-ministerial group. I will take that away with me. I am not promising anything, but I want to look at how that is referenced. There are many discussions across Government. Her Majesty’s Treasury is everywhere across Government, as I am sure hon. Members in this room are well aware, but if what was proposed would be a productive way forward, I am certainly prepared to look at it in the future.

The last issue that I will address, because I have gone over my time slightly, is the request by the International Development Committee on scaling up. The report acknowledges the value of technical assistance provided by DFID and HMRC to national revenue authorities in developing countries and recommends that work in this area is scaled up. I agree completely. I have been in post for four months now and have been looking at this issue. Tax is high on the agenda. It is high on the agenda for the G8. It seems to me that the most successful and most useful thing that we have done as a Government in terms of enabling developing countries to operate is to enable them to be the masters of their tax collection and their tax systems.

I was in Zambia, too, and Zambia did fail some of the tests set by the IDC in terms of the provision of information. We are looking at that. But in Zambia, I did meet representatives of the audit committee, the public accounts committee and the Office of Public Prosecutions. All of them are taking on this agenda in a way that I have not seen in many places. There really is a desire for them to collect the revenue and for us to help them—enable them—to do that and do it well.

I am sorry that I have not addressed all the points that were made. There is unanimity across this room and, indeed, everywhere that it is important to deal with tax avoidance and tax evasion not just because that would enable countries to fund their own public services and to begin to achieve separation in terms of aid dependency, but because there is moral rectitude in paying one’s fair share. In this country, as others have said, we stand proudly on our commitment to 0.7% of GDP in a political environment that is challenging; there have been attacks on us for that. We have to show that every penny counts and every taxpayer pound is spent wisely. One of the ways in which we do that best is by helping to ensure that tax revenues can be collected across the world. Those who travel across the world and talk to the Governments of the world and civil society across the world will know that the position is variable across the world. We are making progress, but there is still progress to be made.

I thank all Members for their contributions. I thank the Committee again for drawing attention to this subject and for recognising the valuable work the UK is doing. The IDC has made a valuable contribution to the new shape of our programme for tax.

[Mr Charles Walker (in the Chair)]

Order. May I ask Sir Malcolm Bruce to respond briefly to this debate and then to move seamlessly into his opening remarks for the next debate?