Britain’s dirty secret – the island havens that make life hell for the world’s poor

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The G8 agenda on tax is getting increasingly radical, and much of the credit on that must go to to the UK Government hosts. Issues that were off the table months ago are now up not just for discussion but for decision. The agenda has moved beyond tax evasion to the kind of tax avoidance that has been able up to now to squeak through as legal. The UK is serious, not just in its public statements, but, representatives of other governments have confirmed to me, in the private intergovernmental discussions too. As one official from a European country told me, “We couldn’t believe it when the UK put tax on the agenda. For years, whenever we tried to put even a sentence on tax into communiques, the British got out their red pen. And now it is they who are leading the call for action. So thanks to them, to you NGOs … and to Starbucks.”

But a contradiction lies at the heart of the UK’s action on tax dodging, one that could both hold back progress in itself and undermine the UK’s ability to get others to act. The UK is a haven for havens. Whilst the government talks of “tough negotiations” with the Lichtensteins of the world, it has power, through the Crown, to stop some of the most egregious havens and yet is holding back. The claims that these British treasure islands are independent sovereign states over whom the UK has no power is a fiction that collapses under a few minutes of scrutiny. The Kilbrandon Commission confirmed in 1973 that “The United Kingdom parliament has the power to legislate for the islands.” In 2009, the UK suspended the government of the Turks and Caicos Islands to deal with a corruption crisis. The notionally independent decisions of some of the islands to make some concessions last week were all announced on a single day by a UK Treasury press notice. When you read about “British Virgin Islands”, “British Overseas Territories” and “Crown Dependencies”, the clue is in the name. If UK tax havens fail to adequately tackle the secrecy and other practices that facilitate tax dodging it is ultimately because the UK allows it.

The impact of tax dodging on poverty is massive. Tax dodging deprives poor countries of the revenues they need to tackle poverty and to stand on their own two feet. As Jeff Sachs notes today, “The IF campaign makes a basic point: poverty can be fought, and austerity overcome, IF taxes are properly paid by those who owe them.”  Zambia would have 46% more money to invest in schools, health clinics, child nutrition and agricultural development if it could prevent tax dodging by multinationals. In a world where 2 million kids die before the age of five from malnutrition, tax dodging is literally fatal.

So why is the UK protecting its tax havens? It’s hard to know. I’ve heard, informally, from well-meaning people, arguments like “the money would just be moved elsewhere” and “it’s the only business they know”. Yet these are, sadly, no different in logic to the arguments made by drug dealers’ mums about their errant sons. I’ve heard “we can’t force them to behave”, which is flat out wrong. And “it’s OK, we’ve sorted it,” which is to mistake some minimal progress with a proper solution. Whatever the reason, it must be a very challenging cognitive dissonance, to lead an international negotiation to eradicate something which – unhappily, uneasily – you ultimately let your own people get away with. Especially when the mantra of the G8 is “Getting our own house in order.” And the dirty secret isn’t even secret any more. It’s a huge hulking big elephant in the room.

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Ben Phillips

About Ben Phillips

Ben Phillips is Director of Policy, Research, Advocacy and Campaigns, ActionAid International. He has lived and worked in four continents and 10 cities including New Delhi and Washington DC, as well as with children in poverty in East London. He has led programmes and campaigns teams in Oxfam, Save the Children, the Children's Society, the Global Call to Action Against Poverty and the Global Campaign for Education. He began his development work at the grassroots, as a teacher and ANC activist living in Mamelodi township, South Africa, in 1994, just after the end of apartheid. All posts on this blog are personal reflections.