Thursday 17 January 2013
[Sir Roger Gale in the Chair]
Tax (Developing Countries)
[Relevant documents: Tax in Developing Countries: Increasing Resources for Development, Fourth Report of the International Development Committee, HC 130, and the Government Response, HC 708.]
Motion made, and Question proposed, That the sitting be now adjourned.—(Nicky Morgan.)
The Select Committee on International Development is extremely grateful for the opportunity to debate two of our reports. The first is on tax in developing countries, and the second is on Afghanistan. We think both issues are important, although they are obviously completely different in their scope.
The Committee has long recognised that when British taxpayers put substantial resources into supporting developing countries, it is important that those countries raise their own tax base so that we are effectively working in partnership to develop their economies and services. Of course we recognise that the tax base in poor countries is inevitably low, and that the last thing that many people on very low incomes need is to be harried for tax. Nevertheless, almost every country has a variety of ways in which money can legitimately and properly be raised from different aspects of its economy. I will first mention the internal issues affecting developing countries and the role that the UK Government can play in addressing them. Members of our Committee often hear, as a mark of frustration that in many developing countries, willingness to pay tax in the sector of the population who have the capacity to do so is rather low. It is difficult to set a good example if Presidents, Prime Ministers, MPs and leading business people make little or, in some cases, absolutely no contribution to their own Exchequer. Before we consider the international dimension, it is worth putting on record that the Committee says, right at the start, that we should ensure that people who can pay tax in their home countries do so. Performance is variable; I am not suggesting that all countries are the same or equally bad.
Of course, many non-governmental organisations and campaigners focus on tax paid by national and international corporations. I will certainly come to that, and it is extremely important, but equality of treatment seems relevant. If we are to say, as we should and must, that national and international corporations operating in developing countries should pay their full share of tax, it is helpful if, for example, the local directors of those companies also pay their share of tax, and that the approach is seen to be equitable.
Having said that, I want to consider the issues affecting the tax paid by corporations operating internationally, and to make it clear to the House that although we examined tax in developing countries worldwide, we took Zambia as our case study because we felt that it had a growing and diverse tax base, with which we could perhaps test what could be achieved. We had a good visit to Zambia, which I will discuss a little later.
We made numerous recommendations in our report. The Government did not readily accept all of them, but they did accept some, and there are some that we hope they will work on. Indeed, developments in our own domestic circumstances in recent weeks have sharpened the debate and perhaps given the British Government pause to think that some of our recommendations are just as relevant to the UK as to poorer developing countries.
We recommended that the Government introduce legislation, similar to the American Foreign Account Tax Compliance Act, that would require tax authorities automatically to exchange information regarding UK citizens and corporations. The Government did not accept that, saying that there were difficulties—although the US seems to have managed it—but I think that more recently they have softened their line a little.
A number of our recommendations were designed to improve information exchange and transparency. The problem for all tax authorities is that if they do not have basic information about what individuals or companies are earning, it is pretty difficult to tax them fairly or at all. The classic practice for international companies is to move their earnings around to where they can secure the lowest taxation impact, or none. A lot of that might be legitimate, in that international corporations have international transactions that are not really attributable anywhere, although they should be taxed somewhere.
However, when serious, very identifiable economic activity is plainly taking place in an economic jurisdiction but little or no tax is being paid, something is obviously not right. When we engaged with the Zambian authorities, particularly about the taxation of their minerals and especially their copper industry, we got into the nitty-gritty of that. The copper industry in Zambia has operated for about 70 years. It dates back to colonial times and has been under different ownership; at one point it was owned by the state Government of Zambia, who frankly did not make a very good fist of it and ended up losing money on the copper mines. The timing was not good, and the operational management was probably not good either, so the mines were subsequently returned to private ownership.
That has been a good thing for Zambia. Copper prices have risen, the tax base has risen and taxes are being paid, which is making a significant contribution, but there is a degree of frustration and unhappiness. The Zambian authorities feel that the full amount of tax that could or should be paid on the basis of the economic activity within Zambia is not being paid, mostly due to the practice of transfer pricing. Exploring the debate reinforced our view that transparency of information is key to getting the tax base right.
If I give an example of the extreme view, it is easy to understand the issue. If a company had a very large productive mine—an obviously profitable commodity—in a developing country but paid a substantial amount of tax, albeit on a low rate on earnings, in the Cayman Islands, most people would understand that the Cayman Islands is not rich in the minerals on which the company was being taxed and that that was therefore an inappropriate redistribution of the accounts. It becomes more complicated, of course, when companies have many operating bases and lots of different activities, but the principle is nevertheless the same. We are trying to ensure that companies pay a fair tax on the activities that they conduct in any given geographical area to the Government of that country. That is corporation or related tax.
Zambia has gone through numerous different ways of doing things. It had an excess profits tax and a variable corporation tax. We discovered that the problem with all those approaches was that the licences under which different mines operated had been issued at different times by different Governments on different terms, all allowing companies to claim tax breaks, loss offsetting and so on, which enabled them to pay little or no tax. The resolution to that situation, which has not been entirely popular with the industry but which we understand and broadly support, has been to move to a system of royalties, set at 6% of turnover based on the company’s declared tonnages, knowledge of the ore quality and the prices set per day on the London Metal Exchange. The net result of that for those companies that complain is that it is something that is easy for the Zambian authorities to administer. It might be rough justice, but companies must come up with a credible alternative, which they have not done, if they argue that there is a better way of doing it. It looks as though that is likely to lead to a steadily rising revenue base for Zambia. I conclude from that that, on the whole, Zambia emerges as a pretty good case study.
On the copper belt and copper production, we had an extremely good exchange with Ministers and civil servants in Lusaka about the rest of the tax base. There is a ready recognition that, as Zambia’s economy grows, it should not be totally reliant on copper for its public finances; it wants instead to expand the tax base. It was looking for advice and help on how to do that. In other words, what can they tax efficiently, fairly and not counter-productively and how far down the earnings scale is it sensible to go? Clearly, it is neither administratively sensible nor economically wise to tax people at the very bottom. That made us realise that there was scope for the UK Government to do a lot more in partnership with developing countries to enable them to improve their revenue-collecting capacity. I can quote examples—good and bad—where that is happening. I have already mentioned Zambia. We have evidence that similar success has been achieved in Tanzania where the dependence on UK and other forms of development assistance is falling as a proportion of its overall budget because its tax base is rising. It is absolutely true of Rwanda, which is spectacularly successful in this area.
Interestingly, the head of the revenue authority in Burundi, who was previously in Rwanda and who is a British national with a strong Irish connection, has demonstrated a singular capacity to raise the revenue base in Burundi, which is a very poor country. For the Minister’s benefit, let me say in passing that it remains stubbornly the view of the Committee that Burundi should continue to receive UK aid. Whether or not the decision to close down the programme was misjudged, the case for continuing it is strong, and we will continue to make it.
The Committee took evidence this morning on Pakistan, where the position is depressingly unsuccessful. I should probably first mention Afghanistan, which we will be debating later. Thanks largely, but not exclusively, to the support of the UK Government, the tax base in Afghanistan has risen from almost nothing—3%—to 11% in the last few years, and the potential to raise it further is clearly evident. I can promise my hon. Friend the Member for Mid Derbyshire (Pauline Latham), who was a bit disgruntled because she did not hear a lot of the presentation we were given, that the content was good in that it showed how much the revenue base had risen, how much more potential there was and how valuable the UK Government support was. All that was achieved by officials working inside the Ministry to help get a handle on the figures.
The revenue collection in Pakistan is under 10%, which is awful for a well established country. Although it is classified as a lower-middle income country, it is, none the less, a middle income country. Bluntly, the figures are such because the leaders of Pakistan do not believe that taxes are a club they wish to join. Some 80% of MPs and the President pay nothing, so the will to collect tax is almost non-existent. Obviously, the Committee must deliberate further, and we will take more evidence from the Secretary of State next week and then produce a report. We are likely to say that Pakistan cannot go on expecting to receive unconditionally the bounty of the international community while not addressing the issue. That is simply not morally acceptable, economically sensible or fair. I can predict that we will come out with something fairly hard on that issue.
My point is that collection can be improved, and where that is done, it makes a difference. Where it is not being done, it needs to be done. Much more transparency is needed and information should be published on a country-by-country basis. I urge the Prime Minister, through my hon. Friend the Minister, whom I am delighted to see in her position and whose response I look forward to hearing, to look into the matter. What has happened in the UK in the past few months has possibly sharpened the focus of the Government. We will be chairing the G8 and, in that context, we are told that taxation will be a central issue. However, I suggest to the Government that while it is understandable that such an issue is driven by a degree of public anger against companies such as Amazon and Starbucks—Starbucks has been shamed into changing its stance on this—it should be recognised that if it is a problem for us, it is a much bigger problem for very poor countries, which might have a very limited amount of economic activity that is controlled and owned by overseas companies. I urge the Government to ensure that in the process of trying to raise the commitment to get an international agreement on tax, the interests of poor and developing countries are given special attention.
It has been recognised that, at a time of recession when Governments are clearly struggling with deficits, the knowledge that tax, which could or should accrue to a country’s Exchequer, is not doing so perhaps causes more anger than it would in normal times. Of course it is right that companies that are operating within our jurisdiction should pay their fair share of taxes. Perhaps it is because we are hurting that developing countries will benefit from a policy initiative that might not otherwise have taken off. We should try to get an international agreement that all countries will ensure a standard of accounting that makes all the relevant information clearly available in the public domain, so that revenue authorities can fairly assess where tax should accrue and where it is liable.
In Zambia, we were told that quite a lot of information is available, but it is not quite as easily available to the ordinary Zambian. It is very easily available to any sophisticated westerner with a credit card, but a person with no access to computers or to credit and who does not understand the system has a very small chance of finding such information even though it is available to them. We need to improve that and make information more accessible.
We hope the Government will take on board our recommendations and think about them a little more. We agree, I think, on the capacity to do more. We have suggested that the Government consider a more proactive partnership with our own Revenue and Customs. Where appropriate, of course it should be collecting our taxes, but, where we can, we should second people or support the Revenue to work alongside revenue authorities in developing countries to build up their capacity for tax. It is in the interests of donors, the people in the country, and the international community to ensure that that happens. We hope and understand that the Government are actively considering that matter, but it would be good to hear from the Minister what progress is being made.
The issue of tax has clearly caught the imagination of some of the NGOs, who are making 2013 a big year for tax justice. I am not here to be the mouthpiece of Christian Aid or the NGO consortium, but I am happy to record their views. As it happens, a number of our constituents were visited by the Christian Aid bus over the summer. It certainly rolled up in my constituency—I wonder why! I had a good meeting with both local activists and senior NGO members, who very much welcomed our report. Perhaps not surprisingly, they focused very sharply on the corporate issues that I have been discussing. However, I said that they should not just target the international economic players; it was really important that they also joined the campaign to ensure that rich elites in developing countries accept their responsibilities, because the interconnection between the two is inescapable.
Christian Aid has said that it wants to tackle the issue, that it wants the Government to tackle the issue and that it wants to shine a light on it. It highlights information that may or may not be true, but the figures that are given are huge. It says that as much as £13 trillion of potential taxes are locked up and “hidden in tax havens”. Whether that is true or not—£13 trillion is an awful lot of money, so even if the true figure is half or just a fraction of that, it is significant.
Again, I do not put too much credence on the figures per se, but Christian Aid also talks about a figure of $160 billion annually that developing countries are losing in tax, which is far, far more than the entire flow of overseas development assistance to those countries. I am not suggesting that to solve that problem we can cut the development budget, but clearly there is not much point in handing out development aid if we are not getting access to the resources that should be credited to the countries concerned, which are entitled to them.
To conclude on this report on tax, I will talk about two simple things—certainly one of them is simple and the other is not as difficult as it perhaps has appeared before—that the Government could and should do. Actually, the Government are doing the first thing, and I just want to hear that they are doing more of it. That is making raising the tax base one of the key components of our bilateral programmes, particularly where we are engaged in-country, and putting real resource alongside the Governments with whom, we are working, both to get those Governments to show the political will to raise taxes and to give them the capacity—through revenue collection—to secure the revenue. The second thing is to be prepared to take a lead, I guess, and for the UK to be more transparent and to demonstrate, by example, that we can be more open. Certainly, we must also encourage international agreement to get as much transparency as possible.
I mentioned the subject of minerals earlier when I discussed Zambia. There was one particular issue that was raised with us that the Government did not reply to directly in responding to our report, which is membership of the extractive industries transparency initiative. The EITI was actually a UK Government idea; effectively, it was Tony Blair’s idea. It is a good idea, and the initiative has been signed up to by many countries, including developing countries, but it has not been signed up to by the UK. We understand that the argument against our signing is that it was not considered that the UK was mineral-rich. Well, I represent a constituency in the north-east of Scotland and I think that we are quite mineral-rich still, actually. Mineral extraction may not be a huge proportion of our GDP, but in absolute terms minerals are not an insignificant resource for us. However, that is almost beside the point, Mr Gale—Sir Roger. I beg your pardon. It happens to me all the time, and it happens to you, too.
I ask the Government to seriously consider signing up to the initiative, because it would demonstrate that we are serious about the issue, too. If the argument against our signing is that we do not have a huge mineral base, then it should not be very difficult for us to comply. As I say, however, the Government kind of avoided answering that particular question on the EITI. I do not know whether my hon. Friend the Minister is in a capacity to commit the Government to do something; if she is not, I hope that she will report our Committee’s view that signing up would be a good step for the Government to take.
With that, Sir Roger, I must say that I am grateful to the House for letting us have this opportunity to debate the issue. I genuinely commend the report. I think that it is about a very important part of what our development relationship with countries should be. We have made good progress, but there is a lot more that we can do.
Thank you very much, Sir Malcolm. I think it is one-all—I owe you an apology as well.
I also apologise to Members for the fact that I had not really grasped the implications of there being two debates this afternoon with no time separation between them. I now propose to deal with that issue, and to explain what I think we will try to achieve.
There is no time limit on this first debate, but obviously there is a limit on the totality of time available in Westminster Hall today; the sitting must end at 4.30 pm. So it really is up to hon. Members to decide how they wish to split that time. I propose to call Mr Burden, Mrs Latham, Mr Stunell and Mr Lefroy, and then the Opposition Front Bencher and the Minister. I will then allow, as I think is traditional, a couple of minutes at the end if the Chair of the Committee wishes to wrap up the first part of the debate. However, we will treat this as two separate debates.
I suggest at this stage that although we do not know how we will run for time, the Opposition Front Bencher and the Minister might consider taking about 10 minutes each, if that is adequate.
I hope that is clear.
Thank you for calling me to speak, Sir Roger. As always, it is a pleasure to serve under your chairmanship, and I will address another knight to say that it is a pleasure to follow the right hon. Member for Gordon (Sir Malcolm Bruce), who is the Chair of our Committee.
The report that we are debating now is, as all our reports have been so far, the product of a cross-party consensus. There is a huge amount of cross-party agreement on the Select Committee about the importance of, and the issues raised by, the subject of this report—tax in developing countries.
A few months ago, Birmingham was one of the cities and towns that were visited by the Christian Aid bus for tax justice, and I was pleased to join a number of local faith leaders, activists, local NGOs and others in welcoming it. It was good to see people from the constituency there as well. They were concerned that, as the Chair of our Committee has already mentioned, Christian Aid estimates that there could be up to $160 billion annually in taxes that developing countries arguably should be receiving but are not. Whether or not that figure is precisely right, the money involved is big. In short, it can mean the difference between children going to school or not, hospitals and clinics being built or not, and jobs and opportunities being created or not.
There are all sorts of reasons for those missing tax billions, and all sorts of issues raised by them. However, if we are going to tackle this issue, transparency is absolutely the key to doing so; the Committee was also united in that respect. If there are companies that are playing off financial rules and prices in one country against those in another, there is a problem if we do not know about that situation and we will not be able to tackle the issue. If we then “stir in” the use of tax havens, in which NGOs have estimated that up to $13 trillion is stored, we are talking about big, big money.
In relation to tax havens, some people say, and it has been put to our Committee, that they can be an efficient use of money, to ensure that money that is raised can then be used and moved around productively to create jobs and opportunities, and in some cases to boost services, in developing countries. That is okay, but when tax havens are a means of avoiding obligations it is a very different thing indeed.
In just a little while, I will say something about global rules and especially about the need for transparency. Before I do so, however, I will say a word or two about the context, which the Chair of our Committee has already referred to. It is really important that the development that takes place is sustainable.
I am fully behind the UK’s commitment—it is a cross-party commitment—to stick to the 0.7% target on aid; as I say, I am fully behind it. However, in the long term the future of development will become, and should become, less and less about aid, and more and more about ensuring that developing countries have the means and the ability to sustain economies of their own. That must mean that there are tax systems and tax laws that work. In addition, it certainly means that, as the Chair of our Committee said, the leadership of those countries themselves accept an obligation to pay tax—the evidence from Pakistan in that regard is very concerning—and it also means that they need assistance. The UK has been active, and I welcome the Government’s contribution to this, in giving assistance to develop tax systems and so on, providing the kind of capacity-building and technical assistance that can be so very important.
However, we cannot avoid the fact that it is important that those countries still receive the tax that should be morally due to them. That should be an important matter not only for people who are interested in development, such as everyone in Westminster Hall today, but also for some of the media commentators and critics of the 0.7% target. That is because, when it comes down to it, if people are aid-sceptics then it has to be even more important for them that they should be tax justice enthusiasts if the problems of this world are going to be addressed. The issue is important to developing countries, but as the Chair of our Committee said, it is also important for us domestically. Tax dodging by major companies not only depletes developing countries’ resources but has an impact here.
Our report, which is some months old now, was welcomed by the NGO community—by those interested in development. I do not think that I am letting any secret out of the bag, though, by saying that on hearing that the International Development Committee had produced a report, many people across the country probably did not rush to open it up and read it—it passed a lot of them by. The debate on tax justice and morality, however, has been transformed, as the Chair of our Committee mentioned, by the recent high-profile cases of Starbucks, Amazon and others. All credit to the Public Accounts Committee and its Chair, my right hon. Friend the Member for Barking (Margaret Hodge), for bringing the issue so firmly into the public focus and highlighting that this is the tip of a very large iceberg of creative accounting in the multinational corporate world, which is less than creative as far as the public good is concerned, in the UK and in the developing world.
None of us likes to pay tax, and approaches to taxation and tax policy divide parties, but there is now greater recognition than I ever remember that taxation holds society together, globally as well as in the UK, regardless of any differences between parties on tax-raising mechanisms—on what works and what does not. The consensus that a tax system that works has to be in place, and that the corporate great and good have an obligation under such a system that is equal to that of ordinary citizens, is greater than I can remember it being for a long time.
Against that background, I am a little disappointed that the Government did not go a bit further in accepting some of our recommendations. Given that the climate surrounding the matter has changed a lot since the report was published, I hope that over the coming months the Government will review some of their responses to the report, particularly when the Prime Minister himself has said that taxation should be a major focus of the forthcoming G8.
I have a few questions for the Minister, and I hope that she will be able to help us with them today. The first is about automatic information exchange. Our Committee recommended that it would be useful for the UK to adopt something like the system in the United States, where there is the Foreign Account Tax Compliance Act. The Government have said no to that so far, stating that it would not work. That is a point of view, but I have difficulty marrying it with the Government’s now saying that something like that would be a good idea in relation to Crown dependencies and overseas territories. If that sort of thing can be done with them—and I would welcome that—why is it so difficult to do it more widely?
Regarding what works, the Committee recommended country-by-country reporting. This is not rocket science. It is multinational companies reporting, on a country-by-country basis, the names of all the companies belonging to them in each country, along with their financial performance and tax liability, the costs and net book value of their fixed assets and the details of their gross and net assets in each country. That is a really important starting point for getting transparency that works. The Government say that they do not consider that possible either, but I do not follow their logic. They seem to be saying that, at European Union level, they support the mandatory reporting of most of those kinds of things in relation to the extractive industries and forestry, and I agree with that, but why, therefore, can they not go that little bit further and do what our Committee recommended? I just do not understand the Government’s logic here. Can the Minister explain it? Unless we have that kind of information flowing through on a country-by-country basis, how in practical terms will we ever know what is going on with transfer pricing?
My third question is about something that the Chair of the Committee mentioned. The extractive industries transparency initiative is a good thing, as is the fact that the Government welcome the strategy review that is taking place, but would we not have a bit more credibility if we said that we were prepared to join the initiative ourselves, particularly as it was our idea in the first place?
My fourth question is about co-ordination in Government. Taxation is, rightly, normally the province of the Treasury, but we know from the fact that this debate is happening—that we have produced our report and the Government’s response has come in—that it is also something in which the Department for International Development has a big role. However, it is not always clear to me, and to many others, how far different Departments are in step with each other and how much co-ordination and discussion goes on. Will the Minister comment on the extent and, without breaching any confidences, the nature of any discussions that have taken place between DFID and the Treasury about the draft Finance Bill? As far as DFID policy is concerned, has there been any response to the requests—from a lot of places now, in the UK and elsewhere—for provisions to be included in our domestic tax legislation that would assist developing countries to collect taxes?
My fifth question, which is also on Government co-ordination, is: how far, across government, is there engagement with the wider community? Draft Finance Bills and tax systems and so on can seem dry, but the public interest is now greater than ever. Is the Minister prepared to consider or, even better, to commit to some kind of cross-Whitehall consultation with civil society and outside tax experts on proposals for the G8 in relation to tax?
My final question is about clarity. The Committee, along with a number of people outside, have been saying that there needs to be a Minister with responsibility for tax and development in a clearer way than has existed so far. The Government have been fairly silent on whether our recommendations on that matter are a good idea or not such a good idea, so I ask the Minister, would that be a good idea? If the answer is no, what is the alternative, if we are to provide greater clarity across Government on tax and development?
I place on record my thanks to my colleagues and everyone else involved with the Committee for their work. The report has been warmly received outside this place. We were a bit ahead of the game in highlighting the issue’s importance. Some of what we said in the report has been borne out by events since publication, so I hope the Government will go a little further by responding more positively to some of the specific recommendations than they did in their original response.
It is a pleasure to serve under your chairmanship again, Sir Roger.
I am pleased to speak in this debate on the report on tax in developing countries published by the Select Committee on International Development. It is difficult for us to lecture other countries when we do not have our own house in order. I am pleased that the Chancellor is considering how he might tax companies that are not paying their fair share of tax here because, like developing countries, we need tax to address our deficit if we are to continue—and we will continue—to fund international development and many other things. I will be pleased when the Chancellor of the Exchequer returns to tell the House of Commons exactly how he will do that, because it is important. I completely support my two colleagues who spoke before me, my right hon. Friend the Member for Gordon (Sir Malcolm Bruce) and the hon. Member for Birmingham, Northfield (Richard Burden).
I will focus on the part of the report on the role of the extractive industries transparency initiative, which was mentioned by both my colleagues. I am particularly interested in that topic, on which I have tabled written parliamentary questions, and next month I will be visiting a coal mine in South Africa with the Industry and Parliament Trust. I was going to go to a diamond mine, but I have been downgraded, although there will be no problem with free gifts at the end of the visit.
I currently chair the extractive industries transparency initiative group, which is currently an informal body, but I am hoping for it to become an all-party group very shortly as I have just found a final member. At a meeting of the group before Christmas, our guest speaker was the chair of the EITI, the former Secretary of State for International Development, the right hon. Clare Short, who provided a valuable insight into the EITI’s worthwhile work.
The establishment of the EITI was a massive step forward, and I pay tribute to the previous Labour Government for taking the lead in founding the initiative. The underlying principle of the EITI is that Governments disclose the amounts they receive from corporations in the extractive sectors, including payments of taxes, signature bonuses and royalties, and corporations operating in participating countries make a corresponding disclosure of the payments they make to the respective Governments. An EITI report for the relevant country is then published, reconciling the amounts paid by corporations with the amounts received by the Government. Any discrepancy between the two amounts may indicate that revenues are falling into the hands of corrupt officials, which is not unusual in many of the countries we talk about in the international development sector. The methods used are an extremely effective way of identifying possible corruption, and ensuring that the two figures correspond is one way in which people in participating countries are able to call their Governments to account.
There are two stages of EITI accreditation: EITI candidate status and EITI-compliant status. There are 14 countries with compliant status, although one of those, Yemen, is currently suspended, and 21 countries with candidate status.
The EITI has a robust yet flexible methodology—the EITI standard—that ensures a global standard is maintained throughout the implementing countries. The EITI board and international secretariat are the guardians of that methodology. Implementation, however, is the responsibility of individual countries. The EITI standard, in a nutshell, is a globally developed standard that promotes revenue transparency at local level. The EITI rules establish the methodology that countries must follow to become fully compliant with the EITI.
As much as I am a big supporter of the EITI, however, I believe that more than a decade since its establishment—and a productive first decade it has been—the EITI needs to go further in its transparency work. As the report advocates in its recommendations, the time has come for the EITI to publish contracts between mining companies and Governments. The “Publish What You Pay” campaign suggests that such publication would help to expose any contracts that are patently disadvantageous to the country concerned. We only have to look at many countries in Africa to realise that they are mineral-rich, but money is not going back into those countries for Governments to invest for the benefit of their people, not just the higher echelons in society. It is important that such publication goes ahead.
My hon. Friend is making a valuable contribution with her important speech, but does she acknowledge that, prior to the emergence of the EITI, we had situations, such as in Angola, where BP, to its credit, wanted to publish information on the taxes it paid and was basically told by the corrupt Minister who was pocketing those taxes that if BP did so, it would be thrown out of the country and not be allowed to continue its activities? The EITI has done an awful lot to prevent such things, thereby exposing those countries and Governments who will not sign up.
My right hon. Friend makes an important point. Some companies do want to do the right thing by publishing information so that people in those countries know how much money is going to the Government that could be invested in health, education, women’s rights and the whole gamut of things that we try to promote through our international development money. It is important that EITI goes further.
The thing that disappoints me, and has obviously disappointed my right hon. Friend and the hon. Member for Birmingham, Northfield, is that although we were the founders of the EITI, we are not a member. The report states:
“If the Government genuinely hopes to encourage more developing countries to sign up for EITI, it must be willing to lead by example.”
As with the tax we are not collecting, we must sign up to the initiative.
Recommendation 11 suggests that the UK should become a member and that the EITI should request the publication of contracts. The Department for International Development has responded by saying it “partially agrees,” and I am therefore partially pleased, but I urge the Government to re-examine their position on that recommendation. Rather like the tax that the Chancellor has not been collecting from companies in this country, we must lead by example by getting our own house in order before we tell anyone else how to run their country—not that we should be telling other people how to run their country. We should assist countries by giving them best practice, which is an important point for Britain to lead in the world.
I hope the report will make a real difference to the economies of developing countries, because it is one of the most important reports since I became a member of the Committee.
I am delighted to take part in this debate. I have been away from the real world for the past two and a half years, but I have now returned, which gives me an opportunity to join in with some of these things that have wider significance.
Before the last general election, I spent an interesting and helpful year on the Select Committee on International Development. I remember a number of reports from that time, but two seem relevant to the report before us. One was “Aid Under Pressure”, which considered the pressures of the worldwide downturn and climate change. That report stated that development needs in the third world are as pressing now as they ever have been and that significant problems must be confronted. The second relevant report was on urbanisation, which documented the fact that we are now at the tipping point where half the world’s population lives in urban areas. We live not in an agricultural world, but an urban one. In many cases, there are far more small-scale enterprises with productive outputs, with the possibility of their raising revenue for public services. The challenges of doing that are immense, because so many of those enterprises are informal and the land that they are on is often held informally. I remember visiting Nigeria and looking at a DFID project to facilitate the registration of land rights. Property cannot be taxed if the owner is not known. A business cannot be made to pay tax on anything if its existence is not known. The report is a logical follow-through on that, considering the next steps that need to happen.
In so far as establishing my credentials goes, I should say that I, too, met the Christian Aid bus when it came to my constituency. Perhaps hon. Members present who did not meet the bus should draw that to our attention!
Successive UK Governments should take pride in the achievements of the UK in supporting and promoting international development and in the aid targets we have set ourselves and are now, under this Government, achieving. But as the hon. Member for Birmingham, Northfield (Richard Burden) said eloquently, not all our constituents think we are on the right track. They are critical of many aspects of our aid programme. It is therefore important not only that we assert the reasons for having an international development programme, but that we require countries that we are helping to have systems of governance, public administration and taxation that are robust enough to support development in their own right, as far as they can. This document’s recommendations seem to point in the right direction. I will make some points about that in a moment.
All this has to be underpinned by a much wider understanding inside the UK about why it is important to support international development. There is a moral case—many people, perhaps including those on the Christian Aid bus, would put that well at the front as the best reason—but we must recognise that for many of our constituents the moral case is ambiguous at best and, at a time when our economy and public services are under pressure, it is not self-evident in every respect.
We need to make the utilitarian argument as well. If we want less worldwide conflict and migration and we want growth in UK trade and more exports and jobs, we need a peaceful, well-developed world. It is in the UK’s interests to support that and to encourage it to happen.
Of course, those who would criticise the international aid programme would always centre on the criticism that says that it is all wasted and that corruption and, as this report documents, evasion mean that the people there are not doing all they can to help themselves. I go strongly on the moral case, but I always think it is important to say to my constituents that there is an essential utilitarian case for aid as well.
This document goes some way to showing that you can have your cake and eat it. Part of the aid and development programme is about helping countries stand on their own feet and showing how our aid and development programme, and the UK’s policies, can contribute to that desirable aim of having free-standing, self-supporting third world countries that can prosper without the need for subventions from this country or others.
The report contains 16 recommendations. The Government have accepted seven, partially accepted six and disagreed—they do not say “rejected”, which would be too abrupt—with three. Seven yeses, six maybes and three noes. Not all of the 16 recommendations are of equal significance or importance in terms of getting us in the right direction. I am delighted that the Government have accepted seven. Having looked at the recommendations and the Government’s responses, there is nothing that I need to comment on. However, I am sorry about the other nine recommendations and I want to spend a little bit of time picking out one or two of those.
On the partial agreement on getting sound, transparent tax regimes, recommendation 4 states that the Treasury should be pressing Crown dependencies to meet those standards. Clearly, what is good enough for the United Kingdom ought to be good enough for our Crown dependencies as well. The Government’s somewhat wishy-washy response about whether they thought it was a good thing, an achievable thing or anything to do with them was a little bit disappointing. I hope that my hon. Friend the Minister, whom I also welcome to her role, will be a little bit more robust than the Government have been in their formal response and will say that this transparency question is important.
The Government say that they do not want to go any further than the global forum concept, but that does not seem sufficient. They have described it as not being the most fruitful way forward. I encourage my hon. Friend the Minister to tell us what is the most fruitful way forward and how the British Government intend to adopt that, instead of the Committee’s recommendation. Obviously, if the recommendation is being rejected because the Government want to go further, I am with them on that. But it is a good idea for them to spell that out to us more solidly.
The Government disagree with recommendation 6, relating to the UK getting something comparable to the US Foreign Account Tax Compliance Act, saying that they are
“fully committed to tackling tax evasion and”
“transparency and information exchange as key tools but”
do not think that this is an appropriate means to achieve it. There is some wording that I am almost certain the Minister did not put in—it sounds as though Treasury civil servants added it—saying that that Act
“has created significant difficulties for the US”.
Perhaps the Minister could spell out what those significant difficulties are. The US does not seem to think that it has significant difficulties. It is fine to turn down the best machine tool we have because we think that the blade is a bit blunt, but if the people using the tool find that it is working perfectly well, we should have an independent assessment of that or a reassessment by the Government.
The Government response says:
“The aim of this overall approach is to develop a comprehensive network of tax information exchange agreements which will enable the UK”—
“and others to gain access”.
It seems as though they are offering to do everything that does not do anything, and not getting down to the nitty-gritty of what will make a difference. The Committee came up with a valuable, practical and operational way of doing it, which the United States Government are putting in place. It is for this Government to say more distinctly what they intend to do instead, not simply that they do not think that that is appropriate to UK circumstances.
Recommendation 10 is about ministerial responsibility. My hon. Friend the Minister and I, until fairly recently, had some shared experience of ministerial responsibility. I tempt her to agree that the time has come to set up yet another of those inter-ministerial groups, which draws together people from different Departments to consider in the round and with professional support exactly how the Government can do things. Unless I am very much mistaken, my hon. Friend has a piece of paper in front of her stating that the Government are always joined up, they always work together and nothing ever drops the gaps. I entirely support her interpretation of events, but a minor reinforcement of the process by the setting up of an inter-ministerial group could be a further helpful step in the right direction.
Recommendation 13 relates to CDC, which has had what might be called a chequered media profile, and I remember some discussions from when I was on the International Development Committee, as well as the media comment. It is disappointing that the Government have not sought to turn CDC into a much more outward-looking and ethical institution. It ought to be a transparency exemplar when promoting commercial aid and development projects in different countries. There ought to be no question of stuff not being automatically available. Indeed, the Government response is in partial agreement:
“CDC is committed to obtaining further improvements in tax transparency and disclosure, but this will take time.”
Basically, implementation of the Committee’s recommendation would result in CDC overall doing less, not more investment in poorer countries. Paradoxically, however, the response goes on to state that the CDC will continue
“to ensure…fair and full payment of taxes by its investee companies to the countries in which they are based.”
That is fine, but the problem that the Government seem to be claiming is inhibiting their adoption of the Committee recommendation is that they do not want to put the companies at a commercial disadvantage by making them more transparent in their tax affairs, yet they go on to say that they will ensure that those taxes are paid.
For a company that is supported or invested in by CDC and that is performing in such a country, to pay all its taxes as it should would put it at a commercial disadvantage to every other company in that country, which would not be paying its taxes. The disadvantage is in whether it has paid the tax and not in whether it tells people that the tax is paid. The Government have somewhat confused themselves, and I would like them to convert their partial agreement into full agreement with recommendation 13. We have a particular piece of kit—CDC—that is in British Government hands and ownership, so it should be used as the absolute paradigm of good behaviour and best practice in promoting investment.
I hope that gives a flavour of how I believe the Government should respond, but I also want to make a point to do with the lobbying—the presentation—by my good friends in Christian Aid and the consortium; it relates to the £160 billion. No one, and I am sure that the Government do not make this mistake, should imagine that the £160 billion is floating around, waiting to be used for development in third-world countries. If the money comes from somewhere, it will presumably come from the profits of the companies—some would say no bad thing—but if it comes from those profits, the companies would be less profitable, which itself has implications. I am afraid, although it is not necessarily a zero-sum game, it is certainly not a £160-billion-sum game, and we need to be realistic about that. [Interruption.] With the embarrassing noises going on in the background, I draw my remarks to a close.
I congratulate the Chair of the International Development Committee, the right hon. Member for Gordon (Sir Malcolm Bruce), on opening the debate. I commend the work of the Committee members on this important report and its insights into and contribution to the subject of tax in developing countries. The Opposition very much welcome the nature of the report and its hard-hitting recommendations. Alongside the recommendations already adopted by the Government, we hope that the Minister and her colleagues will look hard and closely at the others discussed by hon. Members, including my hon. Friend the Member for Birmingham, Northfield (Richard Burden), which have the potential to make a significant contribution if furthered by the UK Government.
Government Members and my hon. Friend have highlighted in the debate and through their work in the Committee and elsewhere that tax and public finance are the backbone of governance, state-building and effectiveness in any society. They are a vital component of public accountability and democracy. If the international community can do one thing to transform positively the politics and governance of developing countries, enabling them to become self-sufficient, it is to support efforts to collect the correct tax revenue and to ensure that it is spent properly, free from corruption.
The right hon. Member for Gordon mentioned a number of examples of progress being made thanks to investment over a number of years by DFID and others. Countries such as Rwanda and Tanzania, among others, give us signs of hope about how much progress can be made if we make the right investments and help with capacity building, supporting those countries to make the transformative changes to build their states and systems so as to be able to generate the kind of revenues to which they are entitled but which are currently being lost. As made clear by the Committee, we can therefore genuinely look forward to the opportunity for developing countries to be much less dependent on aid, which is surely in the best interests of the countries concerned, as well as of those countries contributing to the aid budget. It would not mean that developing countries will not need our support, but it would mean that they become more independent and self-sufficient, which is exactly what people in those countries want. Our duty is to ensure that we make the contribution and the changes, and to show the leadership required to enable that to happen.
A legitimate and accountable system for tax revenue is therefore critical to alleviating poverty, which my hon. Friend the Member for Birmingham, Northfield highlighted eloquently in his speech. He also spoke highly of the contributions of campaigning organisations such as Christian Aid, and I want to mention the campaign efforts of ActionAid, which has done a great deal of work with political parties across the board and with the Committee.
The report points out that in excess of $13 trillion may be hidden in tax havens and that the estimated cost to developing countries per annum is likely to be around £160 billion, a figure far exceeding the global aid budget. Imagine what could be achieved if that money was available to deal with global poverty.
I want to focus on a number of themes, some of which have already been discussed. I shall pick out three key recommendations of the Committee. I want to discuss controlled foreign companies and the Government’s response to the Committee’s recommendation of UK candidateship of the extractive industries transparency initiative. Hon. Members have raised both issues, but I have a few questions. The third area is the Government’s response to the Committee’s recommendation on the Commonwealth Development Corporation.
The report addresses the Government’s relaxation of their anti-tax-haven law—the controlled foreign companies rules. As my hon. Friend said, the Prime Minister demanded bold steps from his fellow G8 leaders when the UK took over its presidency. He pledged that the UK chairmanship would, among other things, focus on tackling tax dodging. However, the current reforms to CFC rules do not meet the Government’s rhetoric. Although we appreciate the need to reform those rules to provide certainty and an attractive climate for businesses based in the UK, there are, as the report and hon. Members here today pointed out, real concerns among Members of Parliament and organisations that campaign on the issue that that will lead to a setback and damage the prospect of developing countries being able to raise the sort of revenue that they have raised in the past.
Action Aid said of the changes that
“a significant deterrent that discourages UK-based companies from shifting profits from developing countries to tax havens”
will be lost and estimates that reforms may cost developing countries as much as £4 billion. If that is true, as many have indicated is likely, it is a scandal that the Government will preside over the change, and shameful that they will not consider the matter and take on board the Committee’s recommendation to carry out the impact assessment. That recommendation was also made by my party during discussion of the 2012 Finance Bill when an amendment was tabled to ask the Government to reconsider.
Will the Minister work with her colleagues in the Treasury and consider the matter again? As hon. Members have said today, the climate is right, and the opportunity exists—the British public are becoming increasingly aware of the dangers and immorality of tax avoidance as well as tax evasion—for the Minister to work with her colleagues to ensure that the change does not damage prospects for people in developing countries and that the loss of revenue does not happen. The sum is £4 billion, although the Government dispute that, but even if it is less it is a significant sum, which could make a difference to some of the poorest people in some of the poorest countries in the world.
The hon. Member for Mid Derbyshire (Pauline Latham) raised the important issue of the EITI, and I want to reiterate her point. Given the leadership role taken by the former Labour Secretary of State, Clare Short, and others—the British Government are recognised as having achieved this important development—it is right and it is time that the Government signed up to the EITI. We would show not only that we were the initiator, but that successive Governments have led by example, and this seems to be an opportune time to do so. Will the Minister work with her colleagues to reconsider the recommendation, and move from disagreeing to agreeing?
The right hon. Member for Hazel Grove (Andrew Stunell) referred to a key recommendation on CDCs, and it is clear that there are inconsistencies in what the Government are saying. Surely it is more appropriate and sensible to put serious weight behind transparency, and this is an important way in which to do so. Will the Minister say whether the Government will reconsider? The issue is tied in with country-by-country reporting by multinationals, not only in the extractive industries, but multinationals generally. Many are increasingly under public scrutiny for some of their actions, which people believe are unethical, and are attempting to improve their behaviour. The Government should show leadership, and one way of doing so is to increase country-by-country reporting and transparency. I hope that the Minister will look at the matter again, consider the views represented in the Chamber and expressed by the Select Committee, and rethink the Government’s position.
To reiterate a point that others have made, this issue is critical, but some people will say that it is not the most—
The Minister used the word, and I will not repeat it. The issue is significant. If we get it right, tax and revenue raising for development will be a major contribution. It is not a magic bullet, but if there were something close to one, this is it. The Select Committee’s contribution in pulling the evidence together and highlighting the scope for action comes at an important moment. The public are leading the debate through their campaigning in the domestic arena, and people are increasingly recognising the immorality of tax evasion and avoidance, and this is an opportunity for the Minister and her Government to consider how to close those tax loopholes and to ensure that countries receive the revenue that is generated but that they are losing. The Government must provide the necessary support to make that happen. I hope that she will take on board the questions and issues that have been raised today.
It is a pleasure to serve under your chairmanship this afternoon, Sir Roger. I thank and congratulate my right hon. Friend the Member for Gordon (Sir Malcolm Bruce) on securing this important debate. I also thank him and the International Development Committee for providing a wide-ranging and thought-provoking report. Finally, I thank all those who provided evidence to the inquiry, which included representatives of business, leading academics and non-governmental organisations. Many points have been raised, and I will address as many as possible in the time left to me, but I want so make some general comments.
I agree with the Committee on the significant role that effective tax systems play in helping developing countries to increase their national prosperity and reducing aid dependency, so I welcome the broader parliamentary debate on the issue. Taxation is at the heart of what the Prime Minister described as the golden thread of development. As has been said, helping developing countries to mobilise domestic resources offers the only sustainable alternative to aid for the funding of public services. At the same time, taxation is an important part of governance and state building. It builds the relationship between citizens and the Government, making states more effective. Fair and transparent tax collection promotes social cohesion, shapes Government legitimacy, promotes accountability of Governments to tax-paying citizens, and stimulates effective state administration and good public financial management.
Taxation is a very important part of economic policy, for growth, trade, investment and private sector development, as well as for meeting environmental challenges. The coalition Government are committed to supporting developing countries to access sustainable sources of revenue and to collect the tax that they are due.
My right hon. Friend the Member for Hazel Grove (Andrew Stunell) asked if not this, what is the most fruitful way? That could be applied to many issues raised today. Apart from international negotiations and conferences, the most fruitful way this country can work with and help Governments across the developing world on this issue is through our world-respected and professional technical assistance on tax. We are lucky in this country, because we have Her Majesty’s Treasury to tell us how to do things. The rest of the world is not so fortunate and that expertise—[Interruption.] Why are people murmuring laughter at our being so fortunate? It is one of our principal talents and skills, and we can offer the world that expertise and really make a difference. I will come on to Zambia in a minute, because as my right hon. Friend the Member for Gordon said, there has been a huge achievement in terms of tax revenue collection, but there are also some holes in the system.
The IDC’s report acknowledged the value of support that the UK provides to revenue authorities. DFID’s work with partner countries on tax includes 48 tax programmes across 20 countries, totalling around £20 million a year. Our support is focused on where we can make the most difference and get the best results for our developing country partners. As several hon. Members have mentioned, we also need to deliver the best value for money for UK taxpayers. Most of DFID’s work on tax is at a country level. Projects are managed by staff who live and work in the country, which means that projects can be responsive and demand-led. Tax projects may focus specifically on strengthening revenue collection or on broader objectives, such as public financial management reform or public sector reform.
In Afghanistan, which my right hon. Friend touched on, from 2007 to 2012 we helped increase tax revenues from 4% of GDP to 11.6%, helping the Afghan Government to finance the delivery of basic services. Last month, the Secretary of State for International Development was in Afghanistan, extending that support to the Afghanistan Revenue Department until 2016 with the aim of increasing revenue collection to 15%. In Ethiopia, HMRC’s support to the Ethiopian Revenues and Customs Authority, together with other support, helped to reduce average customs clearance times: for example, low-risk imports went from seven days to 10 minutes, and exports from eight hours to 15 minutes. Those are huge barriers to have removed. In Rwanda, the UK helped to provide the laws and regulation under which the Rwanda Revenue Authority was established, and the office building and management systems. The authority reached a point at which it was collecting the full £24 million of DFID’s 10-year support programme every three weeks, and its effectiveness has been an important factor in Rwanda’s impressive record on development performance.
Building capacity of revenue authorities is important and, as other hon. Members have said, so is ensuring revenues are spent effectively. We do that in a number of ways. We recognise the importance and value of transparency in tackling tax evasion. The global issues referred to in the report have been getting more attention, and are rising up the agenda. Although not good, it has been helpful to see those corporate moves that meant that the large companies referred to in this debate paid so little in this country over a number of years. That has made the issue of how corporations use tax systems in different countries to move around their profits more understandable to the wider public, and that is a great motivator. The Prime Minister has put tax evasion and avoidance right at the top of the agenda for the G8 and is focusing on fixing the issue here, too.
I want to address some specific issues that have been raised. A number of hon. Members raised the issue of the EITI. In terms of our membership, the UK is a real supporter of the EITI, and first thought of it, but we did not implement it in the past because the IMF did not consider us resource rich. Greater transparency in the extractive sector will be an important focus of the UK’s G8 presidency in 2013. As others have said, the UK can hardly call on other countries to implement the EITI or live up to high standards if we are not prepared to do so ourselves. That is why the Prime Minister called for an urgent review of the UK’s position on EITI. We expect that review to be concluded by the end of January. We provide support to the EITI International Secretariat and the EITI multi-donor trust fund, which provides technical assistance to implementing countries and represents the UK on the EITI board. Our bilateral programmes support EITI candidacy and/or implementation: for example, in the Democratic Republic of the Congo, Nigeria, Afghanistan and Burma.
[Mr Charles Walker in the Chair]
At the moment, a decision has not been taken on the publication process of the EITI review, but the broadening of the scope was also raised. The Government welcome the review of the EITI that is under way to develop a broader standard for consideration by the EITI board, with a view to possible introduction in 2014. The UK is an active participant in the strategy review, which is a multi-stakeholder process, considering a wide range of proposals that could be included in a revised standard. As was raised by my hon. Friend the Member for Mid Derbyshire (Pauline Latham), the proposals include disclosure of contracts, more disaggregated reporting of data and background on the sector, among other things.
A number of hon. Members raised FATCA, or the US Foreign Account Tax Compliance Act. The Government are fully committed to tackling tax evasion. As we stated in the Government response to the Committee, we do not regard the unilateral introduction of a version of the US FATCA in all its glory—so to speak—in the UK as the means to achieve automatic information exchange, because FATCA is unilateral and extraterritorial in its approach. For example, it imposes severe withholding taxes on those that do not comply. While I cannot elaborate at this point on the significant difficulties that have been created for the US as well as the companies affected by its implementation, I am happy to undertake to write to my right hon. Friend the Member for Hazel Grove on that issue.
That said, as hon. Members may be aware, the Government have signed an agreement with the United States of America. It is the first of its kind and it will significantly increase the amount of information automatically exchanged between both countries. As announced at the autumn statement, the Government see that as testing a new international standard in tax transparency. Obviously, when we see how that goes, the Government will look to conclude similar agreements with other jurisdictions. The UK and the Isle of Man have jointly announced our intentions to conclude an enhanced automatic tax information exchange agreement, based on the UK-US FATCA agreement. We are also in similar discussions with the other Crown dependencies and the overseas territories. The Government commend the great leadership of the Isle of Man in this area. The G20, of course, is committed to strengthening tax transparency and the exchange of information.
I am grateful to the Minister for giving way. If I understand her correctly—I hope she will tell me if I have got this wrong—in terms of the outline agreements that are being reached with the United States and the work that is being done in relation to overseas territories, are the Government saying that they see those as a kind of pilot scheme for a more extensive automatic transfer of information? If so, that sounds like a good thing. If not, there is still a gap. What about the wider application of automatic transfer of information?
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.
I will speak just for the time it takes the Minister of State to assume his place.
I thank the Minister for her response. There are clearly differences between the Committee’s recommendations and the Government’s view. Even if the Government are not willing to accept our specific recommendations, may I say in a constructive spirit that I hope they will strenuously undertake to do everything they can to encourage greater transparency nationally and internationally, using whatever mechanisms they think will work? We would certainly expect them to pursue that issue, because the domestic and international agendas have coincided.
The Minister’s example of the work the Revenue has done shows how difficult transfer pricing is for a country such as the UK, but it is 10 times more difficult for small developing countries with virtually no capacity, which is why they need support. I am therefore grateful to her for saying that the scaling-up of this activity is being actively considered. We on the Committee always say that what we are really interested in is what works, and this activity works, so we need more of it.
[Relevant documents: Afghanistan: Development progress and prospects after 2014, Sixth Report of the International Development Committee, HC 403, and the Government Response, HC 862.]
The indulgence of the House has allowed the Committee to bring two reports for debate, and we are grateful for that. Indeed, under the new procedure we had the advantage of briefly presenting the report on Afghanistan in the main Chamber, which enabled us to have a good, topical exchange. Therefore, I do not wish to detain the Committee by repeating too much of what was said; instead, I want to focus on points of difference and points of commonality between the Committee and the Government.
Obviously, the most contentious thing we said in our report was that the Department for International Development’s unique mandate in Afghanistan of promoting a viable state, which it was given by the National Security Committee, was—I think this is the best way to express it—unrealistically ambitious. I have read the Government’s response, and I did not expect them necessarily to accept what we said, but we thought it was important to raise the issue. Of course we, too, would like Afghanistan to be a viable state. After all the trouble that the people of Afghanistan have been through, they deserve a viable state, and anything the UK Government can do to contribute to that is right, proper and responsible, so I hope we have agreement on that.
Our concern, however, was that there was an over-extended idea of what DFID, specifically, was capable of achieving. That took us away from the fact that DFID is good at promoting development, in the sense of better governance, which is a contribution towards a viable state; encouraging livelihoods; delivering education and health; and generally improving quality of life. In a situation that will be very uncertain and unpredictable post-2014, we felt it would perhaps be better to make that DFID’s priority. In any case, the Government have mandated DFID to do that, and I quite understand that it will say, “That is our responsibility. That is what we want to do, and we will say how.” However, I hope the Minister will understand that our comments were meant in the spirit not only of saying, “Let’s get hold of what’s possible,” but of establishing what the real priorities should be, given what DFID can realistically do, rather than getting ourselves too hung up on aspirations that require many more players—indeed, the entire international community and all the players in Afghanistan—to deliver.
That said, the Committee decided it was important to revisit the situation in Afghanistan to look beyond the date when the engagement of combat troops comes to an end at the end of 2014. The Committee had visited Afghanistan five years before; the hon. Member for Birmingham, Northfield (Richard Burden) was on that visit, and I obviously went on both visits. The visit this time took place between 17 and 21 June 2012. We recorded that we were inhibited by the security situation from getting as deeply into development projects as we would have liked. Nevertheless, we had a useful visit, and we had the opportunity to engage with a number of important players.
Once we had analysed the situation, we felt there was a second significant comment to make. It was impressed on us time and again that the almost defining dilemma in Afghanistan—indeed, the way we could articulate the progress that had been, and continued to be, made there—was the status of women. A lot of the information presented to us—it consisted not just of statements; it was backed up by facts and figures—said that Afghanistan is, without qualification, the worst place in the world to be a woman.
The IDC’s excellent report makes a number of really important statements on this issue. In particular, it states that
“the treatment of women…post-2014 will be the litmus test”
for success. There has been a lot of progress in the past 10 years, but 87% of Afghan women still face some form of violence. Does the right hon. Gentleman think that one solution would be for the next operational plan to include women’s rights, and particularly dealing with violence against women, as a thematic priority?
I am grateful to my hon. Friend for that intervention. Yes, the Committee does think that. To be honest, we would like the Government to take a much more explicit position on that. In reply to us, they said that, based on the Tokyo agreement and other measures, they believed enough was in place to protect the achievements so far and the rights of women post-2014. I have to say that that view was not widely shared by the women we met, which was not very many, but the ones we did meet were very vocal. Although we understand the Government’s reasoning, when we tried to look at programmes specifically aimed at the rights and needs of women, we found that those programmes really did not exist. The response to that is, “Well, that’s mainstreaming.” However, the issue of women in Afghanistan is such that mainstreaming simply is not, and cannot be, enough. That is precisely why we used the expression “litmus test”.
Those are the two most contentious things we said, and I am quite certain the Committee will stand by them. No doubt, the Minister will stand by the Government’s response. Even if we disagree, however, I hope we can accommodate the fact that we are looking for the maximum engagement by the UK Government to ensure that the progress that has been made is, to the extent that we have the capacity to do this, continued beyond 2014. I also hope we recognise that monitoring the rights and progress of women is the best single way of identifying what is going on in Afghanistan. I put it as crudely as this: if the position of women in education and employment, and the moves to tackle violence against women, have moved in a positive direction by 2020, we can be sure that Afghanistan has moved in a positive direction; if the reverse is true, the reverse will be true for the whole of Afghanistan.
That does not mean there has not been a lot of progress or that we can make any serious predictions about where Afghanistan will be by 2014. The optimists say, “It’s a success. By 2014, we will have achieved a fully trained army, a fully functioning police force and a viable Government. We can withdraw. Afghanistan is secure as a functioning, viable and, to some extent, democratic state.” That is absolutely what we would like it to be, but I do not think anybody believes it will be like that. However, it seemed to us that the pessimists, who think Afghanistan will immediately collapse and be taken over by the Taliban, were unlikely to be right either. The picture seemed much more confused and unpredictable. We do not even know who the Government will be, who will be elected President or what the composition of the Parliament will be.
We received some disturbing evidence. BBC correspondent David Loyn is quoted in our evidence as describing Afghanistan as a “rentier state”. In other words, an awful lot of the movers and shakers simply go where the money is and siphon it off for their own purposes. Not all of it is going that way, because clearly if it were, there would not be progress in the number of girls in school and children being vaccinated, or in the delivery of health services and the improvement of roads. It is completely wrong to think that nothing has been delivered. A lot has been delivered, and progress has been made. There are now 3 million girls in school, where there were none before; but there are probably another 3 million who are still not in school, so let us not lose sight of that. We have not cracked the whole problem.
Such things are variable across Afghanistan. One of our difficulties was that we could not go to places we should have liked to visit; but there is plenty of evidence to show that things are very difficult in some places and better in others. That has probably always been true of Afghanistan. It has always been a centripetal kind of state, with a lot of variability. One group in the Committee went to Helmand, and one group, which included me, went to Bamiyan. That is a tale of two completely different Afghanistans. Helmand, which is of course in the headlines as far as Britain is concerned, is where British troops are deployed, where we run the provincial reconstruction team, and where we have suffered substantial casualties.
I do not want to get engaged in the question of the military position in Afghanistan. It has been well expressed and documented, in Helmand in particular, but it is clear to the Committee that we cannot, post-2014 when the PRT is closed and the combat troops are withdrawn, leave the people of Helmand without any commitment from the UK to their future development. However, we must recognise, as the Department for International Development has done, that operating a district office, for example, is unlikely to be achievable in that scenario. Indeed, the decision has been taken that that will not happen, so the programme will have to be run out of Kabul. Therefore, in our view, we must have a different approach, involving partners who can, as our representatives, engage locally and win the trust, and the hearts and minds, of people on the ground. It cannot be done from Kabul; it must be done by people who are there, who probably will not be DFID personnel.
On the other hand, those of us who went to Bamiyan—unfortunately it was only for a day trip and we could not stay for a second day as had been intended, or get out and about as we had hoped—saw a completely different picture. It is worth recording that the PRT, which is being wound down, is led by the New Zealanders. We had a spectacular flight into Bamiyan, through the mountains and past the Buddhas on to the airfield by which the PRT is located and were quickly whisked from the plane to the PRT. The New Zealand commander said he would happily have walked into town with us, as he had done with a three-star American general in full uniform several weeks before. They were able to sit down in a coffee house, and all that happened on the walk to town, a mile there and back, was that the general was stopped every few yards by people insisting on having their photograph taken with him, shaking his hand and thanking him and the NATO forces for bringing what they saw as peace and opportunities for prosperity and development. The records show that in Bamiyan there has not been an explosion of any kind of ordnance in 10 years; so not all in Afghanistan is violence, conflict and insecurity. There is a variation, from one extreme to the other. It is important to note that, because it shows that there are opportunities.
The chancellor of the university in Bamiyan told us that the matriculation of young women students had gone up from under 10% to more than a third of students in three years. As he put it, fathers and young men appreciated the prospect of educated daughters and wives. That was positive and good.
Having gone to the contentious places, we concluded—and I think that the Government agree—that the programme must be flexible and fleet of foot, and will have to respond to rapidly changing and unpredictable circumstances. We suggest that that approach is more likely to work. Indeed, if there is a plan B that recognises that, we will not be inhibited by sudden changes of direction; we shall have enough options.
Others want to speak, so I do not want to detain the House other than to say that we made a particular recommendation about our concern about the security forces, with which the Government did not wholly agree. Some colleagues had a briefing earlier in the week, which I could not attend, and they may say more if they catch your eye, Mr Walker. My understanding is that there are points of concern about the treatment of people in detention, which has deteriorated; about the variable functioning of the police; and, particularly, to return to the gender issue, about the shortage of women police—there are only 1,300—and the clear need for many more of them. In the post-2014 situation, trust between the people and the police will be a crucial part of security and space for development.
Will the Minister tell us something about the future of the community development councils? We did not have much chance to engage with them this time, but we got evidence about them, and have engaged with them in the past. Our view was that they are a good basis for grass-roots democracy and the building up of a more decentralised capacity. In that context we wanted more devolution of decision making to the provinces, because the nature of Afghanistan is that capacity is needed across the country. Kabul does not hold Afghanistan and if there is no capacity for administration and policy delivery outside Kabul the country cannot hold. We are concerned about the extent to which the UK Government, who have a policy in that area, will help to deliver it further.
The Committee has a positive wish that those who believe that the engagement in Afghanistan was a mistake should be proved wrong. Most of us do not believe we should not have been there. Indeed, there was plenty of evidence that an awful lot of people in Afghanistan are extremely grateful for the improvements in their circumstances since the NATO engagement, compared with the previous 20 years. The optimistic point is that an awful lot of people therefore have a stake in ensuring that those improvements should not be lost. It seems to the Committee that the role of the UK Government, in co-ordination with the international community, is to do all that they can to ensure that those gains will be maintained and, if possible, extended. In those circumstances the priority for DFID is to do what it does best—development—rather than nation building.
I welcome you to the Chair, Mr Walker. It is a pleasure to follow the Chair of the Select Committee, the right hon. Member for Gordon (Sir Malcolm Bruce). As he said, I was not able to go on the last Committee visit to Afghanistan. Injury, sadly, prevented me from doing so. However, I was on the visit that we paid to the country in 2007. It is the only time I have been there, and is an experience that will stay with me for ever. Afghanistan is one of those places that gets to you.
That leads me to a point about the overall tenor of our report, and what we were trying to say. What we said about the need to be clear as to what we are doing post-2014—particularly in relation to DFID’s work in Afghanistan—and about concentrating on such things as poverty alleviation, and focusing less on state building, attracted comment. It is important to point out that we are not saying that the things DFID and the UK Government have been doing until now were unimportant. We certainly do not say that state building in Afghanistan is unimportant. However, we are cognisant of the kind of message that has been impressed on hon. Members across the House for some time by the hon. Member for Penrith and The Border (Rory Stewart), who is not a member of the Committee but who has a wealth of experience from Afghanistan and beyond. We need to be clear about what we are doing. I said that Afghanistan is the sort of place that gets to you; but those who want to contribute as positively and constructively as possible need to get Afghanistan. Part of that means not trying to do everything and being aware, to some extent, of what we can do and what we can do best. That is not to say that we should be unambitious and go only for the easy stuff—it is not that we should climb mountains that are flat. We need to concentrate and focus on the kinds of things we say in our report, which are hugely challenging issues. Gender and the position of women are not unchallenging areas in which to be involved in Afghanistan, nor is the accountability of the security forces or what we have said about human rights. It is important to set that in context.
DFID and the UK have done tremendous work there, but as we move to a new situation post-2014, which is uncharted in so many ways, it is important to bear in mind the wise words we have heard from people such as the hon. Member for Penrith and The Border and others.
I would like to touch briefly on one area on which I would appreciate the Minister’s comments. To some extent it flows from our report and is certainly topical at the moment: emergency relief and humanitarian assistance as we move into winter. I shall refer to a striking article in The Guardian on new year’s eve by Emma Graham-Harrison, who was in Kabul. She quoted the UN deputy envoy and humanitarian co-ordinator in Afghanistan, Mark Bowden, who clearly said that more aid money needs to be dedicated to emergency relief at the moment in particular. The article came out with a striking quote from 77-year-old Shah Ghasi:
“Each family already has two or three people who are sick”.
He has squatted in a camp on the outskirts of Kabul for nearly a decade. He says:
“We only have hot water to try and keep warm—no stoves, no fuel.”
If we look at the forecast, we see that nobody knows how severe the winter will be. It is forecast to be a bit milder than 2011, so the impact of cold on the camps may not be as bad as it was last year, but we are talking about a country with one of the world’s worst child mortality rates, rampant malnutrition and other health problems that can make the challenges presented by winter particularly difficult.
The Minister and I have discussed, across the Floor of the main Chamber, other emergency situations on which winter is having a big impact—Syria being an obvious one. The UK is stepping up to the plate there better than a number of other countries are. The scale of the problem in Afghanistan as we go into winter should not be ignored; it could become greater, as violence is still bad and in many ways getting worse. Slightly echoing some of the problems in Syria, Mark Bowden said that only a tiny percentage of aid money coming into Afghanistan, perhaps just single figures, goes to supporting urgent humanitarian needs and that donors stumped up less than half the cash the UN sought for Afghanistan’s emergency response fund this year; at one point the fund was completely empty. Those comments were reported in the article to which I referred.
The situation is serious. A week before the article was written, 10 people apparently froze to death waiting to cross into Pakistan from Afghanistan. When the problems are that severe, in a country as poor as Afghanistan, with its problems of health and conflict, we need to address them, particularly at the moment. If the Minister says one or two things about that, I will be particularly grateful. If he wants to reflect on it and write to us, I would also, obviously, be grateful for that.
It is a delight to serve under your chairmanship, Mr Walker, for what I believe to be the first time. I visited Afghanistan for the first time with the Committee last year. I particularly want to focus on the rights of women and girls, as did my right hon. Friend the Member for Gordon (Sir Malcolm Bruce), the Chair of the Select Committee on International Development. It is an appropriate topic to discuss, because the UN theme for international women’s day, which is very soon—8 March—is:
“Elimination and prevention of all forms of violence against women and girls.”
Since 2001, when we went into Afghanistan following the attacks on the World Trade Centre in New York, we have spent £30 billion on aid to the country, and I still believe that the rights of women and girls have not been fully recognised. I would like to point out, however, that the aid we have invested in Afghanistan has achieved an enormous amount. For example, as my right hon. Friend said, more than 3 million girls are now in education. Maternal mortality has also been brought down.
Prior to 2001, the Taliban banned girls from going to school. The role of women has been key to transforming Afghanistan. I am pleased that the report, in recommendations 19 and 20, clearly states what needs to be done to ensure that work in that area continues to move forward, and gains need to be capitalised on, not lost. Some women we met when we took evidence here, who were modestly but well dressed professional women, were asked what would happen if they dressed that way in Afghanistan; the simple answer was, “We’d be stoned to death.”
I would like to mention three headlines on three consecutive days in December 2012. One from Reuters states:
“Female government worker shot dead in Afghanistan…Nadia Sediqqi, acting head of women’s affairs department in Laghman province, is shot dead on her way to work. Violence against women appears to be on the rise in Afghanistan…Unknown gunmen have shot dead a senior female government worker five months after her predecessor was killed in a bomb attack, officials in eastern Afghanistan say.”
One on 11 December states:
“Afghanistan women ‘still suffering horrific abuse’…Thousands of Afghan women are being failed by the country’s justice system…Yet the reality suggests many women still live with the daily fear of violence. Last month police said they arrested two men in Kunduz for allegedly beheading a teenage girl after her father rejected a marriage proposal. It came soon after four policemen were sentenced for raping an 18-year-old.”
And on 12 December:
“Afghanistan: Women suffer despite anti-abuse law, says UN”.
Things are not as rosy as we would like.
Does my hon. Friend agree that the point raised by the Chair of the Select Committee about the worrying failure to recruit female police officers highlighted something concrete that the UK can do to improve the situation? More female police officers would help, not only because they would be recruited into economic activity, but because there would be women in the security services who those suffering violence could go to, so they could access protection from the police force, which is often hostile. Afghanistan has a target of recruiting 5,000 female police officers by 2015. Surely, we should support that target.
My hon. Friend makes an important point. As we know, we also need more female doctors able to examine girls when they have been raped or abused in any way, so that they will share their stories with females, rather than be unable to talk because they are being examined by men or, very often, taken into custody because they have been raped.
To say that women in Afghanistan are second-class citizens is still a vast understatement. The Taliban are still present in Afghanistan and some would argue that they have moderated their view on women, which I believe many of them have, but there is a divide, with some of them wanting to return to their old-fashioned values. For example, I am sure that most people are aware of the incident in Kandahar, when students were forced to watch as their head teacher was executed for ignoring Taliban orders to stop the schooling of young girls. In addition, only a year ago the current Government, led by President Karzai, supported senior clerics in the country who have allowed husbands to beat their wives in certain circumstances.
The organisation Global Rights has stated that 87% of Afghan women will suffer domestic abuse in their lifetime, and those who stand up to their husbands are punished for their behaviour in disrespecting their husband. In Afghanistan, we met an educated woman who has a good job, but her brother will still decide who she marries. She has no choice in that, and she cannot even tell him the sort of man she would like to marry, because he will ignore it. That is not uncommon there; it happens all the time.
Before I visited Afghanistan, I read a story on the BBC News website about the “I had to run away” report published by Human Rights Watch. The report highlighted that hundreds of Afghan women are in jail for so-called moral crimes, including running away and extramarital sex. It stated that women were punished for fleeing domestic abuse and violence, and that some rape victims were imprisoned. I want to point out what is meant by “extramarital sex” in that context. It is sex outside marriage where a woman is forced to have sex against her will—what I think most people in this room would consider a clear case of rape, but which is in fact deemed a moral crime. The report also calls on the Afghan Government to release about 400 women and girls held in jails or juvenile detention centres.
There has been a sharp rise in honour killings and violent crimes against women. Forced marriages and forced child marriages remain widespread, which, apart from a range of emotional distress, means that women and girls are unable to become independent. They become trapped in a vicious circle that often makes them reliant on their abusive husbands. That is the current situation in Afghanistan, more than a decade after military intervention. My deep personal fear, which is shared by Orzala Ashraf, the independent civil society activist who gave evidence to our Committee, is that as we approach the withdrawal of forces in 2014, women risk “dropping off the agenda.”
I must pay tribute to the former Secretary of State for International Development, my right hon. Friend the Member for Sutton Coldfield (Mr Mitchell). On his appointment to that role, he made the empowerment of women a central theme of his Afghanistan development strategy. Our report points out our slight concern that that may not be being translated into a priority for DFID on location in Afghanistan. Should that be true, I hope that the Government will encourage such a priority and press it as the most important part of what they can do.
It is extremely important that the Government work with the international community to support Afghanistan fully to meet United Nations Security Council resolution 1325 on women, peace and security. I am therefore pleased that DFID, in its response to the Select Committee report, has agreed with recommendation 19, which is to seek to combat violence against women through support for women’s shelters and legal services, and to continue to ensure that women and girls are a major focus for its education and wealth creation programmes.
However, I urge DFID to rethink its disagreement with recommendation 20, which proposed the creation of a joint donor and Government plan for women and girls during the transition. That would encourage donors to commit themselves to specific programmes and objectives based on evidence and consultation. I believe that, as it states in our report, that
“could help catalyse greater commitment and sustained political will to ensure that women and girls are not forgotten in transition.”
I hope that the report will make a real difference to the people of Afghanistan and to world security. I know that the Minister will do all that he can to support our views.
It is a pleasure to serve under your chairmanship, Mr Walker, and to follow my hon. Friend the Member for Mid Derbyshire (Pauline Latham), who made such a passionate speech about the position of women in Afghanistan. My colleagues on the International Development Committee have covered some areas in detail, so I shall attempt to cover those that have not been touched on.
I want to focus on what our report said about the private sector and DFID’s response on that. I also want to say a few words about taxation and the increase in revenue, which has been one of the success stories in Afghanistan but still needs a lot more work. I will then conclude with some remarks about oversight for the Afghan national security forces and about this week’s comments by the UN deputy special representative, with whom we had a meeting.
As we all know, the private sector is the engine for growth, and growth is as important to Afghanistan as it is to the United Kingdom. One of the major areas of disagreement that the Government have with our report is on our comments about DFID’s approach to the private sector in Afghanistan. In many ways, I hope that we were wrong and they were right, but we had some concerns about DFID’s approach to that extremely important area.
It was difficult for us to see the work on the ground. As my right hon. Friend the Member for Gordon (Sir Malcolm Bruce) mentioned, we hoped to see some of the work in Bamiyan, but it just did not prove possible, so we had to take people’s word for it. I will just cover some of the areas in which DFID is involved. The first is agriculture, which is of course absolutely vital. It is a passion of mine. DFID is involved in the reduction of poppy cultivation, and therefore in the increase of the cultivation of other crops; in de-mining; in strengthening institutions focused on agriculture; in improving productivity of cereal crops through irrigation; in high-value vegetables; and, indeed, in commercial poultry. All those are essential.
One thing that we noted and wanted to bring to the attention of both DFID and the Afghan Government was the fact that many opportunities for adding value to agricultural produce do not seem to be taken up. Most agricultural produce went across the border to Pakistan in raw form and came back in processed form, thus denying Afghans the opportunity to add value, income and the employment of their own people. We want to encourage DFID to see how it can further help in adding value to agricultural produce in Afghanistan. Agriculture is of course essential and, by the end of this period in 2015, we want DFID to have made real progress in that area. I am sure that it is capable of doing so, and that the Minister will respond about what is now going on and being achieved.
DFID has a strong programme to support employment and enterprise, particularly through small and medium-sized enterprises that, realistically, as is the case in this country, will be the main generator of employment and growth in Afghanistan. DFID’s target is 20,000 jobs by the end of this period. It would be excellent if the Minister gave us feedback on how that programme is going and what it consists of. It would be a great step forward if the programme could achieve that and, indeed, even more.
Another area is good infrastructure, without which economic development is difficult at best, and impossible a lot of the time. DFID has a major programme of developing infrastructure, particularly in rural areas, with more than 1,100 km of secondary road and 1,095 of tertiary road planned. I am very pleased by that, because the emphasis is often on primary roads—asphalt or tarmac roads—that look good and are great if people are near one, but if people are even 5 km away and on an awful road, such roads do not help much to get their produce or animals to market. DFID has concentrated on that, as we saw in the Congo. DFID’s work on one road that I had the pleasure of travelling along meant that a journey that would have taken five days took two hours. It makes a huge difference. I would be pleased to hear the Minister’s comments on how the programme to develop rural road infrastructure is going.
Then there is the elephant in the room of the Afghan economy: mining. We were told that the value of minerals in Afghanistan is estimated—possibly underestimated—at $3 trillion. Their extraction would make an enormous difference not only to the Afghan economy but to Afghanistan’s tax base and therefore its public services. We were pleased to see that DFID has engaged strongly in the development of governance over mining, particularly taxation. We would be pleased to hear from the Minister what progress has been made since we were there, whether the mining industry, which was developing fast when we were there, has made further progress and whether that has resulted in an increase in revenues to the Government as well as local employment. I think that we are all hoping that we were a bit too pessimistic about DFID’s private sector programme, and that the Government are right that it is on track and will make a major contribution. I hope that we are proven wrong. That is what we would all like.
On taxation, tax revenues about a decade ago amounted to a mere 3% of a very low GDP: in effect, to nothing, which made Afghanistan completely dependent on aid. With the substantial help of DFID, that has now risen to 11%, more than in Pakistan, which was referred to in the earlier debate, where it is less than 10%. We should congratulate both the Afghan Government and DFID on their work on that. However, 11% is still a long way from where things should be.
I will make a few comments on taxation, perhaps referring a little to the earlier debate. Taxation is indeed the route out of aid, because from taxation derives the ability to pay for public services. I remember reading in the office of the Tanzanian tax inspector with whom I was having some discussions when I worked out there, “When I pay taxes, I buy civilisation.” That was pretty much the only comment made in that office with which I agreed, but it made the point that taxes are the means of acquiring schooling, health care, security and all the other goods that we take for granted.
There are various types of taxes: income-based taxes, sales tax and VAT, mineral royalties, customs duties and crop levies. Traditionally, in developing economies, the bulk of taxation has come from customs duties and crop levies, because they are easy to collect; you see something—a crop or an imported car—and you tax it. However, those are regressive taxes, in that crop levies affect smallholder farmers and tend effectively to result in a marginal income tax rate, which can often be 30%, 40% or even 50% once the cost of production has been taken into account, and customs duties tend to prevent trade, particularly exports. Concentrating on those taxes is not recommended.
The route upwards in tax collection is clearly sales taxes such as VAT and income-based taxes, whether on personal or company income. Much more needs to be done both in Afghanistan and elsewhere on the collection of corporate and personal income taxes as well as VAT. They require highly skilled and honest revenue authorities, which is where DFID comes into its own. I urge DFID to continue its support to the Afghan revenue authorities for the collection of income taxes and mineral royalties. In Burundi, we saw the tax revenue increase by a substantial amount through DFID’s involvement and the work that it is doing to promote trade and investment in east Africa. I want increased support for the revenue authorities in Afghanistan, because DFID’s work has been so successful up to now.
A final point on taxation: in any country, a follow-up is needed on the discrepancy between obvious wealth and taxes paid. We heard earlier about the fact that some of the wealthiest people in Pakistan pay no taxes. It is blindingly obvious to everybody that they should be paying taxes, yet they do not. I believe that the same is true in Afghanistan. The revenue authorities need to be able to conduct their affairs without fear or favour, and DFID should be helping them do so.
I turn to the question of the Afghan national security forces. We suggested in our report, although DFID disagreed, that there should be independent oversight. I understand why DFID disagreed—it felt that sufficient checks and balances already exist in the system, and perhaps they need to be given the opportunity to work—but we understand that the United Nations human rights report to be published next week will say something along the lines of “Conditions of detention have deteriorated” and raise concerns, particularly about Afghanistan local police groups. We understand why DFID rejected our recommendation, but can the Minister update us on whether he feels that the inspectorate of police and the other bodies put in place are proving effective, or whether the jury is still out?
In conclusion, I reiterate the comments made by several of my colleagues about the progress being made. It was an honour to go to Afghanistan. I pay great tribute to DFID’s staff there, and to all the staff of the Foreign and Commonwealth Office and the British Council whom we met, for their warmth, their hospitality and the value of the work that they do. Progress has been made. It is vital that we get the message across. So many British people, particularly our armed forces, have made huge sacrifices to bring advances that are quite apparent to the people in Afghanistan. In my county of Staffordshire, we have the 3rd Mercians, who served in Afghanistan in 2011 and will probably go out again at the end of this year. I want them to know that the work they are doing is vital to the people of Afghanistan, that by and large it is appreciated and that they will be honoured in the memory of what they have done.
I am pleased to serve under your chairmanship, Mr Walker, not for the first time. It is a great pleasure to be part of this debate. I thank the Chair and members of the Select Committee on International Development for their excellent work in producing this report and the one presented in the previous debate. The issues facing Afghanistan, particularly as we move towards gradual exit post-2014, are critical, and it is right that we focus on what happens next and what the UK Government do, particularly in relation to international development.
I welcome the Government’s commitment to delivering aid to Afghanistan at levels comparable to the present until 2017. However, there are major concerns about what will happen to the country’s aid budget beyond then. As most would agree, an abrupt cut to foreign aid could severely destabilise Afghanistan and have an adverse effect on its economy and people. Hon. Members and my hon. Friend the Member for Birmingham, Northfield (Richard Burden) have raised a number of issues, focusing particularly on the impact on women, who remain among the most vulnerable in Afghanistan and in comparison to others around the world.
Some 97% of Afghanistan’s official GDP comes from spending related to the international military and donor presence, and local businesses currently rely heavily on development aid and foreign military expenditure. The hon. Member for Stafford (Jeremy Lefroy) focused in his speech on the importance of the economy. I point out that the economy is already contracting as troops leave. It is expected that future growth will be slower, especially in urban and conflict areas. The combination of a drop in aid and military withdrawal could have a devastating impact and set back the progress that has been made to date. The World Bank has already warned that an abrupt cut-off in aid could lead to the collapse of political authorities, civil war and a greater reliance on opium profits. Will the Minister assure us that the UK will maintain adequate aid and increase measures to improve aid effectiveness beyond 2017? Moreover, given the risks involved, will he also give us an assurance that the UK Government will use their influence to ensure that other donor countries do not withdraw aid abruptly?
The Government’s response says that Afghanistan’s extractive industries will contribute significantly to economic growth, enabling the Afghan authorities to deliver basic services and reduce the country’s dependency on aid. According to the World Bank, the extractive industries could contribute to half of the 4.9% per annum GDP growth projected to 2018-19. However, it will still be many years before revenues from this sector start mitigating the effects of the military draw-down. What other measures are the Minister and his Department taking to mitigate those effects?
Afghanistan is still in the throes of conflict and lacking in some of the strong governance mechanisms that can drive transparent and accountable government. Given those facts, it is hardly surprising that the report has highlighted the ongoing challenges and problems of corruption. According to Transparency International, Afghanistan remains one of the world’s most corrupt countries. Ensuring that each pound spent is trackable and accountable, as the former Secretary of State for International Development promised, is incredibly difficult and important. What steps are the Department and the Minister taking to improve the accountability and transparency of UK Government funding to Afghanistan?
I want to focus now on the very important subject of gender, which has been raised by the Chair of the Committee, the right hon. Member for Gordon (Sir Malcolm Bruce), and others, including the hon. Member for Mid Derbyshire (Pauline Latham), who is the chair of the all-party UN women group—I serve as the vice-chair. She has been working hard with colleagues across parties on the issue of violence against women in Afghanistan and across the world, especially in the light of the recent issues posed by the rape, attack and killing of a woman in India.
The situation of women around the world is of deep concern, even in countries such as India where, despite significant economic progress, women’s rights still fall short. The hon. Lady pointed to the huge challenges faced by Afghanistan and the important contribution that Britain and the international community must make if we are to see progress in this area.
I welcome the UK Government’s decision to commit to protecting and promoting the rights of women and girls in Afghanistan, but it is important that they follow that through with practical action. The IDC report has highlighted a number of important recommendations. We have constantly heard words of commitment from the Government in relation to women not just in Afghanistan but elsewhere in the world, but what additional steps will be taken to show that genuine commitment?
Women have made important gains in Afghanistan since the fall of the Taliban. As the report highlights, 2.2 million girls are now in school, compared with only 5,000 under the Taliban. That is a success that we all need to celebrate. However, as the report highlights, the situation for women and girls in Afghanistan, while improved in some ways, remains incredibly troubling. As the Chair of the Committee pointed out, women in Afghanistan are the worst off in the world, and we must ensure that we continue our efforts to improve their position.
In a statement, President Obama said:
“Afghanistan cannot succeed unless it gives opportunity to its women.”
Failure to do so will seriously undermine the legacy of the UK’s intervention and could lead to a dangerous and uncertain future both for Afghan women and for the nation more generally.
Women and girls still suffer from a lack of access to the basic legal protections. A recent UN report argues that although the law on the elimination of violence against women is being used to secure some convictions, it is often ignored by many in the police and justice sector. Does the Minister agree that DFID should create specific projects in its next Afghanistan operational plan to work on women’s protection and empowerment? As has already been mentioned, when it comes to issues of equality, mainstreaming is a challenge even in a UK context let alone in a country such as Afghanistan. Given that there is a real need to keep the pressure up, is it not right that there should be a specific special focus on women alongside the mainstream interventions with which DFID is involved?
Let me turn now to the projects that are targeted at women, especially those that focus on the specific need to protect them against violence and, as the hon. Lady mentioned, rape and other forms of oppression. It is not clear that the Government are fully committed to the kind of interventions that are needed and that require special focus. Will the Minister clarify how many DFID-backed projects target the needs of women?
It is disappointing that the Government’s response to this report does not endorse the IDC’s recommendation to create a joint donor-Government plan for women and girls during the transition. The report says that DFID’s programmes already support the objectives set out in the Government’s national action plan for women in Afghanistan. However, the national priority programme has described NAPWA’s implementation as “slow and insignificant”.
ActionAid has pointed out that the Ministry of Women’s Affairs has secured only a fraction of the $30 million that it needs to deliver the national priority programme, which is just a first step towards full implementation of NAPWA. Will the Minister tell us how his Department will ensure that all Afghan authorities and institutions are fully compliant with the organisation End Violence Against Women and NAPWA?
In conclusion, the coming years will be challenging in Afghanistan. As international attention will inevitably shift elsewhere as troops come home, we must do all we can now to ensure that the Afghan people build a sustainable future for themselves. One of the most important elements of that, as the report rightly points out, is ensuring that the situation for women and girls in Afghanistan is improved. We must build on the achievements that have been made in the last decade and ensure that women and girls are protected from violence and discrimination. That will require a continued commitment from the UK Government. The sacrifice of our troops and the loss of thousands of lives—not just among British troops—will be in vain if we do not secure a sustainable future for Afghanistan. People must not be worse off than they were before the conflict and the intervention began. Our involvement must be about ensuring that we are there with the people of Afghanistan long after our troops leave.
I thank my right hon. Friend the Member for Gordon (Sir Malcolm Bruce) for securing this debate. We in the Department for International Development welcomed the International Development Committee’s report on Afghanistan, to which we have of course already formally replied. Put simply, the Government strongly agree with the majority of the Committee’s recommendations. In particular, we recognise that the next few years hold considerable uncertainty, and we welcome the Committee’s judgment that we retain an obligation both to the Afghan people and to British service personnel to continue our assistance for many years to come. That is why, at the Tokyo conference last July, we worked hard to secure long-term support from our international partners for Afghanistan’s development beyond security transition in 2014. I can tell the hon. Member for Bethnal Green and Bow (Rushanara Ali), who is the Opposition Front-Bencher, that the UK is specifically committed to maintaining its current aid—approximately £178 million a year at the moment—beyond transition until at least 2017.
We are now working closely with the Afghan Government to ensure that they deliver the essential economic and governance reforms agreed at Tokyo. Although it is still early days, I am pleased to report some good progress. Structures are now in place to monitor performance against the Tokyo commitments. Let me assure hon. Members that we will link our long-term support to progress by the Afghan Government on these critical reforms.
However, we do not support the Committee’s recommendation for a mechanistic link between performance and financial support. Nevertheless, the House should be in no doubt that we will act when we need to, as we did, for instance, in suspending Afghan reconstruction trust fund payments following the Kabul bank crisis. And as co-host of the ministerial review conference in 2014, we will engage with our international partners to speak with a unified voice.
As my right hon. Friend the Member for Gordon said, Afghanistan is perhaps the worst place in the world for a woman to live, and that point was profoundly echoed by my hon. Friend the Member for Mid Derbyshire (Pauline Latham). A key commitment at Tokyo was strong action on women’s rights. As the Committee’s report said and as hon. Friends have highlighted during this debate, Afghan women and girls continue to face enormous disadvantages. The Secretary of State for International Development has made clear the priority that she places on this issue, including on her recent visit to Afghanistan, where she raised her concern directly with President Karzai.
We are already supporting a range of initiatives that we hope will benefit Afghan women. Thanks in part to UK support, there has been considerable progress in girls’ education, as my right hon. Friend the Member for Gordon, mentioned; there are now more than 2 million girls in school, when there were virtually none in school in 2001. Almost one in two pregnant women in Afghanistan receive antenatal care today, compared with only one in six in 2003. We have also contributed to improving women’s access to justice and jobs.
It is also important for us to say that we agree with the Committee that violence against women remains a significant concern, and I commend the work of NGOs such as ActionAid in trying to combat that violence. The UK will continue to press the Afghan Government to implement the current law on the elimination of violence against women, or EVAW. Through the Tawanmandi programme, we are also supporting 35 women’s organisations to take forward a range of activities, including raising awareness of the EVAW law and providing legal support and shelters to victims of violence.
We continue to look for ways to improve opportunities for Afghan women and girls in all our programmes. In the next few months, our focus will be on supporting women to participate in the political process and in elections in 2014. However, we do not agree with the Committee’s recommendation for a joint Government-donor plan for women and girls through transition. The Afghan Government’s commitments to women and girls are already laid out in the Tokyo framework, and it is important that we focus our efforts on ensuring that those commitments are delivered. In our view, drafting another plan risks becoming a distraction.
The UK already supports Afghan women in public life. Our work with the Afghan Interior Ministry is helping the Afghan police to protect and uphold women’s rights. The British embassy in Kabul also funds organisations such as the Afghan Independent Human Rights Commission, to ensure that they can continue to operate effectively and with the necessary security.
In the same vein, and as my right hon. Friend said, we disagreed with the Committee’s proposal for the establishment of a new oversight body to investigate allegations of violence by the Afghan national security forces. There are a number of existing mechanisms, both within the Afghan Government and externally, to carry out that function. As part of the UK’s work with the Interior Ministry and the Ministry of Defence in Afghanistan, we already train, advise and mentor staff on a range of issues, including human rights. Given the number of challenges ahead, it is important that we focus our efforts on what needs to be done and avoid any duplication of process. For example, as highlighted on page 45 of the Committee’s report, it is absolutely essential that access to education, health care and other basic services is improved for the long-term stability of Afghanistan.
My hon. Friend the Member for Stafford (Jeremy Lefroy) raised a number of issues, including concern about the development of the private sector. I suggest that DFID’s approach to wealth creation is much broader than the Committee’s report has suggested. Our programmes range from encouraging international investment and building regional trade links right down to providing support for local farmers’ co-operatives and skills training.
For instance, in Nangarhar province we are supporting rural entrepreneurs to produce high-value vegetables, and in Kama district we are successfully supporting poultry businesses that are providing jobs for women in 20 villages. As for extractives, which I totally agree is perhaps the largest and most important sector in Afghanistan and one in which there is of course enormous scope for corruption, DFID has supported the Ministry of Mines since 2010 to develop a regulatory framework, to encourage international investment and to ensure that effective management of the country’s mineral wealth can be built up. Furthermore, we are currently developing a package of continuing support in this sector. On the more detailed area of infrastructure, I undertake to write to my hon. Friend with more detail about such issues as roads.
Let me reassure the Committee and the House that our programme is already carefully balanced between developing the capacity of the Afghan Government at national and provincial levels to manage services, and ensuring effective delivery in the districts.
I now turn to the serious issue raised by the hon. Member for Birmingham, Northfield (Richard Burden). We agree with the Committee that Afghanistan faces significant humanitarian challenges, and I can confirm to the House that we are committed to continuing to build up our humanitarian programme. Last year, my Department delivered life-saving assistance to more than 5,600 families who had been affected by the 2011 drought and provided food and other essential household items to around 150,000 internally displaced people in Afghanistan. As recommended on page 80 of the Committee’s report, we are also engaging with rural communities to help them to strengthen their resilience to these changes. And DFID is currently developing a multi-year, multi-sector package of support for some of the neediest sectors in Afghanistan, to deal with issues such as nutrition and food security.
We are working hard to ensure that ordinary Afghans have opportunities to make a decent living for themselves and their families, while helping to stimulate long-term, sustainable economic growth in the country. We disagree with the Committee’s finding that DFID’s approach to wealth creation is too centralised and disconnected from the needs of ordinary Afghans, as I hope that I have illustrated by giving those two examples just now. As I was saying earlier, our programmes range from encouraging international investment support at the regional level right down to the village level. Indeed, UK aid has equipped more than 11,200 young people in Helmand, including 1,900 women, with vocational skills.
Let me turn to what my right hon. Friend the Member for Gordon, at the start of his comments, referred to as DFID’s unique mandate to create a viable Afghan state. I sense from his comments that he regards that idea as somewhat fanciful. We agree with the Committee that DFID cannot deliver a viable Afghan state on its own, but we do not believe that the objective is a redundant concept. On the contrary, the goal, shared by the Afghan Government and our international partners, is essential to securing Afghanistan’s long-term stability and future. In some respects, these are early days in the history of the country.
The goal is also consistent with DFID’s approach to working in fragile and conflict-affected states worldwide. The Prime Minister has said, and this encapsulates our thinking, that
“you only get real long-term development through aid if there is also a golden thread of stable government, lack of corruption, human rights”
“the rule of law”.
By contributing to the objective of the development of a viable Afghan state, we are helping to ensure that the Afghan people have a stake in their own future, through a Government who are more accountable and transparent, and capable of responding to their basic needs.
My right hon. Friend the Member for Gordon mentioned community development councils, and DFID is working with the World Bank, other donor partners and the Afghan Government on the future role of the councils, including how best to integrate them into the government structure below the level of central Government. The point that he made is a valid one, and we are already taking steps to implement the sorts of things I sense he would like to see. We agree, of course, with the Committee that NGOs also play a vital role on the ground in Afghanistan, delivering key services and assistance to the Afghan people, and we will continue to support such essential work.
Finally, we welcome the Committee’s acknowledgment of the immense challenges that exist in delivering results in fragile and conflict-affected states such as Afghanistan, and also its appreciation of the efforts of DFID staff. Despite the challenges, we continue rigorously to ensure that DFID programmes are robust enough to deliver real results for the Afghan people and that there is value for money for the UK taxpayer. I have been encouraged by many of the comments and questions that we have heard this afternoon and, on behalf of DFID, I reassure the House that our commitment to this desperately poor country will continue for many years to come.
I thank the Minister for his most constructive response to what has been a good debate. Indeed, I thank everyone who has taken part.
In spite of the differences of emphasis, I believe that our report has been well received. It has provided a useful focus for those who are either too positive or too negative about the future. It is much better to be realistic, recognising the challenges and coming up with constructive recommendations on the understanding that there is a need to be flexible. Although we do not agree on everything, the Minister’s response demonstrates that we are on the same page as far as the overall objective is concerned.
I echo my hon. Friend the Member for Stafford (Jeremy Lefroy) in pointing out that we cannot say often enough to those British people who will listen that the idea that our engagement in Afghanistan has been a failure and has not made a positive difference is simply not true. It has made a huge difference. The situation is difficult. It is a difficult country and there are lots of challenges, but we have met so many people whose lives have been dramatically improved, and the statistics bear that out.
I am absolutely certain that the successors of the current Committee members in another Parliament will go back to Afghanistan in four or five years’ time. I hope that the fears will not have been realised and that some of the hopes will have been fulfilled. I hope that they still have a democracy and a functioning Parliament, but above all I hope that the position of women in Afghanistan is not as good as today but much better, or at least moving in the right direction. I repeat exactly the point that the hon. Member for Oxford West and Abingdon (Nicola Blackwood) made: for the Committee, that will be the litmus test of whether the engagement in Afghanistan has delivered real social and political change. We hope that it will have, and we believe that it can, and we absolutely agree that the UK Government have a key role to play. Regardless of the differences of emphasis, DFID in Afghanistan has our full support.
Question put and agreed to.