Why Is the British Government Using Its Aid Budget to Keep People in Poverty?

by Diane Abbott

19 May 2016

It did not require much reading between the lines of the last year’s UK aid strategy to understand what the Conservative party had in mind for Britain’s £12bn aid budget – they put it in the title.

‘UK aid: Tackling global challenges in the national interest’ was the subject of much discussion in the development community.

Its supporters said that UK interests comfortably aligned with the interests of poor countries and, furthermore, making national security contingent on aid would protect it from right-wingers against the idea of aid per se.

Its sceptics, myself included, saw it as a clear signal that this government was deprioritising its legal duty to spend aid on poverty reduction and was instead prioritising the promotion British financial and security interests, at the expense of the world’s poor.

Conditionality (the conditions attached to aid) is sometimes a useful tool to promote universal rights. For example, aid given directly to governments could be retracted if that government kills, tortures or otherwise abuses its citizens. But I sense a growing misuse by this government of conditionality to bend poor nations’ policies to the interests of the UK state or the multinational corporations that operate on their territory.

Malawi tax treaty.

Earlier this year the Labour party drew attention to the unfair tax treaty Britain maintains with Malawi that allows British companies to move income out of the country without paying a penny to its government.

UK firms, principally in the business of exploiting Malawi’s uranium, bauxite, semi-precious stones, rare earth minerals and oil and gas, do not have to pay any tax to the government on the dividends they pay to shareholders, nor on management fees or royalties. This incentivises UK companies to shift profits out of the poorest country in the world.

I asked the secretary of state for international development, Justine Greening, how the government could reconcile giving aid to Malawi with one hand while denying it of tax revenue with the other.

Greening responded by reading a letter, miraculously published days before by Malawi’s finance minister, who wrote that the tax treaty in fact did not deprive his ministry of any revenues.

People will wonder about the providence of an exculpatory letter pushed out by officials at the Treasury that provided political cover to a government squirming under criticism for ripping off an impoverished former colony.

Britain’s £66m aid spend in Malawi supports fantastic development projects but also considerably strengthens Britain in our geopolitical relations with Malawi.

This government appears to be exploiting this power, using the aid pot to keep poor nations like Malawi pliant and reliant, fearful of negotiating fair tax and trade deals.

Proposed global tax agency.

Malawi is just a microcosm of a much larger phenomenon. The developing world loses three times more in tax avoidance – almost exclusively to rich countries and their tax havens – than it receives in aid from those rich countries.

Last year, the G77, which represents around 70% of the world’s nations, came to the Addis Ababa Financing for Development conference with a simple demand to address this problem. It wanted to establish a global tax agency through the UN that would give poor nations an equal say in setting international tax rules, rather than continuing the practice of leaving it to rich, which have kept tax havens operational for personal enrichment by their rich and powerful citizens. The OECD won and the proposal for a new tax agency was scuppered.

Since then an initiative being hammered out within the OECD to reduce global tax avoidance has been watered down, particularly around the key issue of country-by-country reporting, which is needed to show which countries are dodging tax in which countries.

After the Addis conference an aid package was announced by members of the OECD under the banner of the Addis Tax Initiative – partly administrated by PwC, itself a marketer of mass tax avoidance schemes – to strengthen tax raising powers there. From the outside it looked like the G77 was paid off to drop their demand and the rich nations kept the power to design a global tax system to their benefit.

Aid for deportation.

Amid the European migration emergency, fuelled by conflict and drought in in the Middle East and Africa, billions have been earmarked in multilateral EU aid to pay countries to keep non-Europeans from entering Europe.

Clearly migration requires international cooperation. But increasingly, rich European nations lurching to the right are trading off their immigration and security agenda with poor nations with a development agenda. But many of these agreements run roughshod over the rights enshrined in the 1951 Refugee Convention and the Universal Declaration of Human Rights.

These deals are pitched as a win-win, but the losers are migrants fleeing war, poverty or climate change, who are pursuing a human rights agenda.

Recent history is littered with such losers. The refugees returned from Italy to Gaddafi’s Libya under a bilateral asylum deal, only to find themselves tortured or in indefinite detention; the African asylum seekers suffocated by heavy handed security guards in Britain and Switzerland; the Syrians returned en masse from Greece to Turkey.

European aid agencies are increasingly using aid to secure asylum deals. The EU is reportedly negotiating a new deal with Nigeria. Last year it allocated a €1.8bn aid package to African countries, including Eritrea, to stop their citizens from moving.

As Britain contributes to this multilateral pot of cash for the Eritrean government, it has increased its refusal rate of Eritreans seeking asylum in the UK from 14% to 66%.

It is abundantly clear that using aid to send people back to Eritrea, a state with an abysmal human rights that makes use of slave labour and operates a shoot-to-kill border policy, hinders rather than helps international development efforts.

The same is true of aid for deportation: migration is an engine of development because migrants send around three times as much home in remittances as governments send in foreign aid.

Growing xenophobia in Europe is proliferating asylum deals designed to keep people from moving for work and therefore rooted in poverty.

In this way we spend aid not to pull communities out of poverty but to keep them in it.

Diane Abbott is the shadow secretary of state for international development.

Photo: Malini Morzaria/ECHO/Flickr

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