UK opposition would shut out 'Big 4' DfID contractors

The U.K. Labour party has announced it would close the Department for International Development's doors to all development organizations utilizing tax havens, starting with major contractors, Deloitte, PwC, KPMG and EY. Photo by: Victor / CC BY

The Panama Leaks have demonstrated how the rich can opt out of their legal duty to contribute to society through tax at the expense of the poor.

Regrettably, recent news coverage has moved away from this core issue of financial and legal inequality and moved onto the distracting baubles of the tax affairs of the U.K. Prime Minister and the Leader of the Opposition.

The British state spends around 250 billion pounds — $350 billion — each year on private sector contracts. There is, of course, nothing wrong with this, but the government has a responsibility to spend our taxes on companies that are not themselves avoiding taxes.

It is for this basic principle that I announced that a Labour Department for International Development would stop using the services of the “Big Four” accounting firms, at a cost in 2015 of 100 million pounds — $140 million — to deliver aid projects if they or their clients continue to use tax havens.

The Panama leaks have shown that thousands of clients of the Big Four accounting firms — as well as EY, KPMG, PwC and Deloitte themselves — have been hiding money in tax havens, principally the British Virgin Islands, a U.K. tax haven that hosts over half of the 14,000 institutions named in the 11 million documents.

Luxleaks, a tax scandal from 2014 that made only the smallest waves in the international media, revealed that PwC had established secret tax deals with the government of Luxembourg. PwC then marketed their deal to clients who shifted billions of pounds of their profits through a variety of internal accounting tricks into shell companies incorporated in Luxembourg. This kind of illicit activity has made The Grand Duchy of Luxembourg — with a population 500,000 — the world’s second biggest destination for investment funds, trailing only the United States.

The biggest victims of global tax avoidance are the poorest people on Earth. The International Monetary Fund has conservatively estimated that around $200 billion of untaxed income is taken out of poor countries by the international corporations operating on their territory, around 50 percent more than the total amount they receive in aid from rich countries.

This tax robbery means that poor countries cannot sustainably raise their own taxes to finance their health and education services. For many it means getting hooked on aid to forever become the handmaiden of the richer countries that exploit them.

Making British aid contracts for the Big Four conditional on EY, KPMG, PWC and Deloitte paying their taxes and ending the promotion of industrial-scale tax avoidance of their clients is hardly controversial. DfID’s financing of the very companies that are undermining international development is nothing short of an outrage.

But even this outrage is nothing compared to David Cameron’s stoic refusal to make public the registers of beneficial ownership for Britain’s tax secrecy empire of crown dependencies and overseas territories. His repeated defense in recent days that other countries are keeping the tax affairs of the shell companies incorporated on their territories secret is weak.

Perhaps the Tories fear bringing untaxed global capital onshore because they are ideologically wedded to keeping the British state small, and Britain itself a private island.

For more U.K. news, views and analysis visit the Future of DfID series page, follow @devex on Twitter and tweet using the hashtag #FutureofDfID.

The views in this opinion piece do not necessarily reflect Devex's editorial views.

About the author

  • Diane Abbott

    Diane Abbott is a member of the British parliament and is the shadow secretary of state for international development. In her role as shadow secretary, Diane's three key priorities are the global response to refugees and migrants, gender and development, and transparency and scrutiny in aid expenditure.

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