UK aid programme “failing to tackle tax avoidance and evasion”

A report by the Independent Commission for Aid Impact (ICAI) has criticised the Department for International Development’s (DfiD) approach to tackling tax avoidance and its alleged failure to achieve value for money on HMRC collaboration

DfiD has failed in its efforts to fully include developing countries so that they benefit from OECD and G20 reforms on international tax, ICAI said.

The government department was given an “amber-red” rating by ICAI for failing to consider developing countries’ needs and priorities, either in policy discussions with other government departments about tax, or in the international processes, in the global fight against tax avoidance and evasion.

The report said that although DFiD has helped developing countries to participate in various international tax processes, “their ability to influence the content of the new standards was limited, and the international tax reform agenda failed to address a number of important issues for DFiD’s partner countries”.

The report claimed that DfiD does not have a clear approach to promoting policy coherence for development in tax and also criticised DfiD for failing to set clear objectives for its work on international tax, and failing to monitor its results.

ICAI said the department “needs to adopt a more strategic approach to achieving and measuring results”.

The review also said that DFiD needed to improve how it uses available research and evidence as well as learning from its in-country tax programmes.

ICAI also highlighted concerns over DfiD’s collaboration with HMRC on capacity building, noting that stakeholders have raised doubts that that technical assistance on highly specialised international tax issues would have much impact, given the more basic problems with national tax systems.

“There are also concerns that the benefits to DFiD’s partner countries of implementing the new standards may have been oversold,” the report added.

DFiD provided funding to HMRC to establish a Capacity Building Unit on tax. This is now funded from HMRC’s own aid budget, with an estimated funding of £22.9m over ten years to 2024. Through this unit, experts from HMRC are deployed to support DFiD bilateral tax programmes for both short and long terms.

However, the department was criticised for failing to achieve value for money when sending HMRC inspectors abroad to run in-country tax programmes.

In one case highlighted, nearly £1.2m was spent on training 15 new HMRC experts so existing staff could go abroad to carry out training in developing countries. However, just half of these advisers were subsequently deployed.

“This highlights a key value for money risk as departments take on new aid delivery roles. It will take time for them to establish the systems, capacity and programmes needed to spend aid effectively in new country contexts,” the report said.

“There are also value for money concerns about short-term technical assistance. In our survey and country case studies, national tax authority officials expressed doubts that short-term, one-off missions added much value,” the report added.

A DFiD spokesperson pointed out that DFiD’s partnership with HMRC has resulted in the deployment of UK tax and customs technical experts to nine countries – Pakistan, Tanzania, Ethiopia, South Africa, Ghana, Liberia, Lesotho, Rwanda, Sierra Leone and Ukraine – to support both tax capacity building and more niche international tax work.

The spokesperson also stressed that “no UK Official Development Assistance (ODA) funding has been spent on training HMRC UK tax advisors for domestic roles.”

“The UK’s aid trategy focuses not just on alleviating poverty, but also on helping developing countries build robust institutions and tax systems so they can stand on their own two feet.

“Through its presidency of the G8 and through the G20, the UK has pushed forwards an international agenda for tackling global tax evasion. As ICAI rightly recognises, DFiD has helped developing countries benefit from the new international tax standards and this has been underpinned by effective cross-government collaboration. The UK has a strong record of supporting and mentoring developing countries in this field and will continue to do so.”

Oxfam’s head of inequality Nick Bryer argued that the report “shows that the UK government is not doing enough to ensure developing countries get a seat at the table when international policy decisions are made.”

Bryer said secretary of state for international development Priti Patel should work with fellow ministers to put poorer countries’ needs at the heart of plans to tackle tax dodging and added that the UK government should also “ensure that UK-linked tax havens like the Cayman Islands aren’t used by the rich and powerful to hide taxable assets away from governments around the world, by ensuring information about who controls companies registered there is publically available.”

ActionAid head of advocacy, Charlie Matthews, added, “This report confirms that UK aid’s approach to tackling tax avoidance is incoherent, ineffective and is in danger of failing to deliver for the world’s poorest people.

“Instead of standing by as the UK pushes tax reforms designed to meet the needs of rich countries, DFiD needs to listen to poorer countries and ensure efforts to reform the global tax system are informed by their needs.

“This report should kick-start a cross-government approach to tackling global poverty and tax avoidance. DFiD working with the Treasury to ensure UK tax policies do not hold back poor countries and instead support their efforts to escape poverty would be a vital first step. In order to help developing countries stand on their own two feet, the UK needs to crack down on tax havens, fix unfair tax treaties and end the ‘race to the bottom’ on corporate taxes.”