Hurricanes wreck tax havens (Part 2): Calls for humanitarian aid

Tax havens call for humanitarian aid
Donald-Drysdale By Donald Drysdale for ICAS

26 October 2017

In this the second of three articles on the plight of storm-ravaged British Overseas Territories in the Caribbean, Donald Drysdale looks at existing constraints on the availability of humanitarian aid. Any views expressed are his own and not necessarily those of ICAS.

Providing for contingencies

The larger a nation is, and the more robust its economy, the more readily it should be able to recover from natural disasters. Where a strong state such as the UK has a substantial population, a broad tax base and relatively low exposure to climatic extremes, its tax revenues and borrowing capacity can provide adequate budget contingencies to accommodate the unexpected.

The British Overseas Territories in the Caribbean, introduced in the first article of this series, are in a very different position. The British Virgin Islands (BVI), Anguilla, the Turks and Caicos Islands (TCI), Montserrat and the Cayman Islands are small nations with small populations. They have learned to exploit their natural environments by establishing successful tourist industries, and have developed specialist offshore financial services based on tax haven status.

These territories have suffered more than their fair share of major hurricanes and other tropical storms – not only this year but throughout history. Their diminutive size and history of past disasters have restricted their opportunities to accumulate reserves to cope with further setbacks. Being particularly prone to natural disasters, they have had to appeal to the international community for emergency aid to provide humanitarian relief and resources for reconstruction.

Citizen status

British Overseas Territories enjoy special status with the UK and the EU. Almost all of their citizens have British citizenship or are entitled to acquire it, with a right to reside in the UK, and are treated for most purposes as citizens of the EU.

Like the 1,800 Falklanders whom we defended in 1982, the residents of our Caribbean islands have close ties to the UK. Arguably, we have a greater obligation to support them than to offer discretionary overseas aid to non-British nations.

Understandably given their British and EU status, those who live in the Overseas Territories may feel entitled to rely on direct emergency support from the UK and the EU – as well as appealing for international aid from other sources.

Political constraints on aid

Foreign aid is a controversial topic. In 1970 the UN adopted the target set by the OECD’s Development Assistance Committee (DAC) for developed countries to donate at least 0.7% of their gross national income as official development assistance (ODA) to developing countries. ODA comprises concessional aid to promote economic development and welfare.

In 2013 the UK met its 0.7% target for the first time. From 2015 it has bound itself to achieve this each year, although the Government faces no legal sanctions if it fails to do so. Statistics for 2016 show that the UK’s 0.7% was exceeded only by Denmark, Sweden, Luxemburg and Norway; the average from DAC member countries was only 0.32%, and many fell below this – notably the USA with a paltry 0.18%.

The DAC’s list of some 150 eligible recipients includes most low- and middle-income countries, and all the ‘least developed countries’ as defined by the UN. Paradoxically, the list includes India (the world’s fastest-growing major economy, with its nuclear and space programmes) and China (the world’s largest or second-largest economy, depending on how it is measured).

British aid efforts

Immediately following Hurricane Irma, the British responses to calls for aid were criticised for being too slow. Theresa May was reportedly frustrated by OECD rules preventing overseas aid from going to British Overseas Territories like BVI, Anguilla and TCI. They and the Cayman Islands had all been removed from the DAC’s list of eligible recipients between 2000 and 2014 when they exceeded the relevant high-income threshold.

Does this constrain the UK from helping the hard-hit communities of Britons in the Caribbean? Of course not! It merely prevents the UK from counting such aid towards its 0.7% target. Instead, the UK could easily divert part of its ODA budget to ineligible recipients, thus deliberately falling short of the 0.7% target (like most other countries). Alternatively, the UK could provide aid from another budget.

UK politicians (of whatever political persuasion) may want to donate 0.7% of our annual income as dictated by the OECD. Many voters are in favour of this, seeing it not as generosity but simply as our moral obligation to those less fortunate. After all, our economy is high on all the lists that matter – the world’s fifth-largest economy by GDP, the EU’s second-largest economy, the world’s tenth-largest exporter of goods, and London is still the world’s largest financial centre.

Others in Britain, experiencing the effects of austerity here at home, feel that we should first look after our own – including the UK’s Caribbean citizens, most of whom have modest living standards and are now in desperate need of aid.

Improving worldwide aid efforts

Arguably, help from the developed world to developing countries could and should go much further. For example, wealthier nations could help by accepting fairer international trading rules, supporting action to limit the adverse effects of climate change, reducing consumption of scarce mineral resources, and limiting trade in military equipment.

Perhaps a better, fairer world could be created by restricting the use of tax havens, thus enhancing tax revenues worldwide – some of which could fund more effective aid. However, this creates a quandary for the UK, which is hardly best placed to promote such an approach when it plays such a prominent role in promoting tax havens and financial secrecy.

Tax havens deprive not only wealthy nations but also poorer countries of their rightful revenues. Exploited by the rich and infamous, they represent a blot on the global fiscal landscape. Politicians denounce them, but too often with empty words because tax havens are popular with many establishment figures. For example, the Panama Papers reportedly gave an insight on the private wealth of 72 current or former heads of state who had used shell companies and offshore accounts.

What next?

Global solutions are needed to get humanitarian aid more urgently to those who need it, and in my next article, I shall consider possible tax solutions.

In the meantime, people on the ground are in desperate need and are calling for help. Please consider supporting any charity seeking to help the victims.

Article supplied by Taxing Words Ltd

Topics

  • Tax

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