Joe Stead

Right to reply: The aid debate we need to have

Right to reply: The aid debate we need to have
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As Fraser pointed out yesterday, the Spectator's debate on international aid is tonight (all CoffeeHousers welcome, tickets available here). To further set the stage for that debate, here's a response to Fraser's original post from the folk at Christian Aid:

I'm glad that, in his post yesterday, the Spectator editor said he is in favour of aid, and that some of it is best done by governments. And, like him, I'm also in favour of aid spending being at least protected from cuts. On these two points we agree. That’s about the extent of our common ground.

The British government made a commitment to devote 0.7 per cent of economic output to foreign aid at the UN way back in 1970 — and then quietly forgot about it. It was nearly four decades before Alan Duncan put the figure back on the table for the Conservatives. And he was right to do so: just because the UK finances are now in a parlous state, that is no excuse for abandoning the worlds poorest who are suffering much greater privations. As the current International Development Secretary, Andrew Mitchell has said, “We cannot seek to balance our budget on the backs of the worlds poorest.”  

And let’s remember the aid budget is not huge, this year it was 1.1 per cent of the budget, and even when it reaches the target it will still only be about 1.5 per cent of government spending, and it will stay there. UK aid is also very good value for money, too, something we know that Spectator readers appreciate. Last year DfID educated more children (11 million) than were educated in the UK, but at 2.5 per cent of the cost.

The UK public is indeed the most generous in Europe when it comes to funding NGO appeals. But the projects supported by NGOs are small scale in comparison to what governments can achieve. The NGOs are more nimble and innovative and can point the way, but if truly significant numbers of people are to be reached then it is only governments that can deliver. Only governments can provide the scale, and long-term reliability of funding that's needed.  

For instance, by June 2009, 4 million people who otherwise would have died as a result of AIDS, TB or malaria over the previous five years were alive as a result of interventions supported by the Global Fund, which in turn receives money from DfID.

Done properly, aid can actually make itself redundant. For example, the UK government, working with the Rwandan government, was able to increase the efficiency and transparency of revenue collection, and so increase Rwanda’s ability to fund essential services from its own pocket.

But aid will not be able to do this until a much larger flow of money from, rather than to, developing countries is addressed. It is estimated that for every one dollar of aid that reaches the developing world, between eight and ten dollars flows out through illicit channels of organised crime and tax evasion. Raymond Baker, a senior fellow at the US Centre for International Policy and an internationally respected authority on money laundering, estimates that between US$1 trillion and US$1.6 trillion of illicit money moves across borders annually. Between 60 to 65 per cent of that money has been moved to evade tax, while another 30 to 35 per cent is revenue from criminal activity. Corruption by government officials in the developing world accounts for a mere three per cent.

The development community has made significant efforts and reduced corruption of aid; similar efforts need to be made to combat tax evasion and crime. Christian Aid partners already scrutinise government budgets to ensure that neither aid nor taxes are misused.

Once developing countries have control of their own resources, we can move the debate on to how much aid we need to provide. However, that debate is a long way off; currently developing countries lose significantly more every year in tax dodging than they receive in aid. Christian Aid estimates that the figures stands at $160 billion annually, significantly more than the annual amount of aid reaching developing countries.

 

That this is able to happen is, partly, due to corruption, but more down to business practice and the absence of transparency in the global financial system — supported by the policies of the UK and other major economies. It is far too easy to limit tax liability and hide assets.

Aid is needed now, and if we are to have a debate, we should debate why the UK is not acting harder on international tax dodging — not whether we should, or should not, spend an extra 0.4 per cent of government money on aid that is so clearly needed.

Joe Stead is a senior economic adviser at Christian Aid.