Ben Chu: Cheap clothes and tax dodging

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The Independent Online

Outlook The lethal collapse of a building in Bangladesh, where workers were churning out cheap clothes for retailers such as Primark, has prompted scrutiny of the supply chains of some of our big retailers.

That's a good thing. But we shouldn't lose sight of the fact that foreign investment has helped push up living standards in Bangladesh and other countries by providing employment.

And Justin Forsyth of Save the Children has made another important point. He reminds us that developing countries like Bangladesh lose an estimated $160bn in tax dodging by multi-nationals annually. That's a bigger sum than all the money spent by governments around the world on aid. And George Osborne's change to the rules on how foreign subsidiaries of multinationals are taxed in last year's Budget will make it more attractive for large firms to avoid their economic responsibilities in poor countries.

Britain used to reserve the right to levy UK Corporation Tax rates on any profits artificially moved out of developing countries by British registered multinationals into tax havens. But the Chancellor, after lobbying from multinationals and the accountancy firms, scrapped this right, applying it only to profits artificially shifted out of the UK.

The upshot is that there is now even more of an incentive for multinationals to shuffle profits out of developing nations, rather than paying local tax on them.

By all means put pressure on multinationals to ensure humane and safe working conditions in their supply chains. But the Chancellor should also feel pressure to close this loophole he opened and which is helping to allow these very same firms to hollow out the public finances of developing states such as Bangladesh.