Our health and their development: overlapping interests?

Sally Ruane | March 3, 2014 | Blog


There cannot have been many occasions on which experts on health and experts on tax have come together to see how these two spheres of interest and expertise impinge upon each other and what scope for collaboration exists. A fascinating workshop organised by Medact last month provided just such a forum, demonstrating no shortage of possible synergies. Participants described investigations into the impact of taxes on unhealthy foods, the relationship between the LIBOR scandal and PFI schemes in the NHS, the role of Freedom of Information requests in getting complex financial information into the public domain and inequities in the distribution of the tax burden. One of the obvious connections between tax and health is the funding of the NHS and the workshop provided plenty of food for thought on the relationship between our ability to enjoy good services and the willingness and ability of governments to fund them.

One dimension to the complex relationships between tax and health which attracts increasing attention concerns whether corporations engaged in trade worth many millions or even billions of pounds are contributing sufficiently to the wellbeing of those in whose countries they operate. Take for example, the development opportunities created by the tax revenues possible when a large corporation invests in a low income country. A growing number of studies have revealed what appear to be huge losses suffered by the people in such countries as a result of complex financial arrangements. Workshop participants from Oxfam and Save the Children both flagged this up and other development agencies such as Action Aid and Christian Aid have also raised the alarm. Through a combination of unequal information and unequal bargaining power, corporations in the extractive industry (for instance) are often able to negotiate contracts which are very beneficial to themselves while leaving only a fraction of the benefits which might have been expected for their low income country hosts, despite the fact that it is the latter’s natural resources which are being exploited. These contracts often entail financial incentives and tax breaks such as advantageous arrangements surrounding corporation tax, import and export taxes or royalties.  Further potential revenue for the government of the developing country is lost through the manipulation of profits which can be minimised through various mechanisms, particularly the mispricing of commercial transactions, and which results in less money remaining in the country.

Such outward flows of capital deprive governments in poor countries of resources which might otherwise have been available for development purposes. Had these funds remained in the host countries, they could have been taxed and the revenues raised used for investment in health care, provisions targeted at improving the prospects of child survival and other programmes beneficial to health and wellbeing. The sums are eye watering: Oxfam believes around an average of £1billion per week has been lost to African countries for the past thirty years – or up to $1.4 trillion between 1980-2009 according to recent Africa Development Bank figures.

It would be misleading, however, to consider that the practices of large corporations in aggressively reducing their tax liabilities are a problem for poor countries only. One contributor at the workshop described an investigation into Alliance Boots published last November. According to this analysis, Alliance Boots, which operates in 25 countries, is the UK’s main employer of pharmacists and pharmacy technicians outside the health service; it derives some 40% of its UK revenues from the NHS and is looking to secure extra work (and income) from the NHS. In 2008, Alliance Boots was purchased in the largest ever leveraged buyout in Europe. Some £9 billion was borrowed to buy the company in a transaction led by a private equity firm. Most of the debt was transferred to Alliance Boots in the UK and because it can offset the cost of financing its buyout-related debt against tax, and because the company has restructured with debt repayments being made to entities outside the UK, Alliance Boots has managed, the report claims, to reduce its UK taxable income by an estimated £4.2bn since the buyout. Despite the fact that Alliance Boots is thought to be the UK’s largest private firm and has remained profitable on an operating basis throughout the period, the report calculates that it has accrued a net tax credit of £130m since 2008.

The practices of Alliance Boots comply with legal requirements – or at least appear to. In fact many of the company’s financial arrangements are not only highly complex but also shrouded in secrecy since its corporate structure includes entities located in tax havens, defined by Tax Justice Network as a ‘financial secrecy jurisdiction’. From prior revelations concerning the financial arrangements of other companies, we know that Alliance Boots is not alone. Again, the vast size of the corporations involved contrast with the tiny amount of tax paid. For example, it has been reported that Amazon had UK sales of £3.35bn in 2011 but disclosed a ‘tax expense’ of just £1.8m while Starbucks made sales in the UK of around £400m in the same year but paid no corporation tax at all. But again, these arrangements are defended by the companies on the grounds of their legality. And there are other companies, too.

It is not just developing or low income countries which are being deprived of the revenues they need to finance development. A dramatic restructuring of health services in England is being driven largely by a funding squeeze which is worse than any the NHS has seen in the past half century. One does not need to be an opponent of radical restructuring to realise that the loss of huge amounts of tax revenue through avoidance, be it by large corporations or affluent individuals, is impinging increasingly on the services on which we all depend. Nonetheless, the closure of tax offices and loss of HMRC staff and the practice of seconding individuals from the big four accounting firms to the Treasury to advise on tax law when those firms design many of the tax avoidance vehicles, not to mention the sluggishness in modifying the tax rules to reflect the impact of global structuring and the use of the internet by large corporations, all point to a certain complicity by the state.

Those investigating the persistence of poverty in developing countries and those struggling to sustain high quality health care in the UK have more in common than we think.

About the author

Sally Ruane

Sally Ruane

Sally Ruane is the Deputy Director of the Health Policy Research Unit at De Montfort University, Leicester and a former member of the CHPI's EMT. She has published in books, academic journals and magazines in the UK and Spain and has a particular interest in the private finance initiative, service configuration and political aspects of the policy process.See all posts by Sally Ruane