Archived press release

Uk must back french and german aid plans

2 March 2005

Environment and development campaigners today called on the UK Government to support plans by the French and German Governments to raise aid levels by taxing international currency speculation and aviation fuels.

The World Development Movement (WDM) and Friends of the Earth say both taxes are urgently needed, to limit damaging currency speculation and to help in the fight against climate change. They warned that any money raised by new international taxes must be in addition to rich countries increasing their aid levels by meeting the 35 year old international target of giving 0.7% of national income as aid.

Peter Hardstaff, WDM's Head of Policy said:

"Gordon Brown should support Jacques Chirac's call for a currency speculation tax. Done properly this would bring in billions every year for the Millennium Development Goals, and make developing economies' less vulnerable to attack by currency speculators. The Chancellor is vastly overselling his own International Finance Facility initiative and pushing his pet project at the expense of these other more radical and genuinely fund raising proposals."

Simon Bullock, Friends of the Earth's economics campaigner said:

"The Chancellor should support Gerhard Schroeders' proposals for an aviation tax. The Government has said that the twin priorities for this year's G8 are climate change and Africa. An aviation tax would raise billions which could be spent on sustainable development, such as renewable energy technologies in developing countries. The tax could slow the growth of the massively polluting aviation industry, helping to tackle climate change which will hit poorest countries hardest."

A WDM report released earlier this week showed that the IFF - the centrepiece of Brown's "Marshall Plan for Africa" - will result in a net reduction of aid to the developing world of $108bn over the lifespan of the scheme [1]. It will also not double aid flows or increase aid by $50bn as is often claimed.

Peter Hardstaff said:

"We support increases in the money available for development but the IFF does not do this. If the Chancellor wants to increase the amount of aid going to developing countries in the short term then he should increase the aid budget immediately."

The UK does not plan to reach the UN target of giving 0.7 per cent of national income as aid until 2013 at the earliest.

Notes

[1] WDM's report on the International Finance Facility is available for journalists at www.wdm.org.uk/resources/briefings/general/iff.pdf (PDF)

The IFF works by borrowing money on the international bond markets using future commitments of aid flows as collateral. Effectively it brings forward planned future aid spending to give to developing countries now. WDM's research finds that the IFF will increase aid flows by $209bn in real terms for the first decade (2006 to 2017) of the scheme but that flows will plummet after 2017 as aid budgets are used to pay back the bonds at a total cost of $316.6bn in real terms. The interest that has to be paid on the IFF bonds, 5-6 per cent according to Treasury figures, will reduce the total amount available for developing countries over the 27 lifespan of the scheme by $108bn in real terms.

[2] The Tobin Tax is a tax on currency trading. It is named after its proposer James Tobin. The latest version proposed by campaigners is substantially changed from the original - mainly in that it now works at two levels.

The currency market is the largest market in the world - with a turnover of $300,000 billion each year, mostly carried out by about 30 large banks trading mainly G7 currencies.

The currency market can sometimes have a devastating effect on a country's economy - financial instability caused by a lot of sudden trading can cause huge negative effects, like the crash in South East Asia in 1997-1998.

The Tobin tax works at two levels. First, the everyday level - a very low rate of 0.005% on all transactions - this would raise $15 billion for development projects, without disrupting the market (because the rate is so low). Second, a very high level which only applies when the market is very volatile - to stabilise it and prevent damaging crashes.

The tax therefore has two major positive effects - it raises a lot of money for development goals and it has a major stabilising effect which is of benefit to all economies. The tax can be applied unilaterally to any currency

[3] Blair rules out air fuel tax, Guardian unlimited, 8 Feb 2005

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Published by Friends of the Earth Trust