Fooled again? G7 leaders missed an opportunity to raise their game

For an economy that desperately wants to put the horrors of Covid-19 behind it, hosting the G7 summit is a great fillip. The gathering of the G7 leaders in Carbis Bay, Cornwall, was an opportunity for Boris Johnson and Rishi Sunak to preen alongside their American and European counterparts.

Every seven years (or eight, when Russia was briefly allowed in) the UK hosts the gathering – as it did in 2005, when the then prime minister Tony Blair was subjected to intense, emotional lobbying by music stars Bono and Bob Geldof, accompanied by The Who’s rendition of “Won’t Get Fooled Again”.

At their Edinburgh summit, the then G8 promised a whole host of measures to help poor nations in Africa and elsewhere, including a commitment by its European members to raise foreign aid to 0.56 per cent of GDP by 2010, and 0.7 per cent by 2015. Some of the measures were delivered; others were not. And one – the 0.7 per cent target – was met, but then rescinded by Boris Johnson’s administration this year, only weeks before leaders were due to meet in Cornwall.

This year the summit again saw some hefty economic pledges from the countries taking part. Yet given their history of making and breaking pledges, it is worth looking at how substantive – and substantial – their decisions were.

The first, announced at the finance ministers’ meeting the previous weekend, was agreeing to a minimum rate of tax for multinational companies. In theory, this should stop companies from shifting profits to low-tax jurisdictions, and ensure the largest multinationals pay more taxes where they operate.

But the devil is in the detail. Firstly, while the 15 per cent minimum might look reasonable, it is below the rate most countries already set, and could end up being a ceiling rather than a floor. Another weakness is that no one knows the tax base to which the rate would apply.

Secondly, as observers including Paul Donovan, chief economist at UBS Global Wealth Management, have pointed out, it says that large companies – where “large” is undefined – with a 10 per cent profit margin should be taxed where they conduct business, a move that would exempt tech behemoths such as Amazon.

So far, the US has moved to keep its other tech companies outside the remit, while the British have sought to protect their banks.

Thirdly, the G7 may comprise leaders of the richest nations, but they are not the only ones with tax jurisdictions. Any final agreement will have to be approved by 139 countries as part of the longstanding negotiations that have gone on for years via the Organisation for Economic Cooperation and Development (OECD). Poor nations’ citizens should not hold their breath.

Then there is the much-heralded commitment to share one billion vaccines, with the US pledging 500 million and the UK 100 million. Here, too, the offer may turn out to be underwhelming. It may sound generous – it is hard for people to get their heads around billions – but in fact it is quite miserly. The UK has bought 517 million jabs for 80 million Brits, while fellow G7 member Canada has also secured enough vaccines to inoculate its population five times over.

The World Health Organisation says the world would need 11 billion doses to end the pandemic, which has killed around 3.9 million people.

The failure to get close to that target is not just an issue of morality, diplomacy and equality; it is an economic error of gargantuan scale. The International Monetary Fund, seldom an advocate for big spending, argues that to vaccinate at least 40 per cent of the population in all countries by the end of 2021, and at least 60 per cent by the first half of 2022, would cost $50bn (£35.4bn). This is 1/764 of the G7’s combined annual economic output of $38.3 trillion (£27.1 trillion).

A faster end to the pandemic could also inject the equivalent of $9 trillion (£6.4 trillion) into the global economy by 2025, thanks to a faster resumption of economic activity. Advanced economies, likely to spend the most in this effort, would see the highest return on public investment in modern history – capturing 40 per cent of the cumulative $9 trillion in global GDP gains, and roughly $1 trillion (£708bn) in additional tax revenues.

This is the economist’s version of the old saying that no one is safe until everybody is safe. But even putting it into monetary terms – that the G7 would get an 18,000 per cent return on its $50bn investment – failed to persuade the leaders to pursue their own economic interest.

If there was one achievement at the summit, it was having a US president back on the same economic page as his fellow leaders.

But sadly, despite the rhetoric of “building back better” and “not repeating the mistakes of past crises”, the attitudes of the G7 towards those key questions of taxation and an economic reset suggest that the song by The Who that really sums them up is “I Can’t Explain”.