Labour deputy leadership frontrunner, Jon Cruddas MP, argues that we need to do more to help remitters make the most of the money they send to relatives in the least developed countries in the world.

I was a signatory to an Early Day Motion tabled in the House of Commons last November which supported a courageous campaign being waged by City office cleaners. The cleaners, who earn as little as £5.35p per hour, were demanding better pay and conditions. They are just some of the countless, low paid workers who keep our economy on its feet, increasing numbers of whom are migrants from developing countries.

Contrary to the “benefit scroungers” image painted by the tabloid press, many migrants struggle to make ends meet. They often work long hours, are poorly paid and hold down several jobs at a time. Despite these hardships, migrant workers here from developing countries manage to send money – referred to as “remittances” – to their families in their countries of origin, which it is estimated totaled more than £2.3 billion last year. The main recipients of these remittances are India, Pakistan, the Caribbean, China, Bangladesh, Nigeria and Ghana.

The World Bank estimates that remittance flows from migrants to developing countries globally is more than twice as large as official overseas development aid. As Treasury minister Ed Balls MP said in his answers to my parliamentary questions on this topic,
“remittances are an increasingly important source of development finance and can have a significant positive economic impact in developing countries.”

Research commissioned by the Department for International Development shows that remittances are spent mostly on basic subsistence needs such as clothing, education, food and health. So remittances help meet the Millennium Development Goals of reducing poverty and increasing access to education and health. In Bangladesh and Ghana alone, it is estimated that remittance flows have helped reduce poverty by 6% and 5% respectively.

The advantage with remittances is that they go direct to the people that need them. They are not sent to recipients through bureaucratic NGOs which often have costly overheads which eat into aid, nor are they sent through the developing countries’ governments, many of which are ridden with corruption.

Concerns have been raised that remittances may be used for terrorist purposes. However, the money transfer companies have to comply with the same tough anti-money laundering measures introduced in the wake of 9/11 as the rest of the finance industry.

It has also been suggested that there is a danger of remittances being viewed as a substitute for official overseas development aid, but no one is pretending remittances can replace official aid or the partnerships which have been established to help deliver services to the world’s poor.

The government has done a lot of work to increase competition and transparency in the money transfer market for remitters by, for example, establishing the www.sendmoneyhome.org website, for which it deserves credit. But we must go further. We must look at other ways of ensuring remitters can make the most of the money they send to relatives in the least developed countries in the world. I do not claim to have all the answers in this respect, but here are just two ideas.

Firstly, money transfer fees are applied by the money transfer banks and companies through which remittances are transmitted. The fees applied can amount to as much as 40% of the monies sent. The government should explore setting up a not for profit, money transfer agency through which remitters could send funds home. This would ensure individual remittances can be sent for minimal (or no) fees.

Secondly, more and more remitters from the same local communities in developing countries are collectively pooling together remittances through “home town associations”, to fund development and infrastructure projects in their local communities of origin. As the African Foundation for Development (AFFORD) has pointed out, expenditure by these associations tends to involve expenditure on the fitting out and maintenance of community assets or the acquisition of resources for the provision of community services.

So it can be argued that the remittances sent by these associations are a form of local development aid. The government could set up a register of such associations and should consider giving registered associations tax relief on the funds they remit. This would encourage the pooling of remittances which can be more efficient and is in keeping with Labour’s collectivist instincts.

The G8 world leaders will be meeting from 6 to 8 June in Germany for their 33rd summit. As always, international development will be on the agenda. What better example could the UK government set in the lead up to that summit, than to show its commitment to eradicating world poverty by placing remittances firmly on the political agenda and ensuring we make the most of the benefits they can bring.

Jon Cruddas is Member of Parliament for Dagenham and a candidate for Labour’s
deputy leadership. www.joncruddas.org.