UK public procurement reform: campaign update (last revised: May 2026)
In 2023, the UK passed new public procurement legislation (the Procurement Act 2023). This was billed as substantially reforming, post-Brexit, the way the UK government spends money with external suppliers on goods and services.*
The combined value of such contracts are worth an enormous £340bn per annum and account for about a third of public sector spending.
The legislation made some welcome changes to ensuring that corporate tax conduct could be better factored into national and local purchasing decisions. But it did not go nearly far enough.
In terms of the ‘tax misconduct’, the range of compliance issues that could lead to supplier exclusion has been expanded to include ‘deliberate tax penalties’. Under the previous regime, tax penalties were a discretionary exclusion ground, but under the new Act, deliberate tax penalties are a mandatory exclusion ground.
Tax misconduct specifically encompasses ‘VAT fraud’, ‘deliberate errors in tax documentation’ and ‘knowing failure to notify’, and there is a five-year look back period. Equivalent tax penalties incurred outside the UK are also in scope.
The new legislation strengthens the ability (the necessity even) of excluding businesses from bidding for public procurement contracts if there is recent evidence of tax evasion. In other words, if they have been shown to knowingly submit documentation errors to HMRC (or equivalent) or they have intentionally failed to notify HMRC with the aim to mislead.
In terms of tax avoidance, the scope for action is still very limited. However, there is now mandatory exclusion for those defeated in connection with tax avoidance arrangements covered by Disclosure of Tax Avoidance Schemes (Dotas), or that have entered into arrangements that have been counteracted by the General Anti-Abuse Rule (Gaar).
Dotas requires promoters and, in some cases, users of tax avoidance schemes to notify HMRC of their arrangements if they trigger various hallmarks. The schemes caught tend to be either very aggressive or promoted by operators at the less reputable end of the advisory market. If a notifiable scheme is subsequently ‘defeated’ (i.e., HMRC successfully challenges it), that defeat can now trigger mandatory exclusion for connected parties under the Procurement Act 2023. Dotas was introduced under the Finance Act 2004.
Gaar gives HMRC the power to counteract tax arrangements that are ‘abusive’ (i.e., they cannot be regarded as a reasonable course of action in relation to the relevant tax provisions). If arrangements have been counteracted under the Gaar, this can now trigger mandatory exclusion for connected parties under the Procurement Act 2023. The Gaar was introduced in the Finance Act 2013.
Both Dotas and the Gaar have equivalents in many other countries.
Significantly, the Procurement Act 2023 newly establishes that all mandatory exclusions apply not just to a supplier, but also associated subcontractors and connected persons. Connected persons includes a parent or subsidiary, a company director and anyone who exercises significant control over the supplier (including individuals with a shareholding or voting interest of 25% and above). When suppliers now want to make a bid for a contract they must disclose upfront all persons connected to the business (e.g. persons with significant control) on a new central digital platform. And they must self-declare if they are subject to any discretionary or mandatory exclusions. None of this self-reporting is independently verified centrally. It is assumed that individual public contractors will undertake such investigations down the line.
The strategic priorities for implementing the new legislation were set out in February 2025 in a new National Procurement Policy Statement. In support of the delivery of social and economic value, the Policy Statement states that contracting local and national government should ensure that corporate suppliers are tax compliant.
All these developments are welcome, although they are baby steps. The UK government should go much further and make it clear public authorities can factor corporate tax conduct into their procurement decision-making, much as they are explicitly encouraged to maximise procurement spend with social enterprises.
They should also make sure that that spirit of the Procurement Act 2023 is robustly implemented. For example, as yet, not a single business has been added to the new debarment list, since it was opened 24 February 2025. Moreover, contractors can waive mandatory exclusions for deliberate tax penalties that took place during the look-back period if they deem them to be a ‘one-off’ and the grounds for exclusion have ceased or are unlikely to reoccur.
The Procurement Act 2023 creates greater scope for public sector contractors to penalise businesses that have recently been found guilty of tax evasion and defeated avoidance. But it does little to address the sizeable number of businesses that still demonstrate aggressive tax avoidance and the artificial use of tax havens. Nor does it explicitly articulate the case for good corporate citizens to have their responsible tax conduct factored into social value analysis.
For many years, the Fair Tax Foundation have been calling for UK procurement rules to allow for corporate tax conduct to be a meaningful consideration. In 2019, we presented research that revealed c.17.5% of UK public contracts were being won by companies linked to tax havens (over the preceding five-year period). In parallel, it has been calculated that the UK loses an estimated £14bn in corporate tax revenues as a result of profit shifting alone.**
Since 2018, we have been conducting annual polling with a representative sample of the UK general public. In 2025, our research found two-thirds (66%) of respondents agreed that government and local councils should consider a company’s ethics and how they pay their tax as well as value for money and quality of service provided, when they are awarding contracts to companies. Within this, there was a significant increase (from 8% to 17%) in those agreeing that public contracts should only be awarded to ethical companies who pay a fair amount of tax, even if this means less value for money and a lower quality of service.
Our call to action is shared by more than 60 cities, towns and villages across the UK. These have signed up to our Councils for Fair Tax Declaration. Like us, they believe tax conduct should be an allowable, material consideration of local public procurement considerations. These municipalities collectively spend some £28bn each year with external suppliers and cover more than 14 million people, representing around a fifth of the UK population.
Explicitly allow and encourage contracting authorities to reward suppliers that demonstrate a solid commitment to responsible tax conduct and financial transparency. I.e., those that:
Paul Monaghan, Chief Executive of the Fair Tax Foundation, said:
“It’s hardly the most radical idea in the world to expect businesses that win public contracts to embrace responsible tax conduct and financial transparency. Simply not being caught evading tax is far too low a bar.
“The Procurement Act 2023 was a step in the right direction, but the exclusion grounds still only bite when HMRC has already penalised or defeated a supplier’s conduct. And more than a year after the new rules came into force, the debarment list remains completely blank. All businesses can easily pledge to shun aggressive tax avoidance and the artificial use of tax havens. Multinationals should be open about what taxes they pay and where – something the EU now requires of its largest companies through public Country-by-Country Reporting, but which the UK has failed to adopt post-Brexit. At the same time, small businesses should also be transparent on the taxes they do or don’t pay, given that small businesses account for the largest part of the UK’s tax gap.
“The sheer size of public procurement in the UK – more than £340bn a year – means it can be a powerful lever for change. Two-thirds of the public agree that tax conduct should be factored into how public contracts are awarded. More than 60 councils, covering a fifth of the UK population, have signed up to our Councils for Fair Tax Declaration calling for exactly that. The UK government is rightly keen to use procurement to support social enterprises; it should be equally willing to use it to reward responsible tax conduct and punish tax-dodging laggards.”
* Previously, UK procurement rules were governed by the Public Contracts Regulations 2015, which transposed the EU Public Contracts Directive (2014/24/EU). This was, and is, exceptionally weak at factoring in matters of corporate tax conduct. Mandatory exclusion only arises when a supplier fails in its obligations to pay taxes if this has been established by a final judicial or administrative decision, and this exclusion then ceases to apply when the economic operator has fulfilled its obligations (by paying, or entering into a binding arrangement to pay, the taxes due). Which renders the window of exclusion even for tax evasion to be so narrow as to be practically meaningless. Having said which, Denmark did transpose the Directive with some added teeth that enabled restrictions to be enacted on companies established in the EU’s blacklist of non-cooperative tax jurisdictions.
** Data is derived from Global Tax Evasion Report 2024 and Atlas of the Offshore World.
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