“If we can’t beat them, join them” No thank you.
Cate Atwater, Chief Executive, Community Leisure UK, shares her views about how the Fair Tax Mark helps the organisation she leads demonstrate its values, and the challenge of ‘fake non-profits’ operating in the public leisure services sector. If you would like to share your views about transparency; how you managed to certify as a Fair Tax Mark organisation; or why fair tax matters to you, we’d be pleased to hear from you email@example.com
This is a guest blog post and its content represents the views of the author, not necessarily the views of the Fair Tax Mark.
“Cate, these models have been operating for over 15 years – so we decided, if we can’t beat them, then join them.” This was the point when I hung-up the telephone, realising that under no circumstances would Community Leisure UK partner with this service company.
The ‘models’ referred to in that call are now prevalent in the public leisure services sector in England. These models are deployed by some private sector operators and contain a “non-profit” as part of a complex group structure.
But why is this a problem? Ultimately, these business models are exploiting what it means to obtain charitable reliefs and exemptions. The intra-group arrangements mean profits and VAT are moved around to the benefit of the shareholders, rather than being reinvested into the “charitable” services. The same Directors sit on all companies – this is a serious conflict of interest and a control issue. This is not transparent or fair, and it doesn’t allow for a level playing field.
It’s worrying to discover that these models are in operation across multiple public services, not just leisure services. In fact, Carillion used this model.
A blog post from Ed Mayo, Secretary General of Cooperatives UK, perfectly highlights the problem, that he refers to as “fake non-profits”, with particular reference to the fall out following Carillion’s collapse: “One of the ripples that has emerged out of the failure of Carillion is the use by private companies of “non-profit” companies as a front for delivering public services”. (https://edmayo.wordpress.com/2018/02/01/fake-non-profits-lies-damned-lies-and-carillions-non-profit-companies/)
Public services have been decimated: we hear daily media reports, and we experience first-hand the impact of losing 60p in every £1 of local government funding. (https://www.local.gov.uk/parliament/briefings-and-responses/lga-briefing-debate-local-government-funding-house-commons). There’s a crisis in adult social care and children’s services funding, and in addition to these life-critical services, we also rely on public leisure services to support communities. They help build the local economy, improve wellbeing, enable people to feel included and keep community buildings open and thriving. If organisations that are awarded public contracts are not paying a fair amount of tax, then the public purse loses out.
So if we’re not “joining them”, how can we shine a light on these models, and make a change?
Our first tool to affect a change is regulatory. Our concerns on intra-group arrangements, lack of independence, and control were included in the Charity Commission’s guidance on ‘Charities that are connected with non-charitable organisations: maintaining your charity’s separation and independence’ – “There should be better coverage of: intra-group arrangements and charges between charities and non-charities, and company law on conflicts of interest.”
Our second tool draws a focus on procurement practice of public leisure contracts. This includes true accountability of the Public Services (Social Value) Act, as this is critical in rebalancing procurement. Currently, too many public (leisure) service contracts are being awarded to the lowest cost / highest bidder, where the margins (just like Carilion’s) are being squeezed too low to secure the contract. Procurement must rebalance; cost effectiveness is of course important, yet quality, social value and environmental impact should carry equal, if not greater, weighting. We need to ensure local councils are encouraged, supported and empowered to take an approach built on long term partnership, collaboration, outcomes and commissioning. There is no doubt this can be achieved.
Our final tool focuses on supporting councils to ask the right questions to help understand the complex group structures being presented to them. During procurement we encourage councils to ask and seek absolute certainty about
- Ownership of the non-profit
- Board representation on the non-profit
- Intra group charges and arrangements
- Calculations of profit
- Subcontracting arrangements within the group structure
- Leasing and licencing arrangements within the group structure
- VAT arrangements across the group structure
- The split of staff across the group – importantly including pension provisions for staff who are employed by different group companies
- Any dividend payments to shareholders
The Fair Tax Mark has gone a step further in their support of local councils and introduced their ‘Council’s for Fair Tax Declaration’. (https://fairtaxmark.net/launch-of-councils-for-fair-tax-declaration-with-oxford-city-first-to-sign/) This is a hugely positive piece of work aiming to support councils to require greater transparency from suppliers and have “greater powers to remove tax dodgers from public procurement.”
Community Leisure UK and our members will never “join in” and try to avoid paying our fair share of tax. We have publicly stated this through our accreditation by the Fair Tax Mark and operating by our key values, one of which is transparency. Our members are all genuine non-profit-distributing charities, societies or community interest companies (who use assets and profits for public benefits, with an asset lock). They too are transparent, have no intra-group arrangements, nor control issues. Commonly called trusts, the trust model needs to be supported through a level playing field on tax in particular, as with all charities and societies.
Receiving charitable reliefs is a privilege and should not be exploited for hidden profit extraction. Our communities cannot afford to have any more profit extracted from public services, nor should they. Our communities deserve public services that are built around and care about their needs.