UK public
procurement reform

UK public procurement reform
Campaign update (last revised: 19/12/2023)

New UK procurement rules still do little to factor in ‘tax conduct’

October 2023 saw the finalisation of new UK public procurement rules that reform the way government spends money with external suppliers. With the combined value of contracts standing at £300bn each year, the Fair Tax Foundation called for this substantial taxpayer spend to embed tax justice. UK government promised (post-Brexit) to remove the UK from EU procurement restrictions, however the resulting legislation does very little to meaningfully allow public authorities to factor in the tax conduct of companies supplying them. An estimated 17.5% of UK public contracts (with a combined value of £37.5bn) are won by companies linked to tax havens – likely the highest rate in Europe. In parallel, other research has calculated that the UK loses an estimated £12.5bn in corporation tax revenues as a result of profit shifting alone.

Against this worrying backdrop, UK polling finds that two thirds of people believe public procurement should consider the tax conduct of a business before such contracts are agreed.

Encouragingly, there is a growing movement of towns and cities across the UK that want to use their buying power to encourage responsible tax conduct. Our UK Fair Tax Council network has expanded rapidly, and includes municipal powerhouses such as Westminster, Newcastle and Edinburgh.

A small win on supplier ownership transparency

The UK’s new public procurement rules, due to apply from October 2024, do provide for a welcome small step forward on beneficial ownership transparency – the detail of which will be set out in secondary legislation (expected Spring 2024). Government is expected to mandate disclosure by contracting authorities of the beneficial ownership of successful bidders upon award of contract, as previously signalled. Ownership transparency in public contracting matters not only for reducing the risk of abusive tax conduct within supply chains but for shining a light on corrupt actors too. But the detail will matter and to this end the same transparency loopholes that have plagued the UK’s company registration services must be avoided. Structures that disguise the true beneficial ownership of companies, such as shell companies and nominee directors, must be disallowed with the result that we have clarity on who really controls the companies supplying the UK public sector wherever they are based.

We are also pleased to see the addition of new ‘failure to prevent’ offences, including tax evasion, in the list of criteria which would qualify a bidder for exclusion from a procurement exercise. However, the high thresholds and ‘self-cleaning’ provisions mean that these tax-related exclusion criteria are unlikely, if ever, to be triggered.

For supplier tax conduct to be meaningfully considered, further reform is badly needed

We also need the door to be left firmly open for further substantive progress down the line to ensure that responsible tax, and other issues of corporate conduct, are overtly allowable considerations of social value for progressive towns and cities in the future. To this end, we are actively engaging with politicians of all political persuasions – not least as many of the Fair Tax Council resolutions that have been passed up and down the country have enjoyed all-party support. We commend the recent policy proposals of the Labour Party, which would reward suppliers that demonstrate a robust commitment to responsible tax conduct and financial transparency, and which align with our ‘Big Fair Tax Ask’ (see below).

‘The Big Fair Tax Ask’ for UK public procurement

Explicitly allow contracting authorities to reward suppliers that demonstrate a robust commitment to responsible tax conduct and financial transparency. I.e., those that:

  • shun artificial tax avoidance, profit shifting and tax havens;
  • publish the fullest set of financial accounts (including a breakdown of income, profit and taxes paid across the globe)
  • and, disclose their ultimate beneficial owners (with shell companies and nominees disallowed).

This would mean that the general conduct of a corporation could be assessed and factored in, and would break the current need for all ethical considerations to be rooted exclusively in the subject matter of the contract.

Note: Research commissioned by the Fair Tax Foundation (from DatLab) revealed that 17.5% of UK public procurement contracts – with a combined value of £37.5bn – were won by businesses with connections to a tax haven. The estimate relates to the period 2014-19, with the definition of ‘tax haven’ formulated on the basis of Tax Justice Network index workings at that time. Separate research has found that the UK loses an estimated £12.5bn per annum in corporation tax revenues as a result of profit shifting alone. Data is derived from Global Tax Evasion Report 2024 and Atlas of the Offshore World.

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