UK public procurement reform
Campaign update (last revised: 7/10/2022)
New public procurement rules are being advanced by the UK Government during 2022. They encompass every town and city, national bodies and the NHS. With the combined value of UK public procurement contracts standing at £300bn per annum, this represents a massive opportunity for taxpayer spend to finally embed tax justice.
However, 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 £17bn 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 Fair Tax Council network is expanding rapidly, and includes municipal powerhouses such as Birmingham, Newcastle and Edinburgh.
A UK Public Procurement Bill was published in June 2022, and promised (post-Brexit) to remove the UK from EU procurement restrictions. However. the bill does very little to meaningfully allow progressive towns and cities to factor in the tax conduct of companies supplying them.
The UK Public Procurement Bill will recommence its passage through the House of Lords this autumn, and then move to the House of Commons. We are urging Peers and MPs to back some moderate amendments that would help drive out dirty money and advance tax justice (a little bit). In particular, along with the UK Anti-Corruption Coalition (UKACC), we would like to see enhanced powers conveyed to allow the exclusion of business from public procurement where there is good evidence of financial and criminal activity – as per the United States.
There are some positive aspects to the UK Public Procurement Bill: not least the requirement that overseas suppliers should disclose their beneficial owners, as UK suppliers already do. But, the Bill is far too vague in many places and needs to be clearer on economic crime matters. It is vital that we never again have the debacle of progressive towns and cities feeling that they are unable to exclude the likes of Gazprom from procurement. Current law makes it very difficult to factor in the consideration of broad matters of ethical conduct and economic crime. The most likely chance of real progress is that moderate advances are progressed in the UK Public Procurement Bill over the next six to nine months. With a focus on radically enhanced process transparency and debarment of the very worst of corporate abusers. A list of the ‘5 priority amendments’ of the UKACC can be found here.
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 near 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).
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. Separate research has found that the UK loses an estimated £17bn per annum in corporation tax revenues as a result of profit shifting alone. Data is derived from https://missingprofits.world/ and supported by researchers from the University of California, Berkeley and the University of Copenhagen.
There are a thousand and one issues out there that business is being asked to champion – on top of the day-to-day challenge of thriving commercially in an ever more competitive world. Approaches and acronyms abound, be it ESG or CSR or SRI or SDGs, with each urging that a business prioritise their favoured issues.
So, why should a business prioritise responsible tax conduct and tax transparency, and pursue Fair Tax Mark accreditation?
The terrible Russian invasion of Ukraine laid bare the extent of the UK’s exposure to illicit finance, prompting concerted counter efforts by parliamentarians. This week, a welcome second Economic Crime Bill edges closer to being finalised, but substantial loopholes are in danger of being left unaddressed unless amendments – backed by leading anti-corruption and tax justice groups – are accepted.
The advance of tax transparency was never going to be quick and smooth. But it is slowly but surely grinding forward, with increasing legal requirements emerging across many parts of the globe. At the Fair Tax Foundation, we believe that comprehensively implemented public Country-by-Country Reporting (pCbCR) significantly enhances the ability of stakeholders across the world to form an informed opinion as to whether a business is paying the right amount of tax, in the right place and at the right time.
