UK procurement policy should require suppliers to show responsible tax conduct
The UK government’s limited recognition of the importance of tax compliance in its new national procurement policy is welcome. But we would like to see it go much further and explicitly require suppliers to demonstrate responsible tax conduct in order for them to win public contracts.
Last week, the UK government released a statement on a new national procurement policy, which will come into effect on 24 February 2025. This sets out strategic priorities for public procurement and how national and local contracting authorities (excluding devolved Welsh or transferred Northern Irish procurement arrangements) should put these into practice.
Public procurement is the process of buying goods, services or work from private companies by government departments, local authorities and other public bodies.
Last year the UK’s gross procurement spent was £407bn, a 5% increase on the year before. It’s therefore vital to ensure suppliers have responsible business practices to prevent contracts ending up with businesses inappropriately linked to tax havens and using aggressive tax reduction behaviours.
No meaningful change
The UK’s new guidance follows on from the Procurement Act 2023, as progressed by the previous government. To date, there has been little or no meaningful requirement for national or local government to assess the tax conduct of a business bidding for public contract.
In fact, many progressive local councils have been concerned that to factor such considerations in may be illegal and could open them to challenge in the courts! Unfortunately, the Procurement Act 2023 was something of a missed opportunity, as we pointed out at the time.
The new guidance states that in-scope public bodies must ensure their suppliers are actively working to tackle bribery, corruption and fraud, as well as complying with their tax obligations. This is one of eight actions set out. What this aspiration looks like in practice will ultimately determine whether there is any real change on the ground via the exclusion of tax dodgers from public procurement, and the enablement of businesses that readily demonstrate responsible tax conduct to compete fairly.
Fair Tax Councils lead the way
The 63 UK local authorities signed up as Fair Tax Councils already aspire to similar aims and more; for example, by undertaking due diligence to ensure not-for-profit structures are not being used inappropriately by suppliers as an artificial device to reduce the payment of tax and business rates.
And by demanding clarity on the ultimate beneficial ownership of suppliers, be they UK based or overseas, and their group consolidated profit and loss position (given lack of clarity could be strong indicators of poor financial probity and weak financial standing).
These Fair Tax Councils collectively spend around £28bn on procurement and represent more than 14 million people. A quarter are now highlighting ‘fair tax’ to supplier businesses as a social value or ethical procurement priority. These include Westminster, Oxford and Bingley, which have incorporated their fair tax commitments into procurement strategy documentation.
Exclude tax dodgers
Following the government’s statement and with the strategy coming into effect at the end of the month, councils will be looking to refresh their procurement strategies. We hope to see proven tax dodgers excluded, as supported by two-thirds of the UK public, who believe public procurement should consider the tax conduct of a business before such contracts are agreed.
The new central debarment list could be an important new tool, as it will exclude suppliers from bidding for public contracts for up to five years for reasons such as tax evasion. The list will also exclude certain suppliers from bidding for public contracts owing to acts committed by their connected persons and key subcontractors.
Fair Tax Mark companies with public supplier contracts – such as Marshalls, Mace, Arup, Unite Group and Globe Locums – already recognise that it makes sound business sense to pay tax responsibly and transparently. Why not embed such practices into public procurement across the country?
