WIREDGOV

New report by think tank Demos, Value Added, has found that an overwhelming majority (73.5%) of the government’s Strategic Suppliers have operations in tax havens.

The report found that social value procurement and current EU legislation could help disincentivise tax avoidance.

The report calls for government to consider bidders’ exchequer contribution where necessary in order to qualify for public sector contracts.

A staggering 25 of the government’s 34 Strategic Suppliers (73.5%) have operations in tax havens, according to a new report which explores how central government could use public procurement more effectively to bring about a fairer economy.

New research, published by Demos, reveals that 20 of the 25 tax-haven-linked Strategic Suppliers were awarded more than £41bn worth of government contracts between 2011 and 2017. Aggressive use of tax havens could distort competition by providing an unfair advantage to businesses that use them.

The report, based on interviews and desk-based research, also found that of the 34 Strategic Suppliers, 19 had operations in jurisdictions included on the EU’s ‘blacklist’ or ‘greylist’ of countries non-compliant with EU international standards for good tax behaviour.

Procurement is the UK government’s largest expenditure, valued at £284bn. Influencing how this money is spent represents a significant opportunity for government to shape the nature of the wider economy. The report suggests that more deeply embedding social value into the procurement process for the provision of goods, works and services could help tackle aggressive tax avoidance.

Through social value-based procurement, the government could more effectively ‘buy economic change’ and also encourage suppliers to adopt best practices such as employing people on a real living wage, reducing carbon emissions and using more inclusive recruitment strategies.

To discourage government suppliers from using international tax agreements to reduce their tax bill, Demos is calling for several measures – including minimum standards for public procurement to include criteria relating to a bidder’s exchequer contribution. For example, bidders could have to meet a certain Effective Tax Rate to pre-qualify for that procurement round.

The report’s further recommendations include: 

• The government taking advantage of existing provisions in EU competition law so that companies do not gain an unfair advantage over their competitors by using international tax arrangements.
• Government establishing priority social value standards for departments in order to pursue select, strategic cross-government objectives, for example related to fair tax practice and carbon emissions.
• The three central government departments with the highest procurement spend (Department of Health and Social Care, Ministry of Defence and Department for Transport) creating a Small-Medium Enterprise (SME) advisory panel to make it easier for SMEs to bid and win contracts with them.

Commenting on the report’s findings, Rose Lasko-Skinner, Researcher at Demos and Value Added co-author said: 

“Government procurement could be an incredible force for good in the UK, beyond the public sector and in the economy more broadly.  There are already great examples of local governments using social value-led procurement on the ground to bring about better economic outcomes such as fair pay or boosting demand for local smaller businesses – but these are just the beginning, and there is so much that could be done here to make the UK economy as a whole more equitable and inclusive. Public procurement is pretty much the best opportunity the government has to demonstrate what a good British business looks like, and this purchasing power should not be under-estimated.”

NOTES TO EDITORS

The following parliamentarians have endorsed this report:

Labour MP and Chair of the Public Accounts Committee, Meg Hillier, said:

“As chair of the Public Accounts Committee I repeatedly see mistakes with public procurement. As well as preventing the waste of taxpayers’ money, wiser procurement could see more social value realised. For citizens value is about more than just the money spent – it’s about the public or social value, and this should be recognised better by government. This report is comprehensive and raises recommendations which I strongly encourage government of whichever colour to consider.”

Labour MP and former Chair of the Public Accounts Committee, Rt Hon Dame Margaret Hodge, said:

“This important report by Demos is an authoritative study of the serious shortcomings of public procurement in the UK. It is perverse that the Government continues to pay significant sums of taxpayer money to big corporations that practice tax avoidance on an alarming scale. The solutions presented by Demos need to be studied in detail by ministers, policymakers and commercial teams across government, to ensure that companies who benefit from taxpayers’ money pay their fair share to society in return.”

Former Minister of State for Culture, Media and Sport and Independent MP, Rt Hon Ed Vaizey, commented:

“This report strongly demonstrates that our public procurement regime is in need of a refresh. Above all, we need to come together to find workable solutions to ensure that the public procurement market is competitive, transparent and serves the public good. With this report, I feel that Demos may have hit the nail on the head.”

Liberal Democrat MP and Chair of the Science and Technology Committee, Norman Lamb, said:

“I wholeheartedly welcome this report. Properly done, public procurement can be a force for good, driving up corporate standards of behaviour and helping us tackle some of the biggest challenges of our time such as tax avoidance, improving treatment of workers and supply chains and confronting the climate emergency. I believe this new Demos report sets out a credible blueprint for better procurement.”

Labour peer Lord Haskel commented:

“For too long large international tech companies have failed to pay their fair share of tax whilst being rewarded with government contracts, leaving British companies at a competitive disadvantage. I welcome Demos’ thoughtful contribution to this debate and their ideas on using the lever of public procurement to create a level playing field. Priority social value standards need to be established in this vein and I would urge government to consider British Standard 95009 in particular, which features social and economic standards enabling smaller and newer businesses to compete. We need to have a wider debate on the future of our economy, and I am sure this report will help promote that discussion.”

Report:

‘Value Added: How better government procurement can build a fairer Britain’ by Rose Lasko-Skinner, Ben Glover, Alan Lockey and Tom Dale. 

The research was funded by UKCloud.

Methodology:

Demos sought to identify which of the 34 Strategic Suppliers to government are part of a corporate group with subsidiaries registered in overseas jurisdictions credibly designated as ‘tax havens’. The research relied principally on data kindly provided by Spend Network as well as company reports, records filed at Companies House and at the Securities and Exchange Commission in the United States and, in a few cases, company websites.

It is important to note, that having operations in overseas jurisdictions that we have defined as a ‘tax haven’ does not mean said strategic supplier is avoiding paying taxes – there are various reasons for having operations in said countries. It can nonetheless be considered an indicator.

Strategic Suppliers are organisations that receive £100m or more in revenue from the government. According to estimates, in 2016/2017 they accounted for around a fifth of central government procurement spend.

Media Contact   

Josh Tapper, Communications Officer, Demos
Phone:  020 3878 3955 | 07535748224 (out of hours)
Email: josh.tapper@demos.co.uk

About Demos

Demos is Britain’s leading cross-party think-tank: an independent, educational charity, which produces original and innovative research. 

About UKCloud

UKCloud is one of the largest service providers for cloud computing services in the UK.