Tax dodgers should not win Government contracts! The Sunday Times (10.02.13) reports that the Government has decided to review bidders’ tax avoidance and payment history when procuring public contracts. This is a welcome decision and one that I and others have been advocating for some time.
Such a policy will require the Government to be very clear about what it considers acceptable and unacceptable in terms of a business’s tax policy and practice. It will have to ensure that there is transparency and consistency to avoid legal challenge. It will have to decide how it will apply such a policy to multinational businesses which operate and/or have headquarters in other jurisdictions in order to ensure that indigenous providers are not disadvantaged, while holding firm to the principles that underlie the policy. In the case of providers which are subsidiaries of larger corporate groups – UK or multinational – this policy should be applied to the group’s and parent company’s tax practices and not simply the bidding entity.
Self-declaration by bidders and providers may not be enough. The Government should require bidders and contractors delivering services and goods to make available for technical examination their tax policies and accounts as well as their tax returns. It will have to consider how, if at all, it can impose or negotiate any retrospective requirement on companies with existing contracts.
The Government should actively encourage the wider public sector, including local authorities and the NHS, to adopt similar policies and processes. There could be opportunities for company assessments to be undertaken centrally, perhaps by HMRC, and shared as necessary with the relevant public procurement bodies. This could reduce costs and bureaucracy for both the public sector and bidders.
The Government should also consider how this new public procurement policy will be applied to the social and third sectors; and whether the same level of scrutiny should apply to an SME as to a multinational company, or to all or only large contracts.
However, these are resolvable details – what matters most is that the principle is adopted.
Tax policy and practice are important symbolic indicators of an organisation’s ethics, but they are not the only ones. The Government and wider public sector should consider taking into account a wider range of ethical factors when procuring goods and services. These could include factors such as governance, employment, diversity, supply chain management and sourcing, environmental and investment policies and practice. They could also include remuneration policy and practices for all employees – for example the ratio of the highest to the lowest remuneration, pension scheme fairness or the adoption of the living wage.
With a growing interest in ethical capitalism the Government and the wider public sector has an opportunity to use its massive spending power to encourage and drive change. There is much that can be achieved within the existing EU public procurement regulations but there could be some constraints. All too often public sector lawyers and procurement professionals are over-timid in their interpretation of these regulations and their advice on how they can be used for wider social and economic goals.
Any suggestion that the EU rules will restrict the ambition of the public sector to drive change and behaviour through procurement should not be used as an excuse for avoiding showing leadership and demanding the highest standards from those willing to take public money through public contracts. The UK Government should also be ready and willing to argue for appropriate reforms of the EU statutes where these impede progressive ethical procurement.
The Government is taking an important step in respect of public contractors’ tax policy and practice. It is likely to be in line with public opinion. It is in the interest of providers too to be seen to be open and ethical businesses. It is most certainly in the interests of taxpayers, the economy and the future of public services.