This came out in the FT a week ago, but what the heck, nothing's changed since then:
Ministers are facing calls to launch an investigation into the tax affairs of companies that provide public services, amid concerns that sharp business practices may be harming taxpayers more than serving them.
Simon Hughes, the Liberal Democrat deputy leader, has joined forces with tax campaigners to call for a probe into government contractors that may be avoiding tax. Although many of these practices are widespread across the private sector, some MPs have said the government should use its purchasing power to encourage better behaviour from its larger suppliers.
Mr Hughes said: “I will be calling for ministers to undertake an urgent review into the tax affairs of its major contractors and suppliers. The government must use the power it has in awarding licences and procurement to make sure that companies behave like good corporate citizens and pay taxes.”
Richard Murphy, a tax campaigner, said: “The single biggest problem our government faces is not having enough tax revenue to fund essential spending.
“One obvious solution is to change the rules on government procurement. As a minimum, anyone offered a government contract must be able to show they'll pay tax on it in full in the UK and to make sure they do not use tax havens.”
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Except that it is already normal practice to create special purpose vehicle companies for procurements and for these to then sub-contract with other companies within a group.
So such a measure would just see a further proliferation of SPVs and even more artful use of sub-contracting.
What’s really required therefore is a far more radical reform of company law to make it much harder to spin-off subsidiary entities for tax purposes.
But even if this was do-able you still can’t get away from targets for ROCE etc being fundamentally inelastic – reduce the ultimate bottom line by reducing tax evasion and they will simply raise their prices to a level that can produce the profit they demand.
Fundamentally the same problem applies to forcing state contractors to pay a living wage – rather than take a cut in profits they’d simply not tender for the business at all unless the price can be raised – in which case its not the company but the taxpayers who are really paying the difference.
In the last analysis you just have to reduce private procurement radically – we didn’t need Serco, G4S etc to empty our bins 30 years ago and we don’t need them now.
Roger
The measure would look at the group as a whole – which I think deals with your first point
As for ROCE – you assume an absence of competition. I think that the issue to be tackled.
And on your last point – quite right!
Richard
Having a bit of experience in this field I think the proposers under-estimate the potential ingenuity of what are now often global enterprises in spinning off international subsidiaries and exploiting every conceivable loophole to evade such a law.
And the global element also qualifies your point about competition – if we were still living in the 1950s or 1960s then indeed the companies tendering would have nowhere else to go and have to accept these conditions – however now so many procurements are with global megapcorporations they genuinely can choose to take their money (in so far as it is their money) elsewhere.
Which is why I think the one sector this proposal has some chance of working in is construction as opposed to service provision given that UK builders are still largely national rather than global companies – although even here the banks who finance every major project still represent a huge potential obstacle as their demands for profit are less elastic than those of say Taylor Wimpey shareholders.
So this could only work as part of much larger and much more radical national growth programme of the sort that this country hasn’t even pretended to have since the 1970s and which Labour hardly seems to be embracing yet.
Time labour did then…
It would seem that we need to invent ITCO (International Tax Compliant Organization).
Companies tendering for government contracts would only be considered if they had received accreditation from ITCO. And of course they would only get accreditation if they paid their full tax in the UK and not off shore. These companies at present are required to be ISO9001 accredited which is an award given by ISO (International Standards Organization) as recognition of quality assurance. An extra accreditation should be no big deal!!
This is a development of my suggestion made on 18th April this year.
Seems simple but I don’t hold my breath.
Perhaps Simon Hughes will be interested.
David Lucas