Tax justice and procurement for social value – the tax avoidance elephant in the public procurement room

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The following is a guest post from Joel Benjamin of Move Your Money:

On February 24, the Local Government Association hosted a conference on the Social Value Act one year on, to explore how local authorities had fared in implementing the act, which seeks to extract social as well financial value from public procurement.

In my role as local authorities campaigner for Move Your Money UK, I have some experience of the social value act, having sent Freedom of Information requests to 400 councils in 2013 to find out how councils apply social value to their banking contract tenders.

As Nick Starkey, Deputy Director, Office of Civil Society at the Cabinet Office delivered his keynote address, I could not believe my ears as he pointed to Oldham Councils banking services contract with Barclays, as an exemplar in social value procurement.

Oldham’s contract with Barclays involved a 26% cost saving on the previous contract, and included Barclays staff teaching financial literacy within Oldham schools.

One the surface, all seems well. Financial education is a key issue, and Oldham are correct in addressing this problem, even if some argue there are more appropriate agents for in-school education than Barclays bankers.

Ignoring for a moment Barclays role in the recent LIBOR scandal and its impact on public finances, the real public procurement issue appears when we explore Barclays corporation tax profile, and the implications of tax avoidance on public sector finances.

Local government is reliant upon central government grants for its survival, so you might think that Barclays paying a shockingly low 1% effective tax rate on £11.6bn UK profit in 2010 may be cause for alarm within public procurement circles. You would be wrong.

Justin Thompson, Director of Social Inclusion, Knowsley Metropolitan Borough Council said that: "if you can’t measure it, from a procurement perspective, it doesn't exist."

Justin is correct. Through my procurement research, I knew council banking procurement is completely silent on tax avoidance and the use of tax havens. As councils do not measure corporate tax avoidance within procurement, they effectively pretend it does not exist.

As the session was opened up to questions from the floor, I asked Nick Starkey how we could take social value commissioning seriously, whilst public procurement frameworks continue to ignore the glaring issue of corporate tax avoidance by firms like Barclays, which robs councils including Oldham of the taxes required to fund basic services including schools?

Starkey’s response was that he would need to take the issue up with HMRC.

With brutal 34% austerity cuts to council funding since the 2008 banking crisis and 2010 budgetary review, anger at the banks runs deep within local government.

A motion for a UK Robin Hood Tax on financial transactions has now been passed by 46 UK local authorities, where the proceeds of the Robin Hood Tax would fund struggling public services impacted by austerity cuts stemming from the banking crisis.

In the past fortnight, a new campaign known as the ‘Fair Tax Mark’ has launched to attempt to reframe the tax debate, by promoting the payment of fair taxes as a badge of honour, and point of differentiation vs tax avoiding competitors.

There is no industry where a Fair Tax Mark is more urgently needed than the UK banking and financial services sector, where corporate tax avoidance is not only the modus operandi for the banks themselves, but a highly profitable consulting business.

John Tizard has written for Public Finance magazine demanding greater transparency around public sector procurement on tax affairs, and a debate around what constitutes fair taxation.

It feels like the beginning of a much-needed conversation regarding the public sector response to austerity, and the role corporate tax avoidance plays in this debate.

By promoting one of the UK’s most notorious tax avoiders — Barclays, as a champion of social value, and leaving themselves open to criticism, one can only hope the Oldham case study sparks a debate within the Cabinet Office and HMRC regarding corporate tax avoidance, and the appropriate response within public procurement circles.

The UK Government claim to being “committed to improving the quality of public services.”

Whilst the loss of billions of pounds to the Exchequer [and public services] each year in corporation tax continues unchecked, it is hard to reconcile such statements with reality.

Joel Benjamin — local authorities campaigner, Move Your Money UK