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
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It is embarrassing to get the Barclays stuff so wrong. There is one trivial error – the figures given are for 2009, not 2010. The more significant error is that the profit figure is for 2009 (a fairly good year), but the tax figure largely relates to profits in 2008 (a terrible year). This is then compounded by ignoring the effect of the disastrous loan write-downs, and that half the reported 2009 profit came from the sale of a subsidiary, and such sales are exempt from tax. There is a real story about tax avoidance at the banks, but it deserves something better than this.
Totally agree. A blog entry so full of easily check able errors does great damage to the real debate and issues
You mention ken issue – which was widely reported
Quite. There are plenty of examples of Private Equity and other ‘creative’ tax structures used by organisations supplying to the public sector. In my professional life I am often frustrated at having to compete with companies who use aggressive tax structures which my company doesn’t feel are appropriate. It would be in my interests for the public sector to take a more hardline approach to the tax policies of suppliers.
Yet the writer chooses an example drawn from one of the worst pieces of financial ‘journalism’ I’ve ever seen. That Barclays story was an abomination. It ignored the impact of the non taxation of a significant disposal (as per the spirit of a law enacted by the last government), it related UK tax to global profits, and failed to take any account of the impact of trading losses (banks had a lot of those back then). Sadly, this exposes the writer as someone lacking the understanding of the tax system necessary to comment upon it.
I work in procurement in local government.
Am not sure why Mr Starkey wants to take this issue up with HMRC. He may as well ask the cat. They don’t decide public procurement law.
I think Mr Benjamin has misunderstood Mr Thompson’s comment. He didn’t need to research bank procurements. He just needed to do a bit of research into public procurement generally.
What I think Mr Thompson meant was that to exclude someone from a tender process, there needs to have been a specific objective event (e.g. a conviction of some sort, meeting an objective standard etc), that either occurred or it didn’t. Concepts like ‘tax avoidance’ are too woolly.
Mr Benjamin is right (as far as I know) to say that the Councils don’t measure tax avoidance by banks. Procurement officers simply don’t have the time or expertise. And there is not much they could do with the information if they had it, given there is no specific objective event to tie it to (other than convictions).
In any case, we must treat bidders from across the EU without discrimination. If we check out the tax affairs of British companies, but don’t do the same for Italian or Lithuanian bidders, then British companies would be held to a higher standard and therefore discriminated against. It would be a simple case for a challenge, on that ground alone.
As for the Fair Trade Mark, it appears some distance off being usable in public procurements. For example, its governance is not at all transparent. It appears to be a private club made up of mates who will award the mark to their mates, and refuse it to those who aren’t their mates. As Joe Public, how do I know otherwise?
How are the assessors recruited, paid, allocated work and supervised to ensure competence, independence (i.e. both from the company being assessed and also from any pressure they may be under from TR/ECRA as their employers) and probity (ie they aren’t getting bungs to award the mark)? That appears secret. How are complaints handled? Another secret.
Could Tim Worstall get a job as an assessor, with a clear understanding of what standards he needs to meet, and how much work he will get (to protect him from pressure from TR/ECRA in the assessments he makes)?
Please note the ICAEW has endorsed the Fair Tax Mark
Our governance is likely to be somewhat more robust than that of the IASF; note blog today
We know the FTM will not work for procurement as yet; we are exploring the issues
Try applying the standards you propose to any UK audit firm: we are much more transparent
No, Worstall would not get a job. He quite clearly is not objective on any issue and I would have no hesitation in turning his application down in that case for precisely that reason
It is clear you comment is not well intentioned
I draw you attention to point 5 of the comments policy
I would not approve (for the purposes of a public procurement) an equivalent mark from another audit firm or anyone else, unless it was clear that the assessment procedure was fair and transparent.
(in practice, I would be unlikely to approve an accreditation or the like from the private sector, unless it were a genuinely independent and universally recognised trade association, or Quality body, and would be give the same recognition to equivalent accreditations in the EU).
And fairness/transparency means (among other things):
1) clear objective criteria.
2) independent supervision of assessors.
3) checks regarding probity and independence of assessors.
4) protection of assessors from being nobbled by its own employers. Procurement officers have such protection. If the Council leader tells us to do this or that, we can tell him or her to buzz off (which I have politely done on occasion).
5) recruitment of assessors against objective criteria (personal animosity doesn’t count). I raised Tim Worstall as ‘your worst enemy’ to make this point.
I know a lot of people in local government procurement and don’t know any colleague who would disagree with what I’ve said – it is standard stuff. I read the ICAEW comment on it, and it didn’t come across to me as an endorsement for use by public bodies.
Your Fair Tax Mark may have its purposes, and good luck. But public procurement isn’t one of them.
I would add one word
Yet
I can’t help but think you provide a very clear demonstration of the incidence of neoliberal thinking on the actions of government officials
This is one issue that is crying out for local public or municipal banks. If we had a government in charge that put people before profits, it could used the part nationalised banks it has a majority stake in and create local public bank branches which our local authorities could move their money to; cutting out the middle man and many of the gains returning to the community.
The source of the requirements for equal treatment, non-discrimination (ie treating bidders from different EU states on equal footing), fairness, transparency etc is the European treaty.
And if we can’t be sure that your Fair Tax Mark is granted (or refused) according to these principles, it is a non-starter.
Are you planning to change the treaty to remove these principles?
Or are you planning to get the UK out of the treaty?
How are you planning to do it? I’m genuinely interested.
In any case, do you want these principles removed from procurement law, whether sitting in the treaty or (if we left the EU) domestic procurement law?
I’d regard these as a bit of a cornerstone of public administration.
The treaty is neoliberal
But surely all the safeguards and protections Adrian raises are worth having, regardless of whether enshrined in a EU treaty? Don’t we apply similar criteria in areas of public policy and are embodied in the basis for judicial review of administrative decisions?
We are a new, small, mark
First, give us time
Second, note that these appear to be barriers to entry to me
Agreed that acorns take time to turn into mature oaks.
But to take this analogy a bit further. The acorn can’t grow unless the environment is suitable, that it gets enough air, water and all the rest of it. I suppose those conditions might be described as barriers. I think the Mark can only flourish if it has some of those other features mentioned in this thread.
If in time it grows within its current hopes no doubt it will
And if it doesn’t, it will have been worth a try
“Oldham’s contract with Barclays involved a 26% cost saving on the previous contract….”
And for the average Council Tax payer, that is all that matters – the Council getting something done for a lower price thus leaving the Council with the option of not having to raise CT as it can spend the savings on other services, or give back the savings to CT payers in the shape of lower CT.
You might think that
Many don’t
Fair comment Mr. M., but when it comes to spending their own cash, most people would want lower taxes which is where the whole problem springs from…
….we all want super-duper, Rolls Royce, public services, but the majority can’t afford for HMG to tax the required taxes for that so we put with politicians not having the stones to say, “Nah we can’t afford that on current taxation…so this is what we can do….” or very rarely we get, “If you want ‘X’, it’s going to be eyewateringly expensive….”
This is why of course proper organisation of some of the NHS hospitals into ‘super units’ always falls on its a**e….we all want superb, ultra-high tech hospitals but we such a unit on our doorstep even it wouldn’t be the best rational choice….hence the rows over child surgery etc.