Cross posted from the Fair Tax Mark:
Conservative MP for North Wiltshire, James Gray, recently asked Parliament what steps the UK Government was taking in its procurement policy to tackle aggressive tax avoidance by government suppliers.[1] A reasonable question: why should tax dodgers profit from contracts funded by taxpayers?
The answer from the Parliamentary Secretary at the Cabinet Office, Oliver Dowden, was convoluted, but seemingly positive. He said: “The 2015 Public Contract Regulations implemented the latest EU Public Procurement Directive, and require public bodies to exclude suppliers from a procurement where the supplier has been found guilty of breaching its obligations in relation to payment of taxes and this has been established by a judicial or administrative decision having final effect within the relevant jurisdiction.”
The reality is very different. The UK Government rarely, if ever, considers tax justice in its procurement in a meaningful way. This is in large part because the bar for disqualification is set insanely high. For example, disqualification is admissible where HMRC has successfully challenged a potential supplier under the General Anti-Abuse Rule (GAAR). But, to date, not a single GAAR penalty has been issued in the UK.
Another ground for exclusion is where a judicial or administrative decision has established that a business has been found guilty of breaching its tax obligations. But more often than not, disputes never reach such a conclusion. Instead, “settlements” are reached outside of the courts, as happened with Google, which in 2016 agreed a deal with British tax authorities to pay £130m in back taxes in connection with a decade of underpayment. Again we have an exclusion criterion that is highly unlikely to ever be enacted.
And unfortunately, the same factors are at play in local government procurement — not just in the UK but right across Europe. Which is an enormous missed opportunity given over 250,000 public authorities in the EU spend around 14% of GDP on the purchase of services, works and supplies — a colossal €1.9 trillion.[2]
But action is stirring and change may be afoot. In Spain, 37 municipalities have publicly committed to not work with companies that operate in tax havens — this includes the major cities of Madrid, Barcelona, Seville and Zaragoza.[3] The Danish municipalities of Copenhagen and Albertslund are actively looking to develop a means to identify tax evaders and companies exploiting tax havens.[4] And in Finland[5], the cities of Helsinki and Malmo are seeking to change their procurement and reward suppliers that embrace public country-by-country reporting, with work similarly being progressed by tax justice advocates in Slovenia and Latvia.
In the UK, the desire to take action at a local level is at least as concrete and wide-ranging, as evidenced in 2016, when the Fair Tax Mark[6] and Christian Aid[7] urged local councils to take action. They responded up and down the country. Everywhere from Manchester City Council to Durham County Council and the London boroughs of Southwark and Lewisham. But the new national Public Procurement Note[8] that emerged (which takes the form of revised standard Selection Questionnaire), while being a step forward, suffers from the same weak exclusion grounds that operate nationally, and relies on suppliers to self-declare compliance.
Progress has to date been slow due a number of factors. Firstly — arguably — the EU Procurement Directive constrains action as it requires that exclusion criteria must be linked to the quality of the goods and services involved. There is therefore a perception that progress on the issue of tax evasion and avoidance maybe too difficult to secure and is therefore best left alone. Secondly, there is no database of proven tax evaders for procurement officers to refer to — either in the UK or across Europe.
This isn't to say that progress is impossible — far from it. The fantastic success of the Fairtrade Towns movement serves as an example and inspiration: there are now over 2,000 Fairtrade towns in 30 countries across the globe, and over 630 in the UK alone.[9] The Fair Tax Mark is looking at how it might build a similar network of Fair Tax towns and cities. This will involve working with bold local councils across the UK and with tax justice campaigners across Europe to explore what progress can be made within existing and amended EU law. The European Parliament signalled its opinion at the end of 2017, when it called on the Commission to put forward a revision of the Procurement Directive which includes measures to prevent public administrations from working with companies that use tax havens.[10]
It will also involve exploring what further measures can be pursued in the UK post-Brexit, as we are doing later this month at the Social Value Summit.[11] Could, for example, the Withdrawal Bill be amended to incorporate enhanced provisions for social value in procurement, with goods and works being newly encompassed (in addition to services) and factors such as ‘aggressive tax avoidance' being more central to selection and award criteria — as argued separately by both the Society of Conservative Lawyers and the Society of Labour Lawyers.[12]
If like us, you think that public procurement could and should be deployed to punish tax dodgers and reward fair tax payers, then please get in touch. We'll be shaping our plans over the coming months with a view to announcing provisional action in the summer.
Paul Monaghan, Chief Executive, Fair Tax Mark
[1] https://www.theyworkforyou.com/wrans/?id=2018-02-19.128069.h&s=%22tax+avoidance%22#g128069.q0
[2] https://ec.europa.eu/growth/single-market/public-procurement_sv & http://ec.europa.eu/growth/single-market/public-procurement/rules-implementation_en
[3] http://www.justiciafiscal.org/2017/01/espana-municipios-no-trabajaran-con-empresas-que-operen-en-paraisos-fiscales/
[4] http://albertslund.lokalavisen.dk/albertslund-og-koebenhavn-samarbejder-imod-skattely-/20170630/artikler/706309934
[5] https://helda.helsinki.fi/handle/10138/229642
[6] https://fairtaxmark.net/councils-tackle-tax-avoidance/
[7] https://www.christianaid.org.uk/campaigns/tax-justice-campaign
[8] https://www.gov.uk/government/publications/procurement-policy-note-816-standard-selection-questionnaire-sq-template
[9] http://www.fairtradetowns.org/about-us
[10] http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//TEXT+TA+P8-TA-2017-0491+0+DOC+XML+V0//EN
[11] https://www.socialenterprise.org.uk/social-value-summit
[12] http://www.conservativelawyers.com/files/Public_Procurement.pdf
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What are Durham doing?
Here is their procurement strategy:
http://durham.gov.uk/media/1021/Procurement-Strategy-2016-2018/pdf/ProcurementStrategy2016-2018.pdf
Here is their sustainable procurement and social value policy statement: http://durham.gov.uk/media/1022/Sustainable-Commissioning-and-Procurement-Policy/pdf/SustainableProcurementPolicyStatement.pdf
I did a word search for ‘tax’ in both documents – didn’t pop up. Whatever they are doing (beyond the standard PQQ question everyone has to use), they are keeping quiet about it.
Sarah, to be fair to Durham, I doubt many councils are doing better at this especially as they all have their backs to the wall. That said, do you really find this surprising from Durham?
James, the claim in the post is that Durham is doing something in relation to tax and procurement (beyond the basics which everyone has to do).
However, it isn’t mentioned at all in their procurement documents.
Sounds like a bit of an anomaly with the claims made in Paul’s article, which no doubt Richard and Paul can clarify.
I do procurement consultancy, and know Peter Faill and Darren Knowd at Durham though haven’t seen them for a while so am not up to date. Peter is a great guy and at the forefront of social value. It would seem strange for him to be taking a lead on tax and NOT mention it in their public policies and strategies. Where would the deterrent be if you don’t even mention it?
Hi
Put him in touch!
Paul says he knows what’s going on in Durham, so I assume he has already been in touch with them.
His claims about Durham’s response on this issue don’t seem borne out by Durham’s published strategy and policy document. It seems a bit odd, but no doubt there is an explanation.
I don’t know what’s going on in all of the nearly 400 Councils in England, Wales and NI. But I have worked in a good number of Councils across the range from top 10s, 2 AGMAs, 2 London boroughs, non unitary counties, small rural districts, and small unitaries. It is a connected world where you get to know a fair bit about what’s going on beyond the walls of your own Council – neighbouring Councils, CCGs, the police, fire, etc.
I have never heard any of this mentioned at work by anyone, anywhere, ever, formally or informally.
The current requirements (e.g. the regulations + the CCS PQQ question) are sufficient. I would strongly advise against going much beyond that if at all, for both legal and practical reasons.
Why?
Those requirements don’t work
Why don;’t you want procurement to work as it should?
Please tell
Richard
This is not intended to be a full answer but here are some thoughts:
1. Exclusion questions require a yes/no answer — e.g. ‘have you ever…’. And this requires some objective fact which either applies to you or it doesn’t. No wriggle room for bidders interpreting the question differently from each other (falling foul of ‘equal treatment’ and fairness requirements so therefore open to a challenge).
2. Read regulation 57 of the PCRs — it is all about ‘convictions’ — for good reasons. You’ve had one or you haven’t — no room for misunderstanding. And it is limited entirely to illegal (as distinct from immoral) activity.
Unless you’ve had a conviction, the Council must assume you have a clean record and are eligible to bid, and then have your responses judged on their merits alone, according to the published evaluation criteria.
3. The PCRs are underpinned by this glorious idea: literally anyone with a right to operate in the jurisdiction has a right to bid for an advertised contract, and to have their responses judged on their merits only, in a meticulously fair, impartial way. That is their right which should only be removed for exceptional reasons — i.e. a conviction (and even then, with an opportunity to show you’ve changed your ways, so exclusion is really a last resort).
4. We can’t have politicians or officers directing public contracts to their mates (and refusing contracts to their non-mates). Otherwise, the whole thing degenerates into a mutual backscratching exercise, corruption takes over, and the country goes to the dogs. It is this idea that motivates me in this important job. The country depends on this idea being carefully protected.
5. Therefore, excluding law abiding bidders for behaviours you simply don’t like (in the absence of a formal conviction) is contrary to this idea. It is a slippery slope to invite politicians and officers to engage in the activity described above.
6. There is a queue of other behaviours which are illegal, but others find immoral, which we get voices trying to be included in procurements. A couple of years back union blacklisting was a bit of a hot topic. But I gave my same answer then as I am giving you: you need to point to a conviction for an illegal act. Otherwise, we can’t go with it in the procurement exercise.
Is there any explanation regarding Paul’s claims about Durham in his article, given their published documents? There is a credibility issue here, which I am sure you can resolve satisfactorily.
No doubt his and my paths will cross professionally at some point, and I’d like to be comfortable believing his claims.
Ask him
I am deeply uncomfortable with your claims
You think procurement is an ethics free zone?
Really?
That is precisely what lets blind eyes be turned
Yes, the main ethical position is that you don’t want to give politicians and officials the space to award public contracts to their mates, and to exclude their non mates, according to their own preferences, which may be valid or spurious.
So this means the following are eligible to bid for public contracts: people who walk out on their kids without paying maintenance. People who sell cigarettes and pornography. People who have adulterous affairs. People who neglect their elderly parents. People who do not clean up after their dogs on the street. And people who lawfully avoid tax.
All unethical in my view, and (except for the dog one) legal.
Substantial numbers of decent people might add: eating meat, gambling, abortions, having sex outside your first heterosexual marriage (standard position for the main religions – some even require it to be unprotected!).
Anyone doing any of these things can bid for a public contract, by right and I would defend their right to do so. And if they submit the highest scoring bid according to the published criteria, they must be awarded the contract.
And this is the point: the list of what is ethical is potentially endless, and not uncontroversial on every topic.
But the reason we don’t let this interfere with the procurement is that it provides an easy route to enable politicians and officers to direct contracts to their mates (and away from their non-mates). If they could, they would.
There is a trade off here, and I think the greater good is served by keeping the procedure as open as possible, to prevent this interference.
You’re entitled to the opposite view, but if you worked in a procurement department, you’d be a minority voice, from my experience.
But I would reject the suggestion that Councils that don’t add tax issues to their procurement exercises (beyond what is already required) are behaving unethically. They are making ethical trade offs, and are doing so wisely in my view.
Ah, but you see you’re wrong: tax avoidance is not always legal. Under the General Anti-Abuse Rule it can be illegal. And even when supposedly legal it can just fail.
I think you are making a category error
And if the criteria was objective e.g. use of tax havens and non-disclosure of data in accounts the arbitrariness has gone
I am sorry, but your argument does not stack
The existing law allows this exclusion for (reg 57(3)) for a judicial or an administrative decision on non payment of taxes or (para (4)) where we can ‘demonstrate by any appropriate means that the economic operator is in breach of its obligations relating to the payment of taxes’…
Para (3) lends itself to a PQQ question (ie they tell us whether or not this objective event has occurred – yes or no).
Para (4) is only incorporated in the CCS SQ/PQQ as a statement, not a question to be answered. It doesn’t lend itself to a question.
On para (4):
I don’t know anybody who does a routine check on this as part of the exercise. If we did (and had grounds to exclude somebody), we’d need to be able to demonstrate we did similar levels of checks on all bidders. Otherwise guilty of unequal treatment. Remember, we are at PQQ/SQ stage, so we could be getting a lot of interest in a restricted procedure, so routine checks could be an enormous exercise.
We could conceivably exclude if we found out about this without a routine check (ie through independent means). However, given the test is that the bidder must be in breach (ie not charged or suspected but actually in breach), it would be a brave Council to exclude without a some kind of administrative or judicial decision.
The only possible exception (and I admit I haven’t thought much about it because it has never come up) is where we know that a bidder is in breach of its business rates owed to that Council.
So without an administrative or decision, I doubt we can go far on exclusion. I certainly wouldn’t recommend exclusion without one.
And if the behaviour you describe does lead to a decision, then we can exclude. But the law already allows this.
Noted
So, procedures need to be improved is the answer…
And so it begins..
Have you been following Bill Mitchell’s 3 part series on the take down of Simon Wren lewis and Portes?
http://bilbo.economicoutlook.net/blog/
It is excellent Richard and got a response from Simon yesterday. Which clearly shows he is stuck in monetarist group think.
But then Bill has just co-authored an article attacking me as anti-MMT
Bill really does not help himself
I will have to respond sometime
What article was that ?
https://www.greeneuropeanjournal.eu/tax-havens-must-be-closed-but-not-for-the-reasons-you-think/
Richard,
Several years ago that was your view ?
Until you had a chat with Stephanie and Warren.
So I wouldn’t get worked up about it that much.
We all had a go at you including me on many occasions. I had a go at you recently regarding the common space article that was until I read it and realised just how far you have moved from your initial views years ago.
I confess the chats came after the conversion
I found others were in the space I had reached
But sure, I changed my mind. Wise people do.
This Treasury select commitee submission from 1999 describes the accounting and function changes that occurred as a result of Maastrict and with Bank of England independence.
https://publications.parliament.uk/pa/cm199900/cmselect/cmtreasy/154/cor15402.htm
it clearly shows that Simon is wandering around in the dark and that MMT’s are correct.
The changes in 1997 really did just obfuscate the reality. It is much easier to reconcile the pre-1997 system with MMT, as it is clear to see
1. that the spending happens first following Parliamentary direction
2. that spending creates money via accounts being credited as the central bank
3. that the only concern ultimately is monetary conditions (inflation not budgets)
4. that gilts are a monetary instrument
This is the most clear description from the UK government that the claims of MMT are correct.
You should use it in a seperate post Richard.
Thanks
I may highlight it
But it’s not as clear as you claim, in my opinion
I really don’t think they thought what you suggest – although they imply it
And the appraoch to creating gilt demand to control rates is telling
My view is they know alright.
You can’t run a central bank for over 300 years and not know how it works.The rest is smoke and mirrors and politics. You just have to read the whole of government accounts.
(paragraph 37 onwards), the government simply spent according to direction from Parliament and this was expressed as money injected into the economy via the Bank of England. Then the Bank of England issued gilts (though always a liability of Treasury) solely with an eye on monetary conditions. In cases where not all of the government spending was drained – because the monetary objectives didn’t require it – then Ways and Means account simply acted as a balancing item. The Ways and Means account was therefore basically analogous to an overdraft as MMT’rs have always understood it, an IOU of the Treasury. So even in this case, we have Treasury IOUs backing central bank money creation, but as explicit, overt, unequivocal money creation by government spending. And the only concern in this system is the monetary target, i.e. inflation. Everything else is subsumed into that. All completely consistent with the claims of MMT.
Post-1997 we have the system that we have now. The Treasury (DMO) is now responsible for cash management which means it has to clean up after itself by issuing gilts to neutralise its spending. This leaves the Bank to focus on regulating the economy only with respect to prevailing conditions rather than the additional complication of government cash flows. So now when the BoE needs to add more money to the economy it cannot use any of the government’s direct spending (i.e. only drain part of it off) as before because the DMO has already drained it all. So now it has to buy back some of the gilts that the DMO sold. Again, we have net money added to the economy backed by a Treasury IOU, though this time it is a gilt rather than an entry in the Ways and Means account.
But apart from that, what else is really different? The only thing that stands out for me is that there are now two targets in the system: (1) the Treasury’s balanced cash flow target; (2) the Bank’s monetary target. In many cases the Bank will have to undo what the Treasury has done, instead of both simply acting together under one target as they did before.
Thank you
Re: Durham CC, in June they pledged to take action BEFORE the national procuremet note was updated. Labour cllr Rachel Lumsdon proposed a motion saying: …”this council asks the Government to implement legislation to allow councils to take into account in its procurement a fair tax requirement ; requiring bidders seeking to do business with councils in England to be open and transparent in their financial dealings, especially with reference to their tax affairs in the UK, and thereby contribute to the public purse; This Council supports this campaign for tax justice by: Setting up a cross party working group to explore how we can encourage the development of the Fair Tax Mark and to consider how best to promote the Fair Tax Campaign and transparency in all tax dealings.” Motion was carried.
Alll on public record – if look.
Thanks for the clarification. I was under the impression they had done something more substantial with their own procurement activity, but I have misunderstood.
They’ve called for a change in the law which wasn’t heeded.
I don’t think the Councillors have thought this through, which may explain why it hasn’t gone anywhere.
Sarah
I think the Councillors have thought this through
I suspect the lawyers are objecting
Richard
We’ll have to agree to disagree there.
If I had been in central government and I had received this motion, there isn’t much I could do with it. It is in the ‘there should be a free puppy for every child’ category. Too vague, doesn’t address issues that have been thought about long and hard by smart, experienced people who devote their lives to the subject. Oblivious even to the very basic issues I have raised with you today.
My work often requires me to do members procurement training (as part of the team). The knowledge base, with rare exceptions, is pretty low.
A person will struggle to make the persuasive case for change without having a reasonable grasp of why things are as they are. There may be good reasons.
Anyway thanks for the chat.
I have to say I find that attitude deeply patronising
I speak in a personal capacity
Hurray for Sarah Marks: facts, clarity, cogency. Game, set and match, I think.
And your point is?
I think Sarah shows that the Fair Tax Mark post is arguing for an undesirable policy position, on a shaky basis. We all try to come to reasoned positions on difficult points. Sarah has helped here. She’s not patronising – she’s setting things straight from a position of actual expertise, and that is to be applauded. So i did.
Over many years I have been told many thinks I have suggested are not possible / undesirable / impossible etc
That’s never been true to date
Many of those things I have been told are those things have happened
I very strongly suspect that will be the case here
What Sarah presented was the current world view on this issue
I, and I think it fair to say, the FTM, do not share that world view. We want to change it
We will, I suspect do so precisely because, as Paul noted, around the world there are authorities that want to do just that and who think they can do so without any of the risk Sarah suggests exists. I think they are right.
Richard, are you saying that obtaining the Fair Tax Mark should be a condition of public procurement? If not, what other conditions are you proposing?
I am saying that there should be standards akin to those of the FTM
It cannot be the case that getting a commercially supplied mark is a condition
With others in several ideas we are working on what the benchmark should be
This issue is not going away
From what you’ve presented here, in my view your ideas are contributing to an environment to make it easier for politicians and employed officers to steer public contracts to their mates (and away from their non-mates).
Steering juicy public contracts in this way is where the backscratching and corruption starts. It is a big problem across the world today. It’s how the likes of Mugabe and Chavez get so rich.
The fact our country has some decent handle on the problem is a mighty achievement by historical and international standards. Not one that I want to see go backwards. I think the proposals described here are a step in the wrong direction.
I’ve raised it and you’ve ducked the issue completely. This is your problem, not mine. It isn’t my place to persuade you of anything.
Is this blog post typical of the way your organisation engages?
Sarah
This is my blog, not FTMs
What I say is not said by FTM
But your suggestion that we are putting forward a situation that will assist corruption is libellous and I suggest you withdraw it
We are seeking to secure the public revenue by ensuring that those who abuse it are denied the means to do so by the application of objective standards
With your scurrilous comment I think you have made clear that there is not a shred of objectivity in your comments and that they are deeply politically motivated to maintain a situation where abuse is entirely possible at present.
Your credibility is shot to pieces.
Richard
Have you wilfully misunderstood everything I have said over the past day?
I don’t think you or even FTM are personally encouraging corruption and you’re doing a lot of twisting to reach this conclusion.
Once we let your ethical issue in, regardless of the merits (ie people can be excluded without having broken the law – ie without a conviction), then there will be a queue of others wanting the door open. It is the slippery slope, which will open up quickly. The precedent has been set. If we say ‘yes’ to you, how do we say ‘no’ to the next one?
And trust me, they can’t wait to open it.
I read this:
From what you’ve presented here, in my view your ideas are contributing to an environment to make it easier for politicians and employed officers to steer public contracts to their mates (and away from their non-mates).
I don’t think I misread anything and I do not think I am twisting anything either
And we are not asking for ethical issues: we are seeking objective standards
Have you read what we do? It seems to me that you have very little idea of what is actually being said
Your/FTM’s ‘contribution’ is to start the slippery slope. No doubt without any malign intent, but that would be an unintended consequence.
To prevent the slippery slope, it is imperative that all bidders should be allowed to bid (and to be awarded contracts if they top score), even if they are the scum of the earth. That’s what stops the mates/non-mates thing. It’s fundamental.
Once the law-abiding scum of the earth can be excluded for reasons other than convictions, the mates/non-mates thing gets reopened.
The exceptions (exclusion for reasons not linked to the contract itself) should be kept to an absolute minimum. In my view, it should be limited to convictions.
Sarah
You seem to think there is an objective world out there in whuch your standard applies
A) There isn’t
B) WHat we have is capable of being profoundly corrupt because of the pretence of objectivity
C) So there is the political will to change it
Your protestations all Mack of wishing to keep the current rotten situation in place
I see no point in further debate: we do not agree with your view that the existing rottenness is acceptable
Richard
Am obliged to observe that there has been an utterly evidencable shift in public procurement in recent years to factor in social value and politicians of all persuasions support this, with the exception of the bat-poo crazy neocons and neoliberals. Richard Murphy’s position is not just correct but increasingly centre-ground! Whether it is Fairtrade or Living Wage — pockets of real progress are emerging. A robust source here https://www.base-uk.org/sites/default/files/news/16-06/procuringforgood1.pdf No coincidence that likes of Manchester City Council leading the way, and same municipality looking to do more on hurting the tax dodgers.
I chaired a session at the Social Value Summit earlier this week at which spoke Chris White (the former Tory MP who advanced the Social Procurement Act as private Members Bill), as did a representative from Unison and someone from the Society of Conservative Lawyers — and ALL argued that we needed to see social value more widely and robustly integrated. The only real disagreement was around how best to accomplish this.
Obviously, the Fair Tax Mark want to see more action on the specific issue of the exclusion of tax dodgers, but we are part and parcel of a broader shift to inspiring more social enterprise. We have plans afoot.
Can i just say – speaking as a lawyer – that Richard’s suggestion Sarah’s contributions have been libellous is just wrong? Unless Richard has some special expertise here, i think that point won’t stand.
Why am I not surprised you’re a lawyer?
Richard, thank you for your responses.
So you think the law should be changed to require bidders to comply with the conditions required to obtain the Fair Tax Mark (e.g. in terms of non-use of tax havens, public disclosure of CBCR data, etc.) without actually obtaining the Fair Tax Mark.
How would a bidder demonstrate this without obtaining the Fair Tax Mark? Would you be happy with self certification?
How about changing the law?
It’s entirely possible for a country to create accounting standards
We have just given up that rather important responsibility to a private sector who have subverted the process to ensure it does not meet social purposes