Value Added: How better government procurement can build a fairer Britain
A staggering 25 of the government’s 34 Strategic Suppliers (73.5%) have operations in tax havens, according to Demos report, Value Added, which explores how central government could use public procurement more effectively to bring about a fairer economy.
This new research reveals that 20 of the 25 tax-haven-linked Strategic Suppliers were awarded more than £41bn worth of government contracts between 2011 and 2017. Aggressive use of tax havens could distort competition by providing an unfair advantage to businesses that use them.
The report, based on interviews and desk-based research, also found that of the 34 Strategic Suppliers, 19 had operations in jurisdictions included on the EU’s ‘blacklist’ or ‘greylist’ of countries non-compliant with EU international standards for good tax behaviour.
Procurement is the UK government’s largest expenditure, valued at £284bn. Influencing how this money is spent represents a significant opportunity for government to shape the nature of the wider economy. The report suggests that more deeply embedding social value into the procurement process for the provision of goods, works and services could help tackle aggressive tax avoidance.
Through social value-based procurement, the government could more effectively ‘buy economic change’ and also encourage suppliers to adopt best practices such as employing people on a real living wage, reducing carbon emissions and using more inclusive recruitment strategies.
To discourage government suppliers from using international tax agreements to reduce their tax bill, Demos is calling for several measures – including minimum standards for public procurement to include criteria relating to a bidder’s exchequer contribution. For example, bidders could have to meet a certain Effective Tax Rate to pre-qualify for that procurement round.
The report’s further recommendations include:
- The government taking advantage of existing provisions in EU competition law so that companies do not gain an unfair advantage over their competitors by using international tax arrangements.
- Government establishing priority social value standards for departments in order to pursue select, strategic cross-government objectives, for example related to fair tax practice and carbon emissions.
- The three central government departments with the highest procurement spend (Department of Health and Social Care, Ministry of Defence and Department for Transport) creating a Small-Medium Enterprise (SME) advisory panel to make it easier for SMEs to bid and win contracts with them.
Commenting on the report’s findings, Rose Lasko-Skinner, Researcher at Demos and Value Added co-author said:
“Government procurement could be an incredible force for good in the UK, beyond the public sector and in the economy more broadly. There are already great examples of local governments using social value-led procurement on the ground to bring about better economic outcomes such as fair pay or boosting demand for local smaller businesses – but these are just the beginning, and there is so much that could be done here to make the UK economy as a whole more equitable and inclusive. Public procurement is pretty much the best opportunity the government has to demonstrate what a good British business looks like, and this purchasing power should not be under-estimated.”
Read the full report here.