In a significant step forward for tax justice, the UK government has said all councils in England, Wales and Northern Ireland must interrogate potential suppliers on any history of tax evasion and avoidance dating back to October 2012.

At stake is £50bn of annual local government procurement, money used to pay for everything from electricity to building construction. The ruling applies to any contracts or tenders initiated after October 2016.

Unlike previous regulations, which required local councils to scrutinise whether a company had been involved in illegal tax practices but overlooked the greyer area of tax avoidance, this new ruling requires councils to ask a more detailed set of questions that encompass both outright illegal practices and aggressive tax dodging that is outside the spirit of the law and something tax authorities are at last beginning to clamp down on.



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Tax avoidance scandals undermine public trust, the head of Business in the Community has observed (paywall). Poll after poll suggests the public agrees. December’s results (pdf) from the Institute of Business Ethics’ annual survey about public perception of business behaviour saw corporate tax avoidance remain the top public concern in 2016, with 43% of the survey’s 2,000 respondents putting it as their issue of most concern.

A consistent approach

The idea of using the substantial purchasing power of local authorities to drive tax justice is something the Fair Tax Mark and Christian Aid have been campaigning for since January 2016, when we co-launched the Sourced campaign urging supporters to press their local councillors to table motions obliging councils to screen potential suppliers for tax avoidance.

To date this campaign has been well received by councils across the country not only willing to debate the issue but also to make substantive changes to their procurement procedures. Manchester City Council, Durham County Council and the London boroughs of Southwark and Lewisham are just some of those that put the issue to the vote and agreed to begin assessing the tax compliance of suppliers.

Matching this volume of activity is the political breadth of the councillors that have tabled motions to date, who include Labour, Co-operative, Green, Liberal Democrat and Conservative elected representatives.

Now the Government’s new Public Procurement Note sets out what should be a consistent approach across the public sector for any potential service contracts in excess of £173,000 and works contracts over £4m.

The limitations of progressive procurement

However, as welcome as the new guidance is, it is not a panacea for progressive procurement. It can take years for centrally mandated public procurement notes to filter down. Even when they do, they are then generally poorly implemented.

Then there is the issue that suppliers are expected to self-declare their recent history of tax compliance. It is a rather substantial leap of faith to trust that businesses that have filed incorrect tax returns would readily confess this while chasing lucrative contracts, especially when a veil of secrecy still surrounds instances when HMRC has found cases of corporate tax avoidance.

Even the most willing councils will therefore probably need help to identify businesses that breach the exclusion grounds. To this end, the Fair Tax Mark and the Ethical Consumer Research Association are now exploring how we might facilitate the development of an easily accessible European database of proven tax evaders and avoiders.



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It’s important that the new guidance actually bites, not just so those avoiding their societal obligations are penalised but also so those businesses that pay their way responsibly are given due recognition.



The precedents for implementation are not good. The Public Services (Social Value) Act of 2012 requires local authorities to consider how the services they propose to procure “might improve the economic, social and environmental wellbeing” of the area in which the services are to be provided.

Yet, for example, freedom of information requests carried out by Social Enterprise UK in 2016 reveal that just a third of councils in England routinely consider social value in their procurement and commissioning. Some political and administrative leaders are instinctively innovative and embrace the opportunities to procure for good, but the majority are overly cautious and act as little more than bystanders.

This is why The Fair Tax Mark is calling on councils to quickly and robustly implement the new national guidance (which is mandatory for all contracts over the qualifying cost threshold) and to periodically report on implementation and the exclusion of tax evaders and avoiders from public procurement. It is wrong that businesses that do not pay the due amount of tax enjoy a competitive advantage over those that do.

This breakthrough in local empowerment and tax justice could have a tremendous impact on business behaviour in the UK, but only if we see the tax dodgers actually losing lucrative contracts and fair recognition for those who, year in year out, pay the right amount of tax in the right place at the right time.

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