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Call to bar tax-avoiding suppliers

By Keith Aitken in Edinburgh | 5 April 2013

Scotland’s public bodies should use their £9bn purchasing power to exclude tax-avoiding companies from government contracts, a public sector union leader has said.

Dave Watson, Unison’s head of bargaining and campaigns in Scotland, issued the call at a conference on sustainable procurement. He later told Public Finance he believed the Scottish Government would be within its rights under European Union procurement law to use forthcoming legislation to clamp down on corporate tax avoidance.

The Scottish Government mounted a consultation exercise last year on its planned Procurement Reform Bill. This legislation, originally to be called the Sustainable Procurement Bill, has stalled while the EU discusses a new directive on -procurement policy. The UK Treasury is also currently consulting on plans to ban companies found guilty of tax avoidance from winning government contracts.

Both the EU and Scottish initiatives aim to increase the share of public contracts won by local small and medium-sized enterprises. The Scottish consultation also expressly sees procurement as a way ‘to deliver economic, social and environmental benefits’.

Watson was among several speakers worried that the loss of the word ‘sustainable’ from the Bill’s title indicated that the commitment to improve suppliers’ environmental performance was being watered down. He also criticised the consultation paper’s aspiration to deliver ‘business-friendly’ procurement, and the demotion to an annex of a proposal to enforce the Living Wage.

Quoting Treasury estimates that tax evasion, avoidance and under-collection cost £120bn a year, Watson told PF that Scotland’s share of this tax gap could be around £12bn, equivalent to more than a third of the overall Scottish budget. 

He acknowledged that issues like tax policy and international tax havens lie with Westminster, but pointed out that Scotland had set a minimum price for alcohol although drink duties were a reserved power. ‘If the UK is not doing enough to stop tax avoidance, the Scottish Government could use the Procurement Bill to do what we’d like the UK to be doing,’ Watson said.

For example, firms tendering for public contracts could be required to report how much tax they paid in each country where they had a presence; firms registered in tax havens could be excluded; and tax reporting could be subject to independent assessment at businesses’ expense.

Asked whether this might not impose prohibitive costs on smaller local companies, Watson replied that few small firms used elaborate avoidance measures. ‘Most businesses don’t want the bad PR, so part of it is about putting pressure on them to play fair,’ he said. He added that legal advice was clear that tax -criteria were permissible under EU law, and explained that successful legal challenges to procurement decisions were rare.

This was echoed by Matthew Jackson, head of research at the Centre for Local Economic Strategies in Manchester, who told PF a ‘myth’ existed among public bodies that procurement criteria were under tight legal constraints. ‘It goes back to the risk-averse nature of local government. Local authorities want to say “no” because they feel constricted by European procurement law, and so they tend not to think of local benefits.’

But there was also resistance from some professionals at the conference to the growing political pressure to treat procurement as a means to deliver broader policy objectives. Michael Kirby, a lecturer in procurement at Glasgow College, said it was for governments not procurement officials to pass moral judgements on companies. ‘We’re not social workers,’ he said.

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There are four problems here. Firstly a company director has a statutory duty to act in the financial interests of a company (the corporate entity) and that means minimizing the company's tax bill by all lawful means. An individual person has a perfectly legitimate position to minimize their own tax bill in accordance with the law. The assessment or measurement of tax avoidance occurring, should that be a criteria to be used in awarding contracts, is unlikely to be objective, reliable, consistent, free from bias etc and therefore very likely to be able to be legally challenged. Finally the biggest problem is the complexity of all the taxes levied in the economy which is hindering economic recovery and encouraging avoidance - this is the real issue. So once again a silly and impracticable suggestion.

Warren Park (05/04/2013 14:48:18)

Obviously not that 'silly and impracticable' as the Treasury are to introduce, an albeit weaker version, of what we are proposing and I am confident the Scottish Govt will want to do better in their approach. Nobody loves a tax dodger!

Dave Watson (09/04/2013 08:55:59)