Procurement contributes £15 billion towards UK government's ‘corporate welfare’ to private...

11 July 2015

The UK government provides as much as £180 billion in ‘corporate welfare’ – including procurement subsidies - to private businesses, according to a study.

The research by the University of York estimated the potential cost or value of the various forms of public provision for private businesses, using 2012-2013 as a snapshot year.

The report, The British Corporate Welfare State: Public Provision for Private Businesses, by Kevin Farnsworth of the university’s department of social policy and social work, estimated subsidies, capital grants, tax benefits, insurance and advocacy as well as transport, energy and procurement subsidies are worth around £93 billion per year.

It suggested indirect benefits, including wage subsidies, education and public health care are worth an additional £52 billion, while the annual legacy costs of the 2008 bank bailouts and other crisis measures add a further £35 billion.

Corporate income tax contributions were around £42 billion in 2012-13, and just over £100 billion when employers’ National Insurance contributions are added, while tax avoidance costs £12 billion a year.

The research estimated £15 billion of ‘corporate welfare’ comes from procurement, and cites various arguments that procurement of public services from private businesses is a form of subsidy.

The study posited that when governments purchase goods and services from the private sector they are directly boosting the profits of private companies, and such transactions take place outside of the regular market, and government may not get the best deal.

“Thus, procurement results in sales that may not otherwise occur, or if they didn't, would occur within competitive markets,” the study says. “On the other hand, to equate the whole procurement budget to corporate welfare would imply the state is capable of producing everything it consumes, which it couldn't reasonably do.

“Given the above complexities, perhaps a better way of assessment the corporate welfare element of procurement is to examine the size of the ‘subsidy’ that stems from the fact that procurement transactions take place outside of competitive markets that are not subject to regular competitive practices.”

Farnsworth added: “A full debate about the ways in which corporate welfare is funded and delivered is long-overdue. Such a debate is hindered, however, by the fact that corporate welfare is, with very few exceptions, rarely acknowledged and discussed. This report and database seeks to reverse that.”

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