Evaluation criteria should include bidders' tax contribution

29 October 2019

Nearly three quarters of the government’s strategic suppliers have operations in tax havens, potentially giving them an unfair advantage over competitors that do not benefit from such operations, according to a report.

The report Value Added by think tank Demos explored how central government could use public procurement more effectively by prioritising companies which make a better contribution to the UK economy.

Demos has called for new criteria to be introduced into public procurement contracts which reflect 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 recommended.

The research found 25 of the government’s 34 designated strategic suppliers have operations in tax havens. 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,” said the report.

Of the 34 strategic suppliers, 19 had operations in jurisdictions on the EU’s “blacklist” or “greylist” of countries which do not comply with EU international standards for good tax behaviour.

The report suggested ways the UK government’s £284bn procurement spend could be used to shape the nature of the wider economy.

It said embedding social value more deeply into the procurement process for the provision of goods, works and services could “buy economic change”.

Procurement could also encourage suppliers to contribute better to society by employing people on a living wage, reducing carbon emissions and using more inclusive recruitment strategies.

Demos called for policies to discourage government suppliers from using international tax agreements to reduce their tax bill.

This could mean taking advantage of existing provisions in EU competition law to ensure that companies do not gain an unfair advantage over their competitors by using such agreements.

Or it could mean the government stressing that social value standards should be a priority for departments in order to pursue strategic cross-government objectives.

The report recommended that the three central government departments with the highest spend (Department of Health and Social Care, Ministry of Defence and Department for Transport) create an SME advisory panel to make it easier for SMEs to bid for and win contracts.

Rose Lasko-Skinner, researcher at Demos and report co-author, said: “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.”

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