UK government pays millions to firms that use tax havens

Almost three-quarters of companies who have been given major government contracts have operations based in tax havens, according to a new report.

Value Added, published on Sunday by the thinktank Demos, reveals that 25 of the government’s 34 strategic suppliers – organisations that receive £100m or more in revenue from the government – operate in offshore centres.

According to estimates, they account for about a fifth of total central government procurement spend. Of these, 19 had operations in jurisdictions included on the EU’s “blacklist” or “greylist” of countries that are considered to be non-compliant with EU international standards for “good tax behaviour”, according to the report.

The Labour MP and former chair of the public accounts committee, Margaret Hodge, said it was “perverse that the government continues to pay significant sums of taxpayer money to big corporations that practise tax avoidance on an alarming scale”.

There are claims that aggressive use of tax havens can distort competition.

The Labour peer, Lord Haskel, added: “For too long large international tech companies have failed to pay their fair share of tax while being rewarded with government contracts, leaving British companies at a competitive disadvantage.”

The Demos report states: “Large multinational companies, for example, continue to squeeze their tax contributions ever lower: the OECD estimates that US$100–$240bn (£78bn-£186bn) is lost globally in revenue each year from base erosion and profit shifting by multinational companies.”

Procurement is the UK government’s largest expenditure, valued at £284bn. Of the 25 organisations with links to tax havens, 20 benefited from contracts worth a combined £41bn awarded between 2011 and 2017.

“Government procurement could be an incredible force for good in the UK, beyond the public sector and in the economy more broadly,” said Rose Lasko-Skinner, researcher at Demos and co-author of Value Added.

“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 underestimated,” added Lasko-Skinner.

The government has taken steps to improve the way it manages contracts with key suppliers.

The report states that earlier this year, in response to the collapse of public-sector contractor Carillion and to “fundamentally flawed” probation contracts being brought back in-house, the Cabinet Office published the Outsourcing Playbook. Its aim was to improve and strengthen the way government procures, and thereby reduce the risk of similar mishaps in the future.

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Demos said that there was a need for new measures – including minimum standards for public procurement to include criteria relating to a bidder’s exchequer contribution.

The thinktank has also called for the National Audit Office to conduct an annual report on central government procurement transparency.

This would include a “league table” ranking of departments, with the bottom three departments compelled to make a statement to parliament.