What can councils do to stand up for fair tax conduct?
This article originally appeared in The MJ.
Tax and procurement are subjects that often top the news agenda for the wrong reasons. Tax avoidance has long been a topic of public debate with concern about the lack of a level playing field between domestic businesses and those headquartered offshore. More recently, we have seen eye-watering PPE contracts fast tracked to companies with no history of supplying medical-grade equipment, some with murky ownership structures in tax havens. However – used well – tax and procurement are key interrelated public policy levers that local governments can use to create considerable public good.
Before COVID, a staggering 17.5% of UK public procurement contracts were won by companies with a connection to a tax haven, harming our economy by extracting tax receipts as a result of profit shifting. There is no evidence to suggest this situation has improved over the past year. While many loopholes have been closed, there is still no national policy restricting public contracts to organisations that fail to pursue good tax conduct within their supply chain – either in the UK or beyond. We know the demand for change exists – two-thirds of the public say they would rather shop or work with a business that can prove it is paying its fair share of tax. Councils can and must use their powers to promote exemplary tax practice in their local areas.
At CLES, we support local authorities and devolved governments in strengthening their local economies through community wealth building. This involves using public policy levers to ensure that wealth generated in a community, stays in that community. Many councils have already committed to championing the Real Living Wage and broader matters of fair employment and sustainable business practices. Another mechanism to promote sustainable business yet to be maximised is the redirecting of public procurement towards local, generative businesses that pay their fair share of taxes.
“Birmingham City Council join 12 other local authorities around the UK”
Councils across the UK need to lead the way on tax conduct and review any partnerships, joint ventures and associated asset ownership structures to ensure that their tax practices are appropriate, transparent and beyond reproach. At the start of Fair Tax Week, we are delighted to see Birmingham City Council join 12 other local authorities around the UK in committing to the Fair Tax Foundation’s Councils for Fair Tax Declaration. Birmingham will sit alongside Oxford, Oldham, Peterborough, Cannock Chase Bingley, Greenwich, Lincoln, Trafford, Sunderland, South Tyneside and Seaton Valley in making this pledge to exemplary tax practice. The declaration commits to requiring better tax conduct from businesses and suppliers including greater transparency particularly in terms of ownership and adds heft to calls for more meaningful powers to tackle tax avoidance amongst public sector suppliers.
There should be no race to the bottom on tax rates or broader issues of reporting and disclosure. This weekend, the UK government became the final in the G7 to support President Biden’s plan for a global minimum corporate tax rate.
“not a partisan issue but a common-sense agenda”
Pursuing better tax conduct benefits everyone by strengthening public services. It is not a partisan issue but a common-sense agenda that has support from councils of all political stripes. Tax receipts help fund vital public services like education, health and social care and policing, making our society fairer, safer and more resilient. We can’t build back better, let alone face the challenges of the future, without a properly funded public sector.
But regardless of the UK government’s stance on the global minimum corporate tax rate, there is a much larger conversation to be had around progressive reforms to local public finance, including whether Council Tax is fit for purpose, the division of revenue raising powers between the central, local and devolved governments and how this aligns to public service provision. The Fair Tax Declaration is something that all localities across the UK can and should adopt without delay. By doing so, they can promote a groundswell of positive tax practice that crowds in generative organisations along the public sector supply chain.
If you’d like to find out more about the Councils for Fair Tax Declaration, visit the Fair Tax Foundation’s website where you can download a copy of the Councils for Fair Tax Declaration and a sample motion.