Time to get our PFI tax back

Email your MP today and ask them to write to the Treasury to change their minds and act on PFI tax avoidance, says Stella Creasy MP.

By Stella Creasy MP (Labour and Co-operative, Walthamstow)

Much has been written about how to reform PFI and its costs, but little about the benefits – in theory one of them is that funding private sector companies to run public sector projects will generate tax receipts as a by product. However, a new report from the Public Accounts Committee published today shows again when it comes to tax this government is all avoidance and no action.

The report highlights how tax revenue is being lost as PFI contractors move assets offshore to havens such as Guernsey or Jersey. The Treasury admits it has no idea if these companies pay corporation tax or any taxes liable on the profits or equity gains these lucrative contracts generate.

This isn’t just a problem for the taxman but goes to the heart of whether a PFI deal can be considered value for money. The projected receipts generated from working with private companies are integral to deciding the advantage of PFI as a means to procure goods like schools or new roads, rather than directly paying through the public purse.

Yet if the sums involved in making this choice aren’t accurate because the Exchequer doesn’t then get that tax back, the decision to use PFI itself could be equally defective.

Treasury guidance (pdf) on managing public money allows for the “tax planning” of bidders to run these contracts to be taken into consideration and indeed in 2003 the previous government issued a directive on discouraging tax avoidance through procurement. However, there’s little evidence this is being used to prevent this behaviour by these firms.

If this government is serious about securing a good deal for the UK taxpayer they have two choices.

They could rewrite The Green Book rules governing how the value for money of PFI deals is assessed so that this faulty maths isn’t part of the procurement process. Alternatively, they could act to strengthen the guidelines and how “tax planning” is determined so that these calculations of value for money in principle become fact.

Either option could improve both Treasury procurement practice and accountability in spending public money – yet instead the government has already admitted it has no plans to do anything about the problems with how the Green Book deals with tax in PFI deals.

Of greater concern, it is pressing ahead with using this misleading way of calculating the value for money of the new PFI projects it is currently negotiating that are worth £7bn. Given one company running more than 33 PFI schemes made more than £38m in profit alone last year but paid just £100,000 in UK tax, the potential sums of lost tax revenue could be vast.

That the Treasury doesn’t even know how much money they’re due shows their complacency, and the complexity in holding them to account for the money we’re losing. Yet failure to try to act on this is not an option in times of austerity – it’s time we told them we want our PFI tax back.

Think the government should get its sums right? Email your MP today and ask them to write to the Treasury to change their minds and act on PFI tax avoidance.

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