The government is using the pandemic to give contracts to cronies

Contrary to the stated government policy, contracts have been awarded without competitive tenders, and to businesses close to the Conservative Party.

Business people holding money

In the first year of the Boris Johnson led Conservative administration, the government has squandered over £57bn on contracts that have delivered little or no value. Cronyism rules and vast amount of monies have been showered on the Tories’ friends. Some examples:

Showering cash on friends

The UK government awarded a £252m contract for personal protective equipment (PPE) to Ayanda Capital Limited. Information filed at Companies House shows that the company has five employees, £510,000 share capital and £44,509 of tangible assets. Former investment banker Timothy Horlick is on the company board and its main shareholder. The entity is controlled by Milo Investments registered in opaque tax heaven Mauritius. The contract was brokered by Andrew Mills, an adviser to Ayanda’s board and Liz Truss, the Secretary of State for International Trade and President of the Board of Trade. The company appears to have no prior experience of delivering PPE and the contract was handed out without any competitive tender. Ayanda seems to have acted as an intermediary to secure PPE from China. Around 50 million face masks it procured  were not suitable for NHS use. Any action taken by the government to penalise Ayanda is not known.

A £93.24m PPE contract went to Clandeboye Agencies Ltd, a small company specialising in “Wholesale of sugar and chocolate and sugar confectionery”. The information at Companies House shows that it has £100 issued share capital, 14 employees, net assets of £291,026 and most recently made a loss. The contract was awarded without any competitive bid.

Two contracts worth £108.6m and £32.436m were awarded to Crisp Websites Limited trading as PestFix, a supplier and distributor of pest control products. Its rudimentary accounts show that the company had issued share capital of £901, net assets of £18,047 and 16 employees. It was the sole bidder. Despite public evidence, the government subsequently claimed that there was only one contract worth £32million. However, it acknowledges that there were also a number of other contracts whose value and details are unknown.

The government spent more than £56m on consultancy firms to advise it on the track-and-trace system, PPE and ventilators, mostly without securing any competitive bids. This includes contracts worth £8m for Deloitte, £7.4m for PricewaterhouseCoopers, £5.4m for Ernst & Young, £3.8m for KPMG and £3.5m for Grant Thornton. Their Covid expertise is not known, but after a century of conducting audits the same firms are unable to deliver decent audits. The most recent regulatory report stated that 39% of the audits delivered by KPMG were deficient compared to 35% for PricewaterhouseCoopers , 29% for Ernst & Young, 24% for Deloitte and 45% for Grant Thornton. Yet they received taxpayer-funded contracts.

Faculty, a data intelligence gathering firm, received a £400,000 contract to collect and analyse people’s tweets, as part of a coronavirus-related contract. The company was previously hired by Dominic Cummings, chief adviser to Prime Minister Boris Johnson, during his campaign to secure Brexit.

Crony Capitalism

Michael Gove, Chancellor of the Duchy of Lancaster, vowed to crush crony capitalism because it distorts free markets and enables a few to enrich themselves from political patronage. The reality is different. Contrary to the stated government policy, contracts have been awarded without competitive tenders, and to businesses close to the Conservative Party. The details remain secret.

Cronyism is not new and is central to capitalism. Remember how the East India Company was sponsored by the state (Royal Charter) to plunder around the globe. The loot was shared by wealthy elites. The form may have changed but the symbiotic relationship between the UK state and corporations remains. 

Large corporations fund political parties and hand out consultancies to past and potential ministers, as the House of Commons Register of Members’ Financial Interests shows. The return for political investment is access to policy makers, contracts and prioritisation of corporate interests.

In 2012, HSBC, headquartered in London, paid a fine of $1.9bn to US authorities for its role in money laundering by drug traffickers and governments on sanctions lists. The US Department of Justice stated that the bank “accepted responsibility for its criminal conduct”. It faced a possible prosecution and withdrawal of its licence to operate in the US, which would effectively ended its global operations. The UK did not mount an investigation, but the then Chancellor George Osborne secretly wrote to the US authorities urging them not to prosecute the bank.

The neoliberal response to crony capitalism is to call for abolition of regulations and a minimal state. None of that would make capitalism ethical. Capitalism is incapable of being ethical as by hook-or-crook corporations seek to increase their profits and executive rewards and become masters of the universe. The only long-term cure is to get rid of capitalism. However, that isn’t going to happen overnight. Therefore, the pragmatic approach is to check predatory practices through effective systems of regulation and public accountability. This begins with reform of political party funding, ban on MPs benefiting from consultancy and public availability of all government contracts.

Prem Sikka is Professor of Accounting at University of Sheffield and Emeritus Professor of Accounting at University of Essex. He is a Contributing Editor to LFF and tweets here.

Comments are closed.