Good morning from New Economy Brief.
The idea that the UK has a corruption problem is growing. And it isn’t hard to see why.
Since the start of the pandemic, a string of procurement gaffes, outsourcing failures, and allegations of cronyism in relationships between public officials and private contractors has led to increased scrutiny of the relationship between the government and the private sector.
The start of this year has seen further revelations about the Post Office scandal alongside allegations of “industrial-scale corruption” and questions about the value for money of land being sold off and redeveloped in the Tees Valley freeport. This week the Covid Inquiry will hear more evidence on procurement deals given to companies with relationships to government ministers through the infamous ‘VIP lane’, already ruled illegal by the High Court.
This week’s New Economy Brief takes a deeper look at the roots of these scandals and asks whether eroded public sector capacity and a lack of regulation is creating the conditions for dodgy procurement deals, bribery, and fraud.
UK falls to record low corruption rankings. Quantifying corruption is no easy business, precisely because so much of it happens in secret. Transparency International ranks countries by perceived corruption in their public services by asking impartial experts and business leaders what they think about (mis)management of public funds, the corrupting influence of political donors and bribery in the award of procurement contracts. In 2022 the UK dropped to 18th in the world due to concerns around possible corruption in how PPE contracts were awarded during the pandemic. The most recent report showed the UK falling to an all-time low, ranking joint 20th with Seychelles, a tax haven. This is the furthest any Western European country has fallen in recent years. It is worth pointing out that TI’s index focuses on domestic graft, and not on the corruption the countries are complicit in beyond their shores, where arguably the UK would fare even worse.
The different faces of corruption. Corruption in the UK comes in many guises, and it is impossible to cover all of them here. For example author Nicholas Shaxson explained how the City of London has become the ‘money laundering capital of the world’, and Transparency International has detailed how UK businesses and institutions ‘help corrupt individuals and regimes launder their money and reputations’. There are also straightforward political corruption scandals like ‘Cash for Honours’. But most of the recent scandals have involved the relationship between the public and private sectors through procurement processes, and it is on this that we will focus this week.
What is procurement? Procurement of goods such as PPE has been in the spotlight this week through the Covid-19 Inquiry, but it is a huge and often under-scrutinised source of state expenditure. The government spends £300bn a year procuring goods and services from the private sector, around a third of all its spending. Procurement is a growing solution to gaps in public service provision, capacity and expertise – but many see it as a growing opportunity to turn taxpayer money into private profit.
Draining the swamp. Following the Carillion scandal, the Auditor General claimed that “there are lots of areas where the government does not have the capacity to do anything else but outsource”. Similarly Cabinet Office minister Lord Agnew has argued that an “unacceptable” reliance on management consultants had “infantilised” the civil service at great cost to the public purse. One way to lose less money to fraudulent procurement, then, is to rebuild the public sector’s capacity to deliver services itself. An under-reported effect of recent public sector austerity is that it has often hollowed out the public sector’s capacity to award and scrutinise contracts, with teams of civil servants often forced to negotiate against far better staffed (and paid) private sector counterparts. Beefing up these departments may not be a guaranteed vote winner, but it would be hugely beneficial in cutting down opportunities for waste and corruption. It would also help tackle concerns about the ‘revolving door’ movement of people between public and the private sectors.
UK Corporate Governance Code. The new edition of the UK Corporate Governance Code which regulates the boards of Britain’s biggest companies has removed every mention of Environmental, Social and Governance (ESG) issues. The High Pay Centre’s Luke Hildyard has argued that although the ESG measures mentioned in the previous edition were “pretty tame”, the changes represent “a victory for a… strand of business opinion that sees high governance standards and the so-called ‘reporting burden’ as a cause of the UK’s economic malaise”.
Monopoly power. A report by authors from the Balanced Economy Project, Global Justice Now, SOMO and LobbyControl explores how “a handful of individuals and their companies have built positions of market and strategic dominance where they've become too big to fail, too big to trust, and ‘too big to care’.” The report suggests “starting points for decision-makers” to tackle the issue, such as strengthening global treaties and institutions to help curb excess concentrations of corporate power and, where a dominant firm provides a public good or essential service, bringing it into public ownership or control, and/or regulating it in the public interest.
In defense of the Green Prosperity Plan. Labour MP Clive Lewis has warned his colleagues against dropping their £28 billion per year Green Prosperity Plan, arguing that “the longer we delay action, the harder it becomes, and the more people suffer.” In a piece for the New Statesman, Lewis makes the case for “investment in green steel, home insulation and electric vehicles” which he says would “provide the long-term certainty that industry has been crying out for”. Lewis is joined on the barricades by Tony Blair’s former political secretary John McTernan, former Siemens boss Jürgen Maier and LSE’s Lord Nicholas Stern.
Corporation tax. Tax Justice UK’s Robert Palmer argued in a letter to the Times that Labour’s promise not to increase corporation tax above 25% in the next parliament is “out of touch”, stating that Britain “already has the lowest corporate tax rate in the G7” and that such taxes could “generate much needed revenue for crumbling schools, strained hospitals and insolvent councils”.
Public opinion on borrowing and investment. According to new research conducted by polling expert Steve Akehurst with YouGov and the Economic Change Unit, public opinion on the issues of borrowing and investment is more nuanced than many people suggest. While voters do retain some skepticism about government borrowing, Akehurst argues that it is clear that the balance of priorities has shifted in favour of increasing spending on the NHS, renewable energy production, transport infrastructure and housing infrastructure, even if it involves borrowing. The polling also showed that voters would overwhelmingly prefer to vote for a party that “increased government investment in the economy to stimulate economic growth, even if it meant government debt rising in the short term”, rather than a party “that reduced government debt in the short term, even if it meant less investment in the economy in the short term”.
The purpose of pensions. A new report by the Finance Innovation Lab sets out several recommendations to improve the pensions system, including suggestions on how to increase private pension pots for those on low incomes, proactively green the pensions system and support an “inclusive, sustainable and productive economy”. The authors suggest setting a target of pension contributions forming 12-15% of income, with the increase largely funded by employers. They also call for further targets for green investment, aligning these with UK economic aims so that pension investment can support strategically vital sections of the economy.
Public opinion on UK inequality. New polling conducted by Opinium on behalf of the Fairness Foundation has found that the public’s concern about inequality isn’t confined to the disparities between regions. It found that 75% of people are worried about wealth and income inequalities, and that people are most concerned about inequalities based on class, disability and ethnicity, as well as region, with less concern about gender, age, religion and sexual identity.
Community wealth building for a just transition in Scotland. A new report by Future Economy Scotland explores how “if true to its purpose and ambitious in its aims - Scotland’s embrace of CWB [Community Wealth Building] can be a powerful instrument to achieve a rapid and just transition to net zero”. The think tank argues that embracing CWB can “increase local green employment while improving pay and conditions of local jobs”.
