Dangers of a free trade agreement when it comes to privatisation

Outlook

The history of the contracting out of public services has not been a happy one.

And yet despite a string of scandals, a multibillion-pound industry has grown up around it. Will the astonishing spectacle of two of the sector’s acknowledged heavyweights, G4S and Serco, charging to electronically tag dead offenders bring some sanity to the way it has been operating? Potentially.

A report by the House of Commons Public Accounts Committee will be published this morning. Some of the points it makes have been made before – particularly its criticisms of the civil service’s approach to drawing up and monitoring contracts with private sector firms, which were as much a cause of the tagging scandal as were G4S and Serco.

As the banking scandals have made very clear, if you incentivise people to behave badly then they will, especially if no one is keeping a proper eye on what they’re up to. Just as certain bankers were in effect incentivised by bonuses to try to fix foreign exchange rates, and bad financial advisers were incentivised by commission to steal pensions, so the tagging operators were incentivised to tag dead offenders.

When it comes to the job of improving things the PAC naturally wants the civil service to do better, but it also says the companies themselves should, in future, have a “duty of care” to the taxpayer. The report praises contractors for talking about a “new way of thinking”. Which is just dandy, especially if their executives mean it rather than having had the phrase cooked up for them by their PR advisers.

But here’s the problem. G4S and Serco are, in effect, the home team. As such, they may be susceptible to pressure from the PAC in a way that overseas operations, headquartered out of its clutches, are not. Yet these overseas operators have to be involved in tendering processes if the committee’s desire to see a competitive market for government contracts is to be realised. Unfortunately, as we have already seen with the likes of Amazon, some overseas businesses have proved more than willing to send out relatively junior managers to talk to the PAC or other House of Commons committees.

To this mix you could easily add the dangers posed by the Transatlantic Trade and Investment Partnership, with its arbitration panels for companies that feel wronged by governments’ actions. How would these panels approach the concept of a “duty of care”? If the TTIP ever gets signed we might be about to find out.

Time to make tax-avoiding companies social outcasts

Continuing on the theme of the Public Accounts Committee (it’s been busy), a depressing fact about its monstering of PricewaterhouseCoopers and Shire Pharmaceuticals this week is that the nearest thing to a killer blow was landed by the firm’s head of tax, Kevin Nicholson.

It came after he was accused of lying for claiming in an earlier session that his firm did not mass-market a Luxembourg tax-avoidance scheme. He told the committee that PwC and its staff hadn’t broken any laws and said that if they didn’t like the tax rules as they stand, then they should change them. Well, quite. No one has ever accused Mr Nicholson, or his colleagues, or any of his rivals from any of the big four accountancy firms that have set up similar structures in Luxembourg to the one used by Shire, of doing anything illegal.

That’s largely because they didn’t. But the reason they’re so keen to tell MPs to change the law if they don’t like it is that doing anything without international agreement when it comes to multinational companies and their tax can be extremely difficult. That’s something the Government may soon discover given the issues that experts have been raising over its attempt to claw back tax revenue diverted from Britain by US technology giants.

Unfortunately, as Mr Nicholson and his colleagues know only too well, it’s also extremely difficult to secure international agreements over tax. There’s always the temptation to play beggar they neighbour to attract businesses and jobs. And while by no means the worst offender, the UK has been guilty of that, what with its “patent box” tax break aimed at encouraging firms to undertake R&D in the UK.

We can, though, make those who construct and operate tax-avoidance schemes socially unacceptable. What they do may be legal, but it is also deeply immoral. The committee does us a favour by pointing that out, and holding those responsible to the public’s unflattering gaze.

Heineken won’t be reaching the pubs it used to reach...

Heineken used to say that its beers refreshed the parts others couldn’t reach. It’s a good thing that slogan’s been consigned to the dustbin of advertising history, because it’s not reaching a veritable army of JD Wetherspoon customers. The company has banned the beer from its pubs.

Unlike Murphy’s (another of the brewer’s brands) Heineken got very bitter about the price charged for its beer at JD’s new Dun Laoghaire pub, its second in Ireland.

Apparently it wanted it to be reassuringly expensive (sorry, that was Stella Artois). So it refused to supply the pub, which had been selling Heineken at under €3 a pint against an average €5 in Irish pubs.

What’s to be done? Perhaps the two companies just need to sit down over a drink to hammer out a compromise. Make it a Guinness?