Private contractors carrying out billions of pounds worth of Government work face a “crisis of confidence” from the public, the National Audit Office (NAO) said, as it emerged that two of them paid no corporation tax last year.
The public spending watchdog highlighted a number of investigation it has carried out into alleged abuses by contractors such as Atos, G4S, Serco and Capita, and said much more openness was needed if the taxpayer was to be convinced that they are getting a good deal.
Two reports published by the NAO today found that, between them, these four biggest suppliers hold contracts with the Government that are worth around £4.5 billion. The total value of all the work they carried out last year for the public sector was estimated to cost £6.6 billion.
Despite this, the report revealed that Atos and G4S paid no corporation tax at all in the UK in 2012, according to the Daily Telegraph.
Capita only paid £50-£56 million, while Serco paid £25 million in tax.
The NAO revealed that the profit margins made by four companies on their public sector work averaged around 5 per cent. While this is slightly lower than the typical margins to which a FTSE100 company might operate, they work on the basis of highly valuable, stable and often much longer-term contracts.
The amount made by the companies on any given deal also varied wildly. The public sector profit margins for Serco appeared to be between 0 per cent and 9 per cent, between 1 per cent and 10 per cent for Capita, and between 3 per cent and 22 per cent for Atos. G4S made an overall loss on some of its public sector contracts last year, giving an overall return ranging from -8 per cent to 16 per cent.
The watchdog warned that the Cabinet Office often lacked “commercial experience and expertise below senior levels”, and said that the information on its 40 strategic suppliers was “inconsistent and incomplete”.
Amyas Morse, the head of the NAO, said: “Contracting with private sector providers is a fast-growing and important part of delivering public services.
“But there is a crisis of confidence at present, caused by some worrying examples of contractors not appearing to treat the public sector fairly, and of departments themselves not being on top of things.
Margaret Hodge MP, chair of the Public Accounts Committee, said: “Departments have a duty to ensure that the taxpayer is not being ripped off and that people, not profit, remain at the heart of our public services.
“These reports together raise some big concerns: the quasi-monopolies that have sprung up in some parts of the public sector; the lack of transparency over profits, performance and tax paid; the inhibiting of whistleblowers; the length of contracts that taxpayers are being tied into, and the number of contracts that are not subject to proper competition.
“The recent fraud allegations surrounding the Ministry of Justice's electronic tagging contracts with G4S and Serco are also a reminder of how important it is that government properly scrutinises and monitors its contracts with private providers.”
A Cabinet Office spokesman said: “Hard-working taxpayers expect the best value for money and everyone deserves the best possible public services. Last year alone we saved taxpayers £3.8 billion from our commercial reforms, including renegotiating contracts with our largest suppliers, and we welcome the NAO's recognition of our achievements.
“We know that the Civil Service lacks commercial capability and that contract management needs to be improved. Our reform programme seeks to address this but we must accelerate change to save taxpayers more, create better quality public services and promote growth.”