Tax experts call on Government to rewrite new laws allowing tax-avoiding companies to bid on NHS contracts

'We need completely new rules because the way the existing ones are written almost seems like they are not meant to work'

The process of contracting out NHS services to the private sector is growing rapidly (Getty Images)

Tax experts are calling on the Government to rewrite the laws around tax-avoiding companies bidding for state contracts after The Independent revealed that NHS managers were reversing bans on healthcare firms that use offshore havens.

Prem Sikka, professor of accounting at Essex University and one of Britain’s leading experts on tax avoidance, said the issue went far wider than the NHS.

He said: “To great fanfare, in 2013 the Government brought in legislation to keep tax-avoiding companies out of all government departments but the wording was so vague as to have absolutely zero effect.” The policy was announced by the Chancellor, George Osborne, in his March 2013 Budget.

However, the July 2013 notice “Procurement Policy Note: Measures to Promote Tax Compliance” is worded so it only bans companies that have unspent criminal convictions for tax offences or have had their tax returns successfully challenged under the so-called anti-abuse rules.

In reality, Professor Sikka said, hardly any tax-avoiding firms are ever successfully challenged or convicted because they are carefully advised by large accounting firms on how to arrange their tax strategies without breaking the law.

“Even if there are legal challenges, they tend to take on average a decade to go through the system, by which time the companies are being run by a new generation of executives who say: ‘this was nothing to do with us’,” Professor Sikka said.

“We need completely new rules because the way the existing ones are written almost seems like they are not meant to work.”

Other big gaps in the 2013 law include the fact that it only covers central government contracts and is restricted to contracts of more than £5m and the bidders only have to “self-certify” that they are tax compliant.

The Independent revealed yesterday how NHS clinical commissioning groups were being forced to strike out legal clauses banning tax avoiders for fear of being sued.

The issue is of growing importance due to the rapid growth in contracting out NHS services to the private sector. Figures out this week show private firms have won NHS clinical contracts worth £5.5bn since the 2013 implementation of the Health and Social Care Act, which stipulated that all new NHS contracts be put out to tender.