THE JOURNAL FOR THE CHARTERED INSTITUTE OF PUBLIC FINANCE & ACCOUNTANCY JULY/AUGUST 2021 PUBLICFINANCE.CO.UK 01 COVER_Jul-Aug 2021_Public Finance.indd 1
SAFETY IN NUMBERS What ‘defunding the police’ really means for service budgets FRONT-SEAT DRIVER New CIPFA president urges public finance professionals to be bold RISING FEARS Increasing inflation spells a new headache for governments
Emergency call Is systemic corruption to blame for Covid-19 procurement scandals?
22/06/2021 14:18
End slavery
hidden in supply chains
CCLA’s anti-slavery initiative Find it, Fix it, Prevent it is a coalition of investors managing £7 trillion in assets. We are helping companies to identify, tackle and repair the effects of modern slavery in all its guises. www.modernslaveryccla.co.uk
PFJulyAugust21.002.indd 1
CCLA Investment Management Limited and CCLA Fund Managers Limited are authorised and regulated by the Financial Conduct Authority.
17/06/2021 16:06
EDITORIAL
WELCOME Redactive Publishing Ltd, Level 5, 78 Chamber Street, London E1 8BL +44 (0) 20 7880 6200 publicfinance.co.uk
COLIN MARRS
@public_finance_
‘Do the right thing’
EDITOR Colin Marrs 020 7324 2796 colin.marrs@publicfinance.co.uk GROUP EDITOR Jon Watkins 020 7324 2788 jon.watkins@publicfinance.co.uk REPORTERS Oliver Rudgewick 020 7324 2768 oliver.rudgewick@publicfinance.co.uk Calum Rutter 020 7324 2794 calum.rutter@publicfinance.co.uk SUB-EDITOR Caroline Taylor caroline.taylor@redactive.co.uk LEAD DESIGNER David Twardawa 020 7324 2704 david.twardawa@redactive.co.uk PICTURE EDITOR Akin Falope 020 7324 2713 akin.falope@redactive.co.uk SENIOR DIGITAL CONTENT EXECUTIVE Daniel Kelly 020 7324 2745 daniel.kelly@redactive.co.uk SALES 020 7880 6203 advertising@publicfinance.co.uk RECRUITMENT SALES 020 7880 7621 pfjobs@redactive.co.uk PRODUCTION MANAGER Aysha Miah-Edwards 020 7880 6241 aysha.miah@redactive.co.uk ACCOUNT DIRECTOR Joanna Marsh 020 7880 8542 joanna.marsh@redactive.co.uk PRINTING Warners Midlands To subscribe to Public Finance at the annual UK cost of £100, call 01580 883844 or email subs@redactive.co.uk. International annual subscriptions are in the £130-£205 range. Public Finance is editorially autonomous and the opinions expressed are not those of CIPFA or of contributors’ employing organisations, unless expressly stated. Public Finance reserves the copyright in all published articles, which may not be reproduced in whole or in part without permission. Public Finance is published for CIPFA by Redactive Publishing Ltd. Public Finance, Redactive Publishing Ltd, Level 5, 78 Chamber Street, London E1 8BL Tel 020 7880 6200 Fax 020 7324 2790
ISSN 1352-9250
Average circulation 13,428 (Jul 19–Jun 20)
Recycle your magazine’s plastic wrap – check your local LDPE facilities to find out how
Tel 020 7543 5600 Fax 020 7543 5700 Email corporate@cipfa.org Address: CIPFA, 77 Mansell Street London, E1 8AN
W
hatever you think of its marketplace dominance and stance on taxation, you have to admit that Google makes some pretty whizzy tools. One of these, Google Trends, logs the relative frequency of words and phrases typed into the firm’s search engine over time. For instance, the site tells you that the word ‘pandemic’ went from a user interest rating of just one out of 100 to the maximum in the three months from December 2019. The word ‘sleaze’ hit its own 100-point peak in the last week of April this year, following a blog by Dominic Cummings, former chief aide to UK prime minister Boris Johnson. Cummings revealed WhatsApp messages showing Johnson promising to ‘fix’ a tax issue to help businessman James Dyson build ventilators as part of the Covid-19 response. Weeks later, Cummings told MPs that procurement processes at the start of the crisis were ‘horrific’ (news analysis, p11). The recent rise of ‘sleaze’ in public minds is not, however, a phenomenon exclusive to the UK. Our cover feature on p20 dives into the reasons behind the widespread impression that governments around the world used the loosening of procurement rules at the pandemic’s outset to reward their friends.
Whether motivated by corrupt intentions or not, it is clear that normal due diligence was not carried out on many Covid-19 contracts. The feature explores how proper emergency procurement procedures can avoid the problems of the past year reoccurring. “People say you cannot plan for an emergency, but I fundamentally disagree with that,” says Tom Caulfield, of Washington-based Procurement Integrity Consulting Services. OK. Let’s try Google Trends again. The word ‘defund’ leapt from an interest rating of just one to 100 in the month following last May’s murder of George Floyd by a US policeman. The slogan ‘Defund the Police’ may not have been as ubiquitous as ‘Black Lives Matter’, but it gained enough traction to secure significant changes for some police budgets in the US. Our p46 feature examines the meaning of the phrase and its likely impacts. As for Google, it is among multinationals facing higher corporation tax after a G7 agreement (Catch Up, p7). Big Tech firms paying more towards public services would be one trend worth celebrating – and in the spirit of Google’s ‘Do the right thing’ motto – but there are fears that proceeds will benefit rich countries far more than poor ones.
Google is among multinationals facing higher corporation tax payments after an agreement by G7 countries
COLIN MARRS Editor colin.marrs@publicfinance.co.uk PUBLICFINANCE.CO.UK 3
03 Welcome_Jul-Aug 2021_Public Finance.indd 3
22/06/2021 14:20
PFJulyAugust21.004.indd 1
17/06/2021 16:07
CONTENTS
JULY / AUGUST 2021
20
NEED TO KNOW 7
60
Catch up
G7 corporation tax deal; Fair Funding Review 10 News analysis
Redmond response; Cummings’ evidence; digital currencies 14 Big picture
Gaza violence flares 16 Talking points 17 World in numbers
38 Up, up and away
Will inflation linked to pandemic recovery hurt public finances? 46 Taking the fee
OPINION
Responding to the ‘Defund The Police’ movement
19 Level best
32
Fiscal devolution is natural Tory territory, says Jonathan Werren 29 Recipe for disaster
Fixes already exist for emergency procurement
38
31 Standards bearer
North Macedonia’s anticorruption measures 43 Senior debt
Demographic shift set to fuel costs and borrowing 51 Community pillars
Principles for inclusive law enforcement budgets
IN DEPTH 20 Buyer beware
46
Why did pandemic procurement fail? 32 Heart of the action
CIPFA president Mike Driver urges profession to do more than keep score
IN PRACTICE 55 Green worth
Accounting for environmental value 57 Remote assistance
Overseas volunteering after Covid-19 58 Lending support
NHS trust helps autistic worker into finance role 59 Head space
Adding intuition to your professional armoury 60 Group checks
Managing team decisions 63 Long-term support
CIPFA aids Bangladesh’s finance reforms 64 Events 65 On account
Big impacts from private sector audit reform 66 Where next?
PUBLICFINANCE.CO.UK 5
05 Contents_Jul-Aug 2021_Public Finance.indd 5
22/06/2021 14:21
$*1'" "QQSFOUJDFTIJQT 6TF ZPVS PSHBOJTBUJPOˏT BQQSFOUJDFTIJQ MFWZ UP DSFBUF UIF OFYU HFOFSBUJPO PG DPVOUFS GSBVE JOWFTUJHBUPST BOE QSPGFTTJPOBMMZ RVBMJFE QVCMJD OBODF FYQFSUT • Assistant Accountant Apprenticeship (Level 3) Includes study for the AAT Advanced Diploma • Professional Accounting Technician Apprenticeship (Level 4) Includes study for the AAT Professional Diploma • Accountancy Professional Apprenticeship (Level 7) ,QFOXGHV VWXG\ IRU WKH &,3)$ 3URIHVVLRQDO 4XDOLĕFDWLRQ • NEW Counter Fraud Investigator Apprenticeship (Level 4) Includes study for the CIPFA Accredited Counter Fraud Specialist TXDOLĕFDWLRQ
Registrations for the Accountancy Professional Apprenticeship (Level 7) close on 31 July 2021. Registrations for all other programmes close on 31 August 2021. Visit www.cipfa.org/apprenticeships Phone 0207 543 5796 Email apprenticeships@cipfa.org
PFJulyAugust21.006.indd 1
21/06/2021 11:36
N E W S / A N A LY S I S / O P I N I O N / D E B AT E
p11
p13
p19
CUMMINGS AND GOINGS Ex-aide to UK prime minister slams Covid-19 procurement
DIGITAL LOVE Why are central banks suddenly hot for digital currencies?
LETTING GO Fiscal devolution should be in Tories’ DNA
I N T E R N AT I O N A L C O O P E R AT I O N
G7 corporation tax deal set to benefit richest countries, say campaigners By Calum Rutter
G
7 commitments on tax and debt have been criticised by campaigners, who said they did not go far enough to support developing countries. Leaders and finance ministers of the most advanced Western economies met in the UK in
Photography: Getty
07-09 Upfront - Need to know_Jul-Aug 2021_Public Finance.indd 7
June to discuss the biggest economic issues facing the world. They agreed to pursue, in ongoing talks led by the OECD, a minimum global corporation tax rate of 15%, aiming to stop multinational companies avoiding profits by booking them in tax havens.
“The deal marks an end to the idea that countries undermining each other on corporate tax is a good thing,” said Mark Bou Mansour, a spokesman for campaigning and research group the Tax Justice Network. “Research
PUBLICFINANCE.CO.UK 7
22/06/2021 14:22
NEED TO KNOW
CATCH UP
SECOND RATINGS DROP FOR TRANSPORT AUTHORITY Ratings agency Moody’s has downgraded the credit score for Transport for London, the UK capital’s bus, road and train authority, for the second time during Covid-19. The body’s finances have been “durably and materially weakened” by the pandemic, the agency said.
has long shown that this practice, known as the race to the bottom, is very harmful to economies and people’s wellbeing, and the world’s biggest economies have finally caught up with and championed that truth.” But the deal would benefit “a few rich countries” far more than the rest of the world, Bou Mansour said, with 60% of the estimated $275bn gains going to G7 countries, where just 10% of the global population live. “Since multinationals are often headquartered in rich OECD countries, a global minimum tax rate implemented under the OECD blueprint will privilege OECD countries,” he said. These countries lose 65% of total corporation tax each year to abuse, but stand to gain 75% of the tax recovered by the deal, according to Tax Justice Network estimates. Low-tax countries, such as Ireland, Luxembourg, the Netherlands and Singapore, could lose large amounts of revenue if the reforms cause multinationals to move their
A global minimum tax rate implemented under the OECD blueprint will privilege OECD countries Mark Bou Mansour, Tax Justice Network
headquarters away after the tax incentive is lessened. Research from Oxford Economics showed that Ireland is particularly exposed, because it has a few extremely large US multinationals headquartered there. In 2020, just 10 companies accounted for 56% of corporation tax payments – more than 11% of total tax. The main winners stand to be Germany, France, Italy and Spain, the report said. It also found that another aspect of the deal – aimed at allowing countries where revenue is made to tax a portion of the resulting profits – would affect lower-tax countries too. More than a third of Facebook’s profit in 2018 was booked in Ireland, Luxembourg and the Netherlands, for example, even though these jurisdictions account for less than 5% of the company’s revenue. The G7 also reaffirmed its support for the common framework for debt treatments, which was set up during the pandemic with the aim of providing a standardised process for poor indebted countries to restructure what they owe.
S U S TA I N A B I L I T Y R E P O R T I N G
APPOINTMENT
Public bodies ‘lag behind’ on green reporting
Government quarantine boss takes CIPFA helm
Public sector bodies around the world lag behind private firms on sustainability reporting, according to new research from CIPFA. The finding emerged in a report, due to be published in July, examining public sector sustainability reporting practices around the world. It found that despite the current performance gap between sectors, government bodies at all levels have an appetite for environmental reporting.
Covid-19 has increased the need for public sector finance professionals to demonstrate their capabilities, according to CIPFA’s incoming president. Mike Driver, senior responsible officer for the UK’s Covid-19 managed quarantine regime at the Department of Health & Social Care, takes the reins this month. In an interview with PF, Driver said that finance officers “cannot just be spectators to what is happening within an organisation”.
Karen Sanderson, director of public financial management at CIPFA, noted that the research will provide a baseline from which to evolve the development of public sector sustainability reporting. She said: “The issue is that sustainability reporting is relatively immature in the public sector.” The report explores the challenges and opportunities of adopting environmental and climate reporting.
He said: “If we think about the recovery of the economy, the government is going to need to ensure that the costs of public services are controlled effectively. We face continuing challenges around digitalisation. We need to think about the whole issue from a financial perspective. Our capabilities are needed now, probably more than ever.” See Mike Driver interview, p32
8 PUBLIC FINANCE JULY/AUGUST 2021
07-09 Upfront - Need to know_Jul-Aug 2021_Public Finance.indd 8
22/06/2021 14:22
Funding reform is set to be further delayed to assess Covid-19’s impact on local taxation
IN BRIEF IMF urges backing for $50bn recovery plan The International Monetary Fund says $50bn is needed to get on top of Covid-19 through vaccinations, test and trace, and mitigating economic risks. Launching its plan, it identified a $22bn shortfall in the amount governments need to give. It said that “advanced economies [would] stand to gain around $1trn in additional tax revenues [from the plan], which means that funding this proposal may be the highestreturn public investment ever”.
FINANCIAL MANAGEMENT
Fair Funding Review ‘on ice’ for two years By Oliver Rudgewick
F
undamental reform of UK local authority finances is likely to be delayed further by up to two years, to assess Covid-19’s impact on local taxation, according to CIPFA chief executive Rob Whiteman. The Fair Funding Review, originally scheduled for last year, was set to create a new system for distributing resources between authorities. However, Covid-19 has halted the process. Whiteman told the CIPFA Treasury Management Conference in June that long-term uncertainty over future business rates levels casts doubt over the timing of the review. He said: “I think that is possibly still the reform agenda, but it is parked for a year or two.” He warned the sector that this meant a potential continuation of yearly spending reviews and a proliferation of funding pots for financing specific policy aims. Whiteman warned that the government currently has no alternative to non-domestic rates lined
up as a source of local government income, “so whether business rates can continue to be that anchor, or whether something else needs to be found is going to take a few years”. Whiteman said that, more importantly, the government will need to assess the impact of missing council tax revenue on local authority collection funds. He said: “Down the line, there will need to be some form of support package for collection funds, otherwise it gets passed on to the council taxpayer and pushes up the rate of council tax.” He also warned that local government could lose current spending freedoms under the Prudential Code covering capital finance if a small number of councils continue to borrow and invest purely to raise income for services. Whiteman added that recent political gains in towns mean that changes to funding will be harder for the government to decide, as its approach has traditionally relied on moving money from cities to rural areas.
Accrual accounting set for 50% by 2025 More than half of the world’s public bodies will use accrual accounting by the year 2025, according to new research by the International Federation of Accountants and CIPFA. A report found that 30% of governments used the method in 2020 – up 6% on 2018. Accrual accounting records transactions when they occur rather than when cash settlement happens. Africa, Asia, Latin America and the Caribbean will lead the projected increase over the next five years.
New guidance for UK public contracts Contracting authorities should consider a set of expanded criteria when awarding contracts, according to new guidance from the UK government. They should assess the creation of new businesses, jobs and skills; tackling climate change and reducing waste; and improving supplier diversity, innovation and resilience. PUBLICFINANCE.CO.UK 9
07-09 Upfront - Need to know_Jul-Aug 2021_Public Finance.indd 9
22/06/2021 14:23
NEED TO KNOW
NEWS ANALYSIS
Sir Tony Redmond stresses that a proposed new ‘sector leader’ must have sufficent public sector focus
I
n the dark days of December, hopes for better oversight of UK local government audit suffered a heavy blow. The government rejected the main recommendation of Sir Tony Redmond’s review on the sector – to create a new body dedicated to the task. However, as the days grew longer, it gradually became clear that some changes were afoot. In May, the government announced that the Audit, Reporting and Governance Authority – the Financial Reporting Council’s replacement – will become a ‘system leader’, overseeing governance of local audit. Experts in the sector are split on the impact of the plan. Against Redmond’s advice, the government proposes leaving existing responsibilities for audit fee setting and the letting of local audit contracts with Public Sector Audit Appointments. Speaking to PF, Redmond said: “My recommendation was that a single body responsible for all areas relating to local audit would bring coherence, an overarching responsibility and a ‘system leader’ responsibility that would be clear and succinct. “I am not saying the responsibility being given to ARGA cannot work. I am simply pointing to the importance of making sure it is properly resourced and, importantly, that it has a sufficient public sector focus.” Graham Liddell, managing director of public sector finance consultancy LPFG,
AUDIT REFORM
Redmond urges adequate funding of audit reform proposals Review chief says government plans for a new ‘system leader’ can work – but need proper focus By Oliver Rudgewick
said that the Ministry of Housing, Communities & Local Government had “lucked out” with the fact that the creation of ARGA provided a ready-made solution to the oversight of audit. Calling the proposals “sensible”, he said: “MHCLG has recognised that there is a potential conflict between procuring and appointing audits and regulating them.” CIPFA chief executive Rob Whiteman said the
separation of roles could have a more positive impact on the level of audit fees than under a single body: “However, it means the government will need to put more money into the system on an ongoing basis.” Explaining its proposals, MHCLG noted that it had sought to avoid recreating the “costly, bureaucratic and over-centralised Audit Commission”. It said: “While we accept that this was not
the intention of Sir Tony’s recommendation, we need to be mindful of the risk that, once a new body is created, costs can spiral over time, and it is our responsibility to safeguard the interests of our taxpayers.” It added that creating a new local audit-focused body would risk divergence with health audit, at the same time as it is trying to drive greater integration between the two sectors. It said extracting local audit from the broader audit framework would be wrong. “While there are distinct elements to local audit… the fundamentals, and many of the issues facing the sector, including the long-term supply of auditors, are the same.” Meg Hillier, chair of the Public Accounts Committee, voiced concerns that MHCLG will now lack appropriate oversight of local audit, given that ARGA will sit under the remit of the Department for Business, Energy & Industrial Strategy. She said: “My hunch is that now ministers have solved the problem of not recreating the Audit Commission, they might just not look at this very closely. We are concerned that MHCLG has no direct oversight or link to that section of ARGA. Overseeing risk exposure and providing challenge will rely on dotted lines rather than people reporting directly into the department.” The government said it would consult on detailed proposals in the summer.
10 PUBLIC FINANCE JULY/AUGUST 2021
10-11 Upfront - News Analysis_Jul-Aug 2021_Public Finance.indd 10
23/06/2021 10:36