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17 August 2016

Big Pharma gets public money from the NHS – but doesn’t put anything back

The NHS needs taxes to survive. 

By Diane Abbott

Our public sector employees pay into society twice. Firstly, they care for our sick, they educate our children and they run our public transport systems. But they also return a slice of their income as tax to our Treasury to help fund more doctors, more teachers and more civil servants.

However, when public sector work is outsourced to the private sector, as is more and more the case in the NHS, this recycling of public money dries up because the private providers often simply avoid paying tax.

Multinational corporations with tax-efficient corporate structures are paid from the public purse to do the work but deny that public purse the tax on their profits, which shifted into a constellation of offshore tax havens. 

If you can afford good team of corporate lawyers and accountants, you can liberate yourself from the inconvenience of contributing to the society in which you do business.

By moving away from direct provision of NHS services, the British public in effect pick up the tab left by the corporations that now run these services, which means a haemorrhaging of cash from the public purse into the private tax haven.

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And these corporations are rushing in.

The market reforms to the NHS, wrongly started by New Labour and accelerated with the Tories’ The Health and Social Care Bill, now mean that the NHS must tender out all contracts, even those it wishes to keep in house, and its commissioners can now outsource up to 49% of their work to the private sector.

Take the biggest provider of acute care in the NHS: General Healthcare Group. It is ostensibly a British company but it has set up corporate structures that allow it to shift profits from the hospitals it owns out of the country and into the British Virgin Islands, the world’s biggest tax haven.

GHG’s corporate arrangements have allowed it to declare losses for the past five years and therefore pay no tax.

Other large multinational corporations contracted by the NHS to provide care to the British public such as Spire Healthcare, BPL, Circle Health, Care UK, Ramsay Health and Virgin have similarly used paper companies in tax havens to avoid paying UK tax (Spire nevertheless did pay £141.8m, on turnover of £884.4m, in 2015).

The same is true of the pharmaceutical giants. Despite making sales of between £1.3bn and £1.8bn each year between 2001 and 2014, the US firm Pfizer paid almost no tax over the period because it announced major operating losses each year, except for a relatively tiny profit of £9m in 2013. 

The most common way firms shift untaxed profits are shifted out of the country is by paying loans to another tax-haven domiciled part of the business. An otherwise solvent UK arm of a multinational corporation is loaded with debt, often by debt financing an acquisition, and the indebted company pays high-interest “loans”  to other parts of the company based in tax havens. This enables them to reduce their bottom line and cut their tax bills.

Such behaviour is allowed because the British government has steadfastly refused to close its own tax havens scattered across the globe in UK overseas territories and crown dependences. Labour has pledged to close them down and also supports NHS Reinstatement Bill to roll back the private sector commissioning and reduce the amount of money moving offshore.

I also propose that the procurement rules for NHS commissioning be looked at to ensure that companies which are avoiding tax stand less chance of winning public contracts.

In 2013, the government brought in legislation to do appear to be doing just this, but the wording means that in practice tax avoiders are not disadvantaged in tendering because it only applies to companies with unspent criminal convictions for tax offences or have had their tax returns successfully challenged under the so-called anti-abuse rules. 

We need tighter rules to act as a deterrent to this daylight robbery of public money by private corporations.

This article was updated on 31 August 2016 to include Spire’s 2015 tax payment.