Chief secretary to the Treasury Danny Alexander has a somewhat embarrassing issue to face today, according to a blog in the Financial Times: after assuring the FT that he would block companies that had not complied with tax rules from winning big Whitehall contracts, news has just broken that one such firm has just secured a £150 million government contract.
Arqiva, a company specialising in the building and maintenance of broadband infrastructure, has paid no corporation tax in the UK for the previous four years – a fact that has not prevented it from nabbing a major contract to enhance mobile connectivity.
The FT last year found that Arqiva made sales amounting to around £1 billion a year in the UK. It avoids tax by borrowing money from shareholders and then repaying it at 13% interest, which is an arrangement it uses to offset tax.
The company told the FT that it had “invested heavily” in the UK’s infrastructure, including £630 million during the digital switchover. The statement continued: “In recognition of this considerable investment in the UK’s communications infrastructure, the government has agreed a tax exemption for Arqiva from 2009.”
In effect this means that it has broken no tax rules and certainly has not broken the law, thereby wriggling free of Danny Alexander’s instruction to civil servants empowering them to deny contracts to companies that had failed to comply with strict tax rules over the previous ten years.