We need to tackle conflicts of interest in UK local government planning

With the UK facing a shortage of housing and the government intending to overhaul the planning process, CSC Director Liz David-Barrett considers what corruption risks affect local government planning decisions.

In 2013, I researched and wrote a report for Transparency International UK on corruption in local government. The research identified three areas which were most prone to risk: one was applications for planning permission, another social housing, and the third public procurement. In these areas, we found that conditions were conducive to corruption: there were low levels of transparency, poor external scrutiny, evidence of local cronyist networks, and outsourcing of public services was undermining public accountability, not least because it put large sections of public service delivery beyond the reach of Freedom of Information requests.

The report also warned that the risks of corruption were mounting, because: the austerity drive had forced councils to curb ‘back office’ functions like audit; central government had abolished the Audit Commission, an independent auditor that not only audited individual councils but also played a broader oversight role in identifying emerging systemic risks; and, as part of a ‘localism’ agenda, the government had withdrawn a national code of conduct, leaving it up to local councils to write their own if they wished, with no requirement for councils to have a standards committee or indeed a register for declaring gifts and hospitality. On top of all this, the report noted a reluctance or lack of resource to investigate alleged wrongdoing, and often a denial that corruption was an issue at all.

Seven years on, a new report from TI-UK focusing on planning permission, Permission Accomplished, provides clear evidence of how, in the absence of action, these risks have crystallised – in some cases, into alleged misconduct that is under investigation by law enforcement. Conflicts of interest, excessive gifts and hospitality, secret lobbying and weak oversight have become commonplace. In a review of 50 councils, TI-UK found 32 councillors (across 24 councils) holding critical decision-making positions in their local planning system whilst simultaneously working for developers.

The report shows clearly how corruption risks intersect with and contribute to the UK’s chronic shortage of affordable housing. With the government having recently launched a White Paper on planning reform, it is a good time to take stock of these risks and to ensure that they are mitigated in any new system.

Corruption risks arise because councils have significant discretionary power over many aspects of planning decisions that property developers want to influence. And some property developers seek to improperly influence those decisions – whether by using their connections to lean on decision makers, offering jobs to councillors (during or after they leave office), or by wining and dining them into a position where they feel obliged to abuse their office to help.

One key decision that property developers might seek to influence relates to the categorisation of land, ie to decide whether it can be used for industrial building or housing or should be kept as green belt. ‘Change of use’ decisions can have huge implications for the value of that land to developers.

Another risk relates to ‘Section 106’ commitments, where developers promise to provide necessary infrastructure to the local community. For example, if they are building a big new housing estate, they might promise to build new roads or other facilities to avoid burdening existing infrastructure. But councils are often lax about enforcing these rules and often fail to report them to the Land Registry, making it difficult for the public to hold them – or the developers – to account.

Councils also have some discretion over whether to implement targets that developers build a certain amount of affordable housing. This issue came to the light in the case of Westminster councillor Robert Davis, chairman of the planning committee, who was found to have received gifts and hospitality from property developers at a rate of about once a week over several years. While improper influence was not proven, the council dramatically undershot its target for 35% of new homes to be ‘affordable housing’, with only 12% of new homes built in 2013-16 qualifying.

The timing of decisions can also matter to developers. This became evident in a scandal that broke this summer, although it was a central government minister, not local government officials, who faced allegations of improper influence. UK Housing Secretary Robert Jenrick’s decision to override the local council and his own ministry officials to fast-track the Westferry development – and thereby allow the developer, a Conservative Party donor, to avoid a £45 million council levy – was found to be unlawful.

The Jenrick case showed that central government can intervene in planning decisions with relative ease, by ‘recovering’ decisions that have been made by local authorities. Open Democracy found that Jenrick has recovered about 20 such decisions since becoming housing secretary in July 2019, and the Westferry affair is not the only one tarnished by conflicts of interest. The same team found that property tycoons and construction companies have donated more than £11m to Conservatives since Johnson took office.

Tackling conflicts of interest in local government is not straightforward. Councillors take on the role as a part-time post and earn a tiny amount for their trouble. They cannot be banned from taking second jobs. And yet if second jobs are permitted, this bakes in to their role an inevitable risk of conflicts occurring.

As I have written elsewhere, our regulatory tools for dealing with conflicts of interest are out of date. Relying wholly on self-regulation is risky given what we know about how difficult it is for individuals to screen out biases, and asking individuals to recuse themselves from relevant decisions raises major questions about what is regarded as relevant. Banning individuals from having other interests risks the unintended consequence of deterring good people from entering public office. Transparency about interests and the minutes of meetings are important minimum requirements but they only translate into accountability if accompanied by adequate audit structures and bodies that conduct investigations and sanction accordingly. But starting a conversation with councillors about what is acceptable and feasible would be a good step.

The UK needs to get serious about debarring corrupt companies from public procurement

Currently there are few consequences for companies that subvert public procurement through corruption and fraud. And with government departments often highly dependent on a few large strategic suppliers, there are real risks of moral hazard, where suppliers behave badly because they know the government won’t act. But with the UK reforming its procurement rules post-Brexit, Sue Hawley, Executive Director of Spotlight on Corruption argues that this presents a great opportunity to introduce an effective debarment regime.

Public procurement is widely recognised everywhere in the world as high risk for corruption and fraud. The UK is no exception. The UK loses up to £22.6 billion at central government level to “fraud and error” annually, with procurement fraud the dominant type of fraud detected, and up to £2.7 billion at local government according to recent government estimates.

Losses from procurement fraud are not confined to the public sector. In 2019, analytics company SAS described the UK as a ‘procurement fraud capital’ after finding that 40% of UK businesses had lost between €150-400,000 a year to fraud compared with an average of 16% for the rest of Europe, Middle East and Africa (EMEA). Alarmingly, the same report found that only 29% of UK businesses held regular audits to detect fraud compared with an average of 46% across EMEA.

Why does it matter?

Corruption and fraud in public procurement not only increase costs for government which are ultimately born by the taxpayer, they also undermine confidence in, and pose real reputational risks for government. Unregulated conflicts of interest in procurement likewise increase perceptions of corruption and destroy trust in decision-making around public expenditure.

One of the problems with tackling corruption and fraud in public procurement is the dangerous lack of consequences for those, particularly companies, that engage in it. This problem can be exacerbated where the government departments are highly dependent upon a few large strategic suppliers – a phenomenon that the current UK Prime Minister’s chief advisor has characterised as corporate looting. In this context, these suppliers become too big to fail or to hold to account. This creates real risks of moral hazard, where suppliers behave badly because they know there is nothing the government can do about it.

Having a regime to incentivise and reward ethical behaviour in public contracting, and to penalise those who undermine fair procurement processes, is essential to protect the public purse, create a level playing field and build confidence in the public procurement system. This is where debarment (also known as exclusion) from public procurement comes in.

Debarment is increasingly recognised globally as an effective tool to protect the integrity of public contracting and prevent corruption and fraud.

New rules post Brexit

Up to now the UK’s procurement regime has been based on EU rules which have allowed for companies to be excluded from procurement where they’ve faced a conviction for corruption, fraud and money laundering. These rules have rarely been used in the EU, and to our knowledge, never in the UK (though lack of procurement data on this make it almost impossible to find out).

This is in part because of serious limitations with the EU rules themselves, and recent EU case law interpreting them which makes them hard for public authorities to use.

As the UK leaves the EU and reformulates its procurement rules, it has a real opportunity to revisit these rules and introduce an effective debarment regime. We’ve identified seven key components to an effective debarment regime in our new paper for the Centre for the Study of Corruption, which we believe the UK government should consider in rewriting its procurement rules.

These include:

• Establishing clear policy goals for the regime, including ensuring the regime supports the government’s objectives on tackling economic crime
• Requiring effective internal controls from companies as a condition of contracting
• Ensuring that contractors can be suspended or debarred where there is sufficient evidence of corruption and fraud, not just where they have been convicted, subject to due process safeguards  
• Centralising decision-making and guidance to ensure consistency and ensuring that properly trained officials, of senior rank, are empowered to take debarment decisions
• Creating a central database of qualification and performance information on contractors, including companies excluded
• Enhancing detection by establishing a procurement-specific anonymous reporting tool for whistle-blowers and competitors
• Using complementary tools to encourage compliance such as administrative agreements and independent monitors appointed by government bodies where misconduct has occurred.

Several of these recommendations have also been put forward in a recent excellent paper by Professor Sue Arrowsmith, one of the country’s leading procurement experts. Arrowsmith argues that a properly resourced and centralised approach to exclusion is essential to make it work and that exclusion should not be limited to situations where a formal judgement against a company has been made.

Free trade – creating the ground rules for debarment

As the UK seeks Free Trade Agreements (FTAs) around the world, access to the UK’s £284 billion a year public procurement market will be one of the carrots dangled in negotiations. Understanding who will gain access to UK public contracts from countries with whom FTAs have been concluded, and their track record on corruption and fraud, will be essential to protecting the integrity of UK public procurement.

Yet a recent trial by government found that it was very hard currently for procurement officials to find out information about whether a company tendering for a contract has been convicted abroad. At the moment, they are entirely reliant on self-declarations to ascertain that information.

That makes it essential that the UK ensures that there are strong debarment provisions in the Free Trade Agreements it negotiates which include information sharing provisions – something for which we are also calling. It also means having a central database on the track records of suppliers, and ensuring free trade partners also have such databases, so that information about performance and past convictions or regulatory findings can be easily shared.

Meanwhile, it’s worth noting, given the UK’s prioritisation of a Free Trade Agreement with the United States, that the US has one of the most advanced debarment regimes in the world, and many US free trade agreements contain just such debarment provisions. Showing that the UK is serious about having an equivalent regime might not just be a negotiating advantage but might also become a requirement in any deal with Washington.

A properly functioning debarment regime would bring both economic and social benefits for the UK. It will help reduce fraud and corruption in public procurement, create a level playing field for companies that abide by the rules, and boost the UK’s international reputation for integrity. The only people set to lose are the corrupt and fraudsters.

The Centre for the Study of Corruption: Oct 2020 News

It has been a busy summer for the CSC. In this post CSC Director Liz David-Barrett provides a brief round-up of our key activities over the last few months and a few things to look out for this term.

Research. The CSC faculty have seen a flurry of publications come out in recent months. Sam published articles on the Conservatives in the 2019 election, the transparency paradox in election regulation, and motivations for party membership. Shahrzad published a book chapter on Corruption, regulation and the law: the power not to prosecute under the UK Bribery Act 2010. Liz has a new paper on how efforts to curb corruption in aid spent through procurement might simply displace corruption to other areas, and a book chapter on regulating conflicts of interest. Roxana has a book chapter out on Corruption in the media. She chaired the Section on Corruption and Integrity at the ECPR general conference and also presented work regarding corruption standards in the time of COVID-19.

We have also been busy writing op-eds and blogging. Liljana published one piece on corruption, electoral funding and women’s participation in politics and another on gender quotas in Kosovo. Sam wrote about the need to regulate digital campaigning, foreign interference in elections, and business money in politics. Robert published a piece with Chatham House on the threat of Russia and China to the global anti-corruption framework and also analysed the merger  between the Foreign & Commonwealth Office and the Department for International Development for the IDS blog. Liz wrote about conflicts of interest in UK politics and how the ministerial code is flawed.

Dan and Robert submitted an ESRC bid about the impact of Brexit on corruption risks in the UK and should hear the outcome soon. Robert and Liz submitted a proposal for research on corruption risks arising from covid-19 but sadly were not successful…

Policy.  We made CSC submissions to the government’s consultation on Freeports, the Integrated Review and the UN’s consultation over the General Assembly’s Special Session on Corruption which takes place next year. All of these are on the CSC website. Sam submitted evidence to the Committee on Standards in Public Life ‘Review of electoral regulation’ in August and has been invited to participate in the review’s expert roundtable in October. He also published a report on Democracy in the Dark: digital campaigning in the 2019 General Election and Beyond for the Electoral Reform Society, which has already been mentioned in parliament!

We have been engaging a lot with the UK government. Robert gave informal advice to the FCDO on the DFID/FCO merger and to the PM’s Anti-Corruption Champion on the governance of corruption in the UK. He also sits on the UK government’s post-Brexit taskforce for revising the UK’s procurement legislation. Liz gave informal advice to the Joint Anti-Corruption Unit on corruption measurement, which is set to be a priority for Italy’s presidency of the G20 next year.

Looking further afield, Shahrzad is leading a project on Judicial Corruption in Afghanistan. Liljana is reviewing North Macedonia’s Open Government Action Plan 2018-2020 for the Open Government Partnership. Roxana is consulting on an EC funded project regarding corruption across Europe, as country expert for Romania. Liz has been working with the G20’s Anti-Corruption Working Group and UNODC to feed in results from research on law enforcement cooperation and public procurement.

Liz is also part of a team with Mihály Fazekas and other colleagues which is one of the finalists in the IMF Anti-Corruption Challenge. The Final is a virtual pitch event on October 7th at 15.15 (UK time). There will be several judges but viewers are also able to vote for their favourite project, so please do come along and support us!  

New students!

Talking of events, Irasema has kindly volunteered to set up a corruption club this term so that students can organise speakers and social events, and she is hoping to involve many of our fantastic new cohort of MA Corruption and Governance students. They are as usual from all over the world – including Burma, Burundi, Costa Rica, Cote d’Ivoire, Germany, South Africa, Spain, Trinidad and the UK – and seem like a great bunch with all kinds of interesting experience.