Calls to scrap VAT exemption which means MPs ‘are not required to be transparent or accountable on lobbying’

Photo: Kim Mogg/NationalWorld
The VAT exemption has been widely criticised as a mean for ‘powerful people’ to avoid transparency and scrutiny

Transparency campaigners and public affairs bodies have called for changes to the Lobbying Act, over concerns that a VAT exemption does not require MPs to declare some lobbying activity.

The Office for the Registrar of Consultant Lobbyists (ORCL), which is tasked with monitoring paid lobbying activity, found that four Conservative MPs had not conducted unregistered consultant lobbying activity.

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The decision was based on unequivocal and complete written assurances, that they were not registered for VAT. Under the Transparency of Lobbying, Non-Party Campaigning and Trade Union Administration Act 2014, registration under the Value Added Tax Act 1994 is one of three conditions that define consultant lobbying.

The registrar has previously said that the VAT exemption should be removed “if the policy intention behind the Act is transparency of lobbying,” while the UK’s main public relations body has also called for it to be scrapped.

A select committee review of the legislation, which could recommend changing the VAT exemption, has been on hold for months because of government delay, with the committee chair describing the hold-up as “unacceptable”.

Four MPs investigated by lobbying watchdog

Bim Afolami, Laurence Robertson, Philip Davies and Dr Liam Fox have all been approached by the Office for the Registrar of Consultant Lobbyists (ORCL) in recent months about potential unregistered lobbying activities but all were found to have followed the rules. .

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MPs answered questions about their work, but also said the payments were made to non-VAT registered bodies, exempting them from the requirement to register.

Lobbying is the act of trying to influence government in some way, though generally the term refers to paid lobbying. This can be done by private individuals, campaigners, businesses and charities, but there are also specialist organisations set up to lobby on behalf of companies or a specific sector which are paid for their services - generally these are referred to as consultant lobbyists.

Consultant lobbyists are required to register with the ORCL and provide a list of their paid lobbying clients in each quarter. If a registered consultant lobbyist does not comply with the legislation they can face civil and criminal penalties.

The Transparency of Lobbying, Non-Party Campaigning and Trade Union Administration Act 2014 defines consultant lobbying as making written or verbal communications to ministers or senior civil servants on behalf of another person or persons, in the course of business and in return for payment, about policy, legislation, contracts or any other function of government.

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However, the Act also states that, in order to be technically classed as a consultant lobbyist, the person or organisation must be registered under the Value Added Tax (VAT) Act 1994.

MPs are prohibited from carrying out paid lobbying or advocacy, but the line between paid lobbying on behalf of private companies or individuals and the work of being an MP can sometimes be blurred.

This blurring, and the VAT exemption, means that while an MP may be doing things that would meet a general definition of paid lobbying - such as writing to ministers, speaking out in debates or meeting with officials to discuss a certain issue, having been paid - if they do not pay VAT they cannot technically be labelled a consultant lobbyist as per the definition set out in the legislation.

Rose Whiffen, Senior Research Officer at Transparency International UK, said: “When designing lobbying laws, it’s important to be proportionate so you catch significant activity without imposing undue burdens.

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“The VAT exemption for registering as a consultant lobbyist is a loophole that allows important individuals to avoid transparency and accountability. We hope that PACAC consider this issue carefully in their ongoing inquiry of the Lobbying Act.”

Registrar beleives VAT exemption should be scrapped

While designed to reduce unnecessary restrictions on small businesses and campaigners who may occasionally lobby the government, MPs and even the registrar have previously raised concerns about the VAT exemption’s impact on transparency.

In November, the current head of the lobbying watchdog was asked by MPs on the Public Administration and Constitutional Affairs Committee (PACAC) whether he believed the VAT exemption should be removed.

Harry Rich, registrar at ORCL, said: “If the policy intention behind the Act is transparency of lobbying, then yes. It is a very crude way of achieving a policy aim. It might be quite reasonable from a policy perspective to have a limit of some sort… but I do not think the VAT threshold is a sensible way of doing it.”

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The Chartered Institute of Public Relations (CIPR) has also spoken out against the VAT exemption, writing in a submission to PACAC that it is “unacceptable that those individuals and organisations/businesses which are not VAT registrable are exempt from the current ORCL registration process”.

Jon Gerlis, head of public relations and policy at CIPR, told NationalWorld that the VAT exemption is a “tried and tested loophole,” which can be  used as a “trump card” to avoid transparency.

“The idea behind the VAT exemption was to encourage organisations of all shapes and sizes to engage in lobbying, to ensure freelancers and small agencies were able to engage without being overly burdened by registration. But I don’t think that argument works - no one we speak to feels that ORCL is overly burdensome.

Gerlis said there is a case for MPs in particular to be subject to greater transparency. He said the VAT exemption is “a significant loophole, because MPs shouldn’t be providing those services”.

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“When you’ve got that trump card of ‘I don’t pay VAT therefore I can’t register,’ it clearly shows it isn’t fit for purpose.”

He also warned that some companies may be intentionally using the loophole to avoid scrutiny, by hiring freelancers or even MPs which they know do not pay VAT, or by structuring payments across two financial years to intentionally circumvent the VAT threshold.

PACAC has had to pause an ongoing inquiry into the Transparency and Lobbying Act which was requested by the government in 2021. After reaching out to ministers in January for guidance on what form their final report on the legislation should take, the committee has still not received a response.

Committee chair William Wragg wrote to Oliver Dowden, Chancellor of the Duchy of Lancaster, in March, to say it was “unacceptable that the Government has failed to produce the required memorandum despite nearly two years elapsing”.

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He wrote: “The government’s delays in this space are not only preventing the Committee from carrying out effective scrutiny work, but they are also undermining public confidence in the Government’s willingness to fulfil its commitments to Parliament.”

A PACAC spokesperson told NationalWorld that, as the inquiry is ongoing, they would not be able to comment on calls for the VAT exemption to be scrapped. They also said: “The Government asked the Public Administration and Constitutional Affairs Committee to conduct post-legislative scrutiny of the Lobbying Act in order to learn the lessons from the Greensill scandal.

“As part of the post-legislative scrutiny process, the Government should conduct its own review of the Act and provide the Committee with a memorandum. The Committee has agreed to pause its inquiry until it receives that memorandum from the Government.”

Bim Afolami, Laurence Robertson, Dr Liam Fox and Philip Davies have all been contacted for comment on this article.

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