Cost Price and the Covid Contracts!
Posted on March 16, 2021
Someone asked me the other day what running a business ‘at cost’ means. I found that a bit odd at first but then I realised that unless you run a business (small or large) costs against sales would have little relevance to your life, particularly in vital public sector roles.
Running at Cost
Without teaching any of you how to suck eggs, it works like this. Basically, you have running costs and sales. So, at the end of the year, your accountant will calculate all your costs of running your little empire. This will include salaries, employer NI contributions, rent, phones, internet, materials etc.
If at the end of the financial year, these equate to say £300k, that is your costs. This is then set off against sales. If your sales also equal £300k, hey presto, you have operated your business at what it costs to run it. If your sales equate to £250k you have made a £50k loss. If you have made £350k of sales, congratulations, you have made a £50k profit.
If you are a legitimate business, you will pay corporation tax of 20% on that £50k. If you are a Tory Party donor, you will have a bank account in the Caymen Islands to hide your profits and you won’t pay corporation tax. That said, if you are only making £50k profit, you are of no interest to Tories and you won’t have the resources to hide your money in the same bank as a prince, a newspaper baron, or an MP.
Last night there was a programme on BBC One (Panorama) investigating some of the companies that were offered Covid-19, PPE contracts. They were all part of a government VIP channel that allowed them to apply (without competitive tender) for multi-million-pound resource and delivery contracts.
You didn’t have to have any experience in PPE, you just needed to be recommended by a member of the government. One lady who made a substantial sum, used her experience as a vendor of luxury dog food to get her contract. In a heart-warming way, someone (Matt Hancock, I think?) compared the efforts of these kind folk to those who utilised their ‘little boats’ during the Dunkirk rescue.
One might argue using Dunkirk as a comparison to making millions out of a pandemic is a tad disingenuous to those with the little boats, some who perished. However, Tories love a bit of emotive populism. What better than a bit off WWII rhetoric to get the masses all gushy with faux patriotism.
My point here is this. A good business that had Britain’s interests at heart, would have happily delivered PPE contracts at cost price. It would have been a noble thing to do in the middle of a crisis and as a bonus, a fantastic PR exercise to promote future business. Many businesses would have been grateful to cover their costs in a time of economic turbulence.
There is a fair argument that money had to be released quickly and I appreciate that. However, it would have been easy enough to issue contracts to established companies that were subject to due diligence after the crisis is over. If a company had taken more money than their eventual overheads equated to, they would have to pay it back. It would still be corruptible but not as corruptible as the allegation that the treasury was simply throwing money around along with a wink, a nudge, and a cheeky chortle.
The lack of transparency points to a government that has been involved in, at best, fiscal ineptitude, at worst, industrial scale corruption. In normal times this would be a scandal. In a health crisis that has taken the lives of 125,000 people, it is an appalling and traitorous dereliction of duty.
However, it must be okay, as they have lots of Union Jacks at their press conferences in the new £2.6 million media centre.
Watch Panorama by Clicking Here