Transparency in the private sector is likely to evolve gradually through law, politics and experiment

Transparency discussions invariably focus on the public sector, leaving a significant gap when it comes to the private contractors and companies. In this article, Ben Worthy explores the laws, regulations and technological innovations which are gradually increasing transparency in the private sector.

Credit: Peter Alfred Hess, CC BY 2.0

The focus of transparency is almost always on government and public bodies. However, over the past ten years, often outside of the headlines, a growing collection of laws, regulations and technological innovations have gradually shone a light on the private sector too. So what can we know and how far does it go?

Freedom of Information

One of the principle legal routes to accessing information about private bodies is the FOI Act, at least for those companies working on behalf of public bodies. Although it remains a‘complex’ legal grey area, an FOI can obtain information material ‘held by a private company “on behalf of” a public authority with which it has a contract’. Public sector contracts in the UK are currently worth around £93 billion per year according to the Information Commissioner’s Office (ICO).

Section 5 of the Act also allows government to extend the law to actually cover companies within the scope of the Act itself, something the Public Accounts Committee has urged use of in the past. The last Labour government gave some thought to it in a rather long running consultation between 2007 and 2009. This led to some minor extension to cover the Association of Chief Police Officers [now called the National Police Chiefs’ Council] and exam bodies. The Coalition and new government took a different approach. Rather than extending the Act under section 5, they have championed the use of new FOI clauses in public sector contracts. It’s not exactly clear how far this is working.

The Scottish government has also consulted on extending its separate FOISA legislation in 2009, and in 2013 local trusts involved in leisure activities were covered. This year they have had a new consultation looking into whether other bodies such as private prisons can now come under FOISA (though this did not include Housing Associations as some hoped).

Alongside government attempts there has been some gradual natural ‘creeping’ outwards of FOI. Network Rail became subject to the Act in March 2015 (see some requests here) and new bodies such as the UK’s Police and Crime Commissioners are also covered (though this report was ‘deeply’ worried about how transparent they were – see page 11-12). The Police Federation is now set to follow. More significant than this ‘creep’ is the influence of decisions from appeal bodies and the courts. An important legal ruling in Fish Legal v Information Commissioner and others [2015] over FOI’s sister Environmental Information Regulations appeared to extend the law to water companies -and this may potentially include other utilities too.

The issue of extension remains a political one. All the major parties remain, at least in principle, supportive of pushing FOI further. The new Labour leadership has also committed [or actually re-committed] itself to extending the Act to private bodies doing public work as well as closing up ‘gaps’ in coverage caused by education and health reform.

Polling by the Scottish Information Commissioner showed that this is a policy that definitely gets the support of the public. A full 76% of Scots asked felt private prisons should be covered with 79% believing that housing associations should be as well. A UK tracker found that 75% of respondents saw extension as an ‘important’ issue and the Information Commissioner has recently offered a range of options to fill the ‘transparency gap’ caused by outsourcing.

Other Laws

It’s not only FOI. A succession of other laws has opened up different parts of the private sector. One recent headline grabbing reform, launched by the Prime Minister in 2013, has been the promise to create a Beneficial Ownership Register under the Small Business and Enterprise Act 2015. What this means is that as of April 2016 Companies House will publish, as Open Data, a list of the ‘Person[s] With Significant Control’ of all UK registered companies. Another eye catching reform has been over Extractives Transparency covering companies involved in natural mineral extraction such as oil or gas. The transposing of EU laws and joining of the International EITI network (see this paper) means all UK registered companies involved in this area will report tax payments, licences and contracts as of next year. Similar small pieces of transparency can be found across many other new laws and regulations. The recent Consumer Rights Act 2015, for example, ‘imposes a duty on letting agents to publish their fees and other information’.

The government has also pushed British dependencies and overseas territories to follow suit and publish Beneficial Ownership information. David Cameron sent a letter in 2014 on the subject to various tax havens. Although Grant Schapps appeared a little cooler on it during a visit to the Caymans, Cameron then pushed the issue again recently in Jamaica as did the new anti-corruption champion Eric Pickles, who appeared to threaten legislation.

Technology

Alongside legal mechanisms, there has been a growing use of online tools to open up companies. The government recently rebooted its Contracts Finder site that details its tenders and contracts with the private sector while other innovators, such as spendnetwork, have created new apps.

There have also been specific ‘transparency’ pushes after problems or controversies. This year David Cameron committed to publish data on property ownership following claims of large amounts of ‘dirty money’ swilling around the London property market and promised new data on gender pay gaps in all companies employing over 250 workers (this one is a bit of a sleight of hand as it was mandatory under the Equalities Act 2010 but was never implemented). These moves, as Jo Bates points out, may have all sorts of political implications. Nor is it clear what effect they may have. Despite hopes publishing salaries online will help lower inflated pay packets evidence indicates that disclosure makes them go up rather than down.

The Politics of Private Sector Transparency

Opening up is often piecemeal. Any politician pushing for any large scale opening up, such as using section 5 of the FOI Act, faces three main problems.

First, there is a potential reluctance to publish and it may be a struggle to get companies to cooperate. Our study of FOI and local government found that most companies do comply with FOI requests. However, any sceptical business can argue it is (i) unnecessary as so much information is published anyway (ii) a costly burden – see this analysis here.

Second, added to this may be the complexity of any change that will take time and energy. Any large scale opening up only works with international cooperation. So, for example, UK Beneficial Ownership is slightly stymied by the fact that the EU equivalent will only be partially open. The devil, as someone warned of extractives, is in the detail.

Third, given these problems there needs to be a lot of political will, energy and attention to follow through. Any politician or party pushing large scale openness needs either a very good reason or very strong principles. Most likely it will only happen when there is a very obvious problem to solve or a very obvious political benefit (or both if possible).

What Next?

Accident and change will open up different areas. Legal changes, designations or rulings will continually shift the boundaries. Network Rail was re-designated for accounting purposes and FOI coverage was, in that sense, a ‘side product’. The laws in place will already keep opening up new areas through use and Martin Rosenbaum has shown how FOI has opened up not just MPs’ expenses but also restaurant hygiene ratings and MOT tests.

It is often pushed by scandal or concern in a specific area such as over tax avoidance (Beneficial Ownership), gender pay or corruption. It was the poor performance of G4S, for example, that led to recent calls to extend the FOI Act.

Finally, experimentation with open data and technology may move openness across the private sector. Chris Taggart, designer of Open Corporates, has created a prototype site

Who Controls It? to use the new Beneficial Ownership data. As he points out, apps and websites alone won’t bring change but benefits may ‘be revealed when the beneficial ownership data is combined with other datasets, including government procurement, licences, environmental citations, and other public data.’

It’s unlikely there will be a clear ‘big’ opening up of the private sector comparable to FOI across government. It will problem happen, as many things do, gradually, through a mixture of accident, law, politics and experiment.

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To find out more you can read the full IRM report of the UK’s Open Government Partnership commitments here see especially commitments 7 (Beneficial Ownership), 12 (Contracts) and 21 (Extractives).

This post originally appeared on the Open Data Study website under the title ‘Opening Up The Private Sector‘. It represents the views of the authors and not those of Democratic Audit or the LSE. Please read our comments policy before posting.

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Ben Worthy is a Lecturer in Politics based at Birkbeck College, University of London. As well as Political Leadership his specialisms include Government Transparency and British Politics. He is co-designer of the Measuring Leadership blog