Definitely not The Economist

Not even an economist – I could never really handle all the hand-waving.  (Mathematicians will recognise this as a deadly insult, the rest of you will have to take my word for it).

There has been a lot of ill-informed discussion about large corporations (mostly hailing from one of our less successful ex-colonies) not contributing their fair share of tax to the UK exchequer in the media of late.  Never one to avoid a band-wagon – even well after it has passed – I figured it was time to jump on.

Much of the previous discussion has focused on the disparity between turnover in the UK and tax paid.  As I’m fairly sure I’ve mentioned before, turnover is no guarantee of profit – just look at Comet or all the banks we’ve been required to bail out: plenty of turnover, but not much sign of an elusive profit.

If we assume a profit has really been made – something of which these tax-shy corporations have presumably managed to convince their shareholders – then there are quite sensible reasons for a foreign domiciled company to try and avoid tax in the UK.  Tax treaties between countries are generally fairly poor (as both tax authorities want the money) and so unless they are careful, companies can end up being taxed on the same profit twice (something they are understandably keen to avoid).  Unfortunately, a company based in country (US)A and operating in country (G)B having discovered how to avoid corporation tax in B can use much the same bunch of tricks to avoid paying tax in A.  Rather a classic prisoners’ dilemma – by both tax authorities trying to keep all the money, both in fact receive almost none.

Still, all is not lost – these companies do buy stuff (some of it might even be sourced in the UK) and will have to pay VAT on some of this, they also pay business rates and employ staff.  These staff will have to pay income tax and NI (well, those well enough paid to owe tax and too poorly paid to avoid it) and, should they be foolish enough to spend any of their salary, will also pay VAT and a range of other duties enriching UK plc.

So, how does this balance out I wondered?  Sadly, numbers are hard to come by without a large team of spies and statisticians – so I shall resort to a qualitative look at a couple of the case studies.

Starbucks saw the early brunt of outrage.  They entered the UK by buying an existing and rapidly-expanding chain of coffee shops: the Seattle Coffee Company.  I will assume that SCC paid normal UK corporation tax as it operated in the UK alone – so UK plc has lost all of this revenue.  SCC also provided all the other revenue advantages of Starbucks to UK plc, albiet in a rather smaller scale,  Such has been the growth of Starbucks that you are now (on average) closer to a purveyor of mediocre, over-priced coffee than you are to a rat.  The big question is: if Starbucks had not come to these shores, would all these coffee shops be empty and their staff unemployed or would other coffee vendors or better still, for the non-coffee drinker (such as myself), something more useful have taken their place?  This is a hard question to answer, but on balance I suspect Starbucks presence on these shores has not been a net benefit to the UK exchequer – so I shall continue my quest to buy hot chocolate and cake from independent coffee shops (the Indigo Cafe is my preferred venue in Cambridge) and leave Starbucks to wither on the vine.  Admittedly, whilst I have had some great chocolate and cake, Starbucks is withering quite slowly despite my endeavours.  I must redouble my efforts – it won’t be easy forcing myself to eat more cake, but George Osborne is depending on me!

Amazon is another whipping boy.  To the best of my knowledge, they did not enter the UK by taking over another business – so no corporation tax lost there.  On the negative side of the ledger, they have been one of the primary reason for the loss of bookshops, record shops and the like from our high streets.  That seems like quite a major loss of corporation tax and I have a nasty feeling that Amazon employ an awful lot fewer people than the businesses they have displaced.  They may well shift a lot more product, but until very recently a lot of this avoided VAT by using a tax loophole relating the the Channel Islands.  I rather fear Amazon has had a very negative effect on revenues for UK plc – and so my use of a Kindle and Lovefilm is looking ethically rather dodgy (I don’t buy anything physical from them, I stopped when they ceased using the Post Office for deliveries).  Sadly, ethical alternatives are hard to find, but at least Lovefilm does give the Post Office some business.

When I was in Edinburgh, I had a few minutes to kill and wandered round Blackwells: I’d forgotten the joy of wandering round a bookshop and the serendipitous finding of interesting new books; whilst Amazon recommends stuff, it is utterly useless in this regard.  I have resolved to spend more time in bookshops and to buy books there.  Yes, I know, I’m almost too selfless…

This has not been a terrifically scientific survey of the tax issue, but I think I shall try and use smaller, UK-based business for my spending needs (or, more honestly, wants) in future wherever I can.  It also leads to a more interesting life away from the corporate uniformity that seems to dominate in so many places.  Feel free to join me!

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One thought on “Definitely not The Economist

  1. Mark says:

    Amazon further compound the problem by using some rather dodgy employment practices. Most of their warehouse staff are low paid agency workers, so I suspect that their NI and income tax contributions are minimal. They can also be ‘let go’ (and admittedly taken on) at the drop of a hat to allow Amazon to flex their workforce in line with demand.

    And don’t get me started on how they treat staff… Personally I have come across workers who have been prohibited from taking their diabetic medicines down on to the shop floor with them, resulting in those employees struggling to control their blood sugar levels. And the employees are too afraid to complain as in these difficult economic times, jobs aren’t so easy to come by and they tend to know just how easily they can be replaced.

    Add to that the decimation of the high street and all told you have a company that makes me very angry!

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