The European commission announced plans to overhaul the way tax is calculated in the EU last week. It is yet another well-intentioned effort to rein in a poisonous tax avoidance culture that lurks beneath the cloak of “corporate social responsibility”, the non-stick wrapper in which the world’s largest multinationals envelop themselves.
Yes, the usual suspects from the US technology industry are in the firing line – Google, Amazon and Apple – but they are not alone. So prevalent is aggressive tax planning among the corporate top flight that, privately, many concede the alternative would be commercial suicide. Avoidance has become the rule, not the exception.
Tax advisers from big accountancy firms like to suggest that corporations have woken up, of late, to public indignation and are phasing out their worst excesses. That is rot. The real response from big business is a mighty behind-the-scenes lobbying push to protect tax advantages and prevent major economies from co-ordinating effective reforms.
Policymakers, however, insist they are resolute: there is a problem that must now be fixed. The European commission, the EU’s executive arm, says: “The current rules for corporate taxation no longer fit the modern context … As corporate tax planning has become more sophisticated and competitive forces between member states have increased, the tools for ensuring fair tax competition within the EU have reached their limits.”
So broken are current tax rules for multinationals – set out in thousands of bewildering bilateral tax treaties – that the Organisation for Economic Co-operation and Development warns of “global tax chaos” if there is not urgent and coordinated reform.
From the corporate side, Sir Martin Sorrell, chief executive of advertising group WPP, encapsulated the issue two years ago. He suggested payment of corporation tax was “a question of judgment”, a matter of how a company wished to present its “corporate social responsibility”. Few others – in Europe at least – dare be so candid.
His remarks carry particular resonance because WPP had been one of a handful of FTSE 350 firms that sparked panic among UK policymakers in 2008 by shifting their headquarters abroad as a direct challenge to Labour plans to tighten tax rules for UK multinationals, especially those with large internal loan or intellectual property assets parked in offshore subsidiaries.
Together, the corporate lobby did enough to terrify the UK government. That crackdown attempt was ditched, and indeed, in 2011, a far more generous arrangement was installed in its place by the Tory-led coalition. WPP promptly returned its headquarters to the UK, heaping praise on a government that had come to its senses.
Chancellor George Osborne drew a simple lesson. “I want Britain to be the place international businesses go to,” he said at the time. “Not the place they leave.” And his success cannot be denied. To these shores have come the headquarters of insurance broker Aon, Fiat Industrial, General Electric’s oil and gas business, Starbucks Europe and legions more. A wave of patent-owning companies have been lured by tax breaks that have sparked anger in other countries.
What chance, then, for the European commission’s harmonising tax proposals? The answer from the UK treasury was quick and emphatic: none. David Gauke, the minister responsible for tax policy, made it clear: where it has to choose, Britain prefers tax competition to policy coordination.
And why would it not? Compared with the rest of Europe at least, the UK is doing very well of late, thanks in large part to the supercharged generosity of its corporate tax policies. Trebles all round ...
Or not. Osborne’s true colours are beginning to show on the international stage. It may not be long before the rest of the world decides that the UK – like Ireland, Luxembourg and the Netherlands – is more a part of the problem than of the solution.
Will BT’s rivals be run off the digital motorway?
So, we learn, BT wants to build a digital motorway. During an event held at the top of the BT Tower last week, the group launched a campaign to persuade regulators to wave through its £12.5bn acquisition of mobile operator EE. The combined group will be UK number one in mobile and consumer broadband, and Europe’s biggest telecoms wholesaler. BT, which has also taken on Sky in sports broadcasting, is dreaming big.
Its competitors, including TalkTalk and Vodafone, are worried. They say prices will rise both for consumers and for businesses like theirs, which piggyback on the BT network. They want BT Openreach, the division that builds and maintains miles of copper and fibre-optic cables, and thousands of exchanges and green street cabinets, spun off as a separate company, so that all providers can use BT infrastructure on an equal basis.
EE chief executive Olaf Swantee, who joined BT boss Gavin Patterson at last week’s press conference, called the demands self-serving and of no help to consumers: “These competitors only want to put up roadblocks, while we want to build motorways for the UK.”
The fear is that chopping BT in two would deprive the UK of the investment it needs to keep up with the global digital economy. Two regulators must decide. The Competition and Markets Authority will be responsible for approving the merger; communications watchdog Ofcom is reviewing the UK telecoms market and will decide if the BT network must be spun off.
So would splitting BT benefit Britain? It’s hard to say without understanding how something like a National Grid operator for broadband would be regulated, owned and incentivised. But rural areas are crying out for faster internet. In city centres, council estates and newbuild flats have been left out of BT’s superfast broadband rollout, along with half of small businesses. Britain’s digital motorway is only half-built, and these are the problems any regulatory intervention must solve.
Goodbye bogofs, hello Waitrose
Waitrose boss Mark Price hailed it as a “ground-breaking move” and, for once, the standard supermarket hyperbole may be justified. The chain’s new “pick your own offers” scheme is different. Shoppers get a 20% discount every time they buy any of 10 products they select from a list of 950. They do have the hassle of setting up their choices online, but the whiff of saved money will be strong. And the appeal of the scheme is its simplicity, eliminating the need to hoard coupons.
Supermarkets have been talking for years about getting off a promotional treadmill that annoys more customers than it pleases. The Waitrose solution hands power to the shopper. The true tests will be take-up rates and whether the company can afford to keep the scheme going (it thinks it will cost £5m a week). But one suspects rivals will already be looking to copy it.
