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Witch-hunt against corporate tax dodgers can damage jobs, as well as brands

December 3, 2012

StarbucksThere’s a grave danger that the witch-hunt against global brands who fail to pay their “fair share” of UK corporation tax will boomerang on the political class that has instigated it.

Google, Amazon and Starbucks have been chief whipping boys in an excoriating grilling by the powerful parliamentary Public Accounts Committee, headed by former Labour government minister Margaret Hodge. They are but the frontline of a phalanx of household multinational names – eBay, Facebook and Ikea prominent in the second rank – which are being prepped for humiliation in the court of public opinion. And behind the PAC’s bullying is a fully complicit Treasury – its head, George Osborne, desperately aware that falling corporation tax is contributing to the ruin of his re-election strategy.

Of course, what these brands are up to is hardly ethically defensible. To quote but a few examples, and bearing in mind that UK corporation tax on larger companies is currently levied at 24% of profits: Google claims to have a global profit margin of 33%, but its UK unit paid only £3.4m in tax last year; Starbucks paid just £8.6m on 13-year UK turnover of £3.1bn; Amazon’s UK tax bill last year was £1.8m on reported sales of £207m; and in 2010 eBay paid £1.2m in tax on UK sales of £800m.

Not the stuff of sincere corporate citizenry, and – consumer brands being peculiarly vulnerable to criticism – these companies are deservedly squirming as the rock is lifted from their unedifying activities.

But because we don’t like their behaviour that doesn’t make it illegal. Tax avoidance is something we would all get up to, if we had an army of tax accountants at our disposal. And maximising profits is one of the fundamental tenets of capitalism, as germane to the micro-entrepreneur as the multinational corporation. What hurts is the unfairness of it all. We small folk must contend with HMRC harassment, escalating fines and a brutal bailiff when we don’t pay our tax bills; big corporations, by contrast, merely cut a highly advantageous deal with the UK tax authorities who, to all appearances, are sycophantically grateful for anything they are given.

Margaret HodgeSo, what politicians are doing here is stoking the politics of envy: pitting the grievance of the many against the privilege of the few. It’s an easy populist game to play and amounts to a form of blackmail. You, Amazon, Starbucks et al, pay up or we will whip up a consumer boycott against you. Already, Osborne’s deputy, Danny Alexander, is “abstaining” from Starbucks coffee (although, in fact, admitting to only drinking tea) and Hodge (above) has knocked Amazon off her Christmas shopping list. How they’re going to hit Google in the googlies I’m not too sure, but the elements of a national campaign are there. Starbucks, for one, is already buckling and (in the words of the inevitable headline) waking up and smelling the coffee.

But wait. Enormously satisfying though this condign corporate punishment may be, could it not become a little, well, counter-productive if the trend really takes wing? Corporation tax, even if levied at the notional statutory level, makes – or would make – a fairly small contribution to the Exchequer when weighed against the other, less high-profile, benefits these companies bring to the national economy. Profitable companies create jobs, and the people who occupy these jobs pay income tax and national insurance contributions, which are of vastly greater importance as tax receipts. Though no economist, I’m tolerably certain that anyone who did the modelling would find that  “zero-tolerance” enforcement of higher-level corporation tax is inversely related to job creation.

As for stirring up a consumer boycott, it’s merely killing the goose that lays the golden egg. Politicians, have a care.

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Small-minded policy sets agenda for Big Society demands on advertising industry

November 10, 2010

No one could make it up. You’re a new government pledged to introduce sweeping efficiencies to the way Whitehall is run. One of your first moves is to seek out an experienced taskforce leader universally admired for his managerial track-record. Instead, you pick Ian Watmore – a technocrat whose most recent achievement has been an inglorious stint as ceo of the Football Association (itself probably the most dysfunctional governing body known to man). And, just to rub everyone’s nose in it – especially the many about to receive their P45s – you award him a prime minister’s salary of £142,500.

Watmore is in day-to-day charge of the Cabinet Office’s Efficiency and Reform Unit, and works closely with Cabinet Office Minister Francis Maude and Treasury minister Danny Alexander to ensure there is a coordinated approach to tackling waste in government departments. This week it launched its plans for (inter alia) a new model government advertising programme that will involve  a “payment by results model, using government channels, and a US-style Ad Council”.

Perhaps because the wording is cryptic to the point of ambiguity, there is enough there to offend just about anyone who might be instrumental in making the policy succeed. Payment by results, for example, could well be code for no fee upfront to any agency involved in government marcoms; at very least it suggests arduous negotiation over how best to evaluate the tricky issue of behavioural change.

Then again, what exactly are “government channels”, and what sort of substitute are they for the commercial media they must to some extent supplant? The merest suggestion that the BBC is a “government channel” would provoke a furious debate over its independence. ITV wouldn’t be too chuffed either, at the prospect of all that lost revenue. But if not the BBC, then what else could this mysterious phrase encompass? Hospital and doctors’ waiting rooms, perhaps – although they’re not exactly the backbone of a national media strategy.

But the pièce de resistance is surely the “Ad Council” idea, which shows a frightening naivety about the very nature of advertising. If the Council is supposed to be a low-cost replacement vehicle for the Central Office of Information, then Watmore and his ministerial chums should think again. Something which was set up in 1941 in the heated aftermath of Pearl Harbour (highlight: the Smokey Bear campaign, devised to alert Americans to the dangers of the Japanese deliberately starting forest fires by shelling the US coastline) is hardly an appropriate model for today’s more sophisticated communications needs. The Ad Council lingers on, but as a charity not a government body – still less one that delivers government advertising.

Industry reaction to the proposals has been a barely suppressed anger. And for several good reasons. First, although the government is making great play of consulting the industry, the feeling is that this consultation is merely lip-service; the reality is an ideological blueprint being imposed from above, to which industry must accede. Secondly, there is exasperation at the idea of the advertising and communications business being expected to subsidise government messages; isn’t it doing enough already with such initiatives as Business4Life and “Why let good times go bad”? Thirdly, there is concern that the government’s Big Ask will suck the life out of genuine pro bono work for charities – performed by agencies already teetering on the edge of compassion-fatigue.

UPDATE 2/12/10. Someone seems to have persuaded Francis Maude that abolishing the COI and substituting a pro-bono US-style Ad Council would be a daft idea. At any rate, the rhetoric has been toned down. There’s no more talk of ‘abolition’, simply scaling down its operations and where possible devolving them to industry partnerships.


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