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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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Rail crash? You wait until they try to auction the 4G mobile phone spectrum

October 4, 2012

Business groups have launched  a scathing attack on the Government over the 4G spectrum auction and say it has revealed serious problems at the heart of public sector procurement. Simon Walker, director general of the Institute of Directors, expressed a typical view: “It is shocking that such a crucially important process has gone so seriously wrong. Businesses need a stable, reliable telecoms network and certainty in the provision of key infrastructure.” “Procurement mistakes increase risks for companies, threaten jobs and harm Britain’s reputation as a destination for inward investment,” added Adam Marshall, policy director of the British Chambers of Commerce.

Just joking. I’m sure Messrs Walker and Marshall will forgive me for quoting them out of context this once; after all, I’m investing them with seer-like prescience. Their cited words are real, but in fact relate to the very clear and present danger of the West Coast Main Line rail fiasco. The fallout from that will be a moon-cast shadow compared to what will happen if HMG manages to screw up the mobile phone spectrum in the same way it has screwed up our railway network.

As it happens, there has been some relatively good news on the 4G front recently. Maria Miller, the obscure former Grey advertising and PR executive recently catapulted to culture, media and sports secretary, has made a brisk start to her tenure by bringing forward the inexplicably delayed auction date of 4G spectrum to January and cutting through the legal wrangling among telecoms carriers which has deadlocked the introduction of the new, much faster, mobile phone standard to the UK.

But will her timely action be enough to avert a looming disaster? First, a little background. 4G is not some minor incremental improvement on the current standard, 3G. It can offer speeds of up to ten times that of the average current home broadband service. Data-hungry yoof, but more importantly business people and commuters, will love it. Miller herself observes that its introduction is “a key part of economic growth strategy” and will “boost the UK’s economy by around £2-3bn” (growth at last – the stuff that George Osborne’s political dreams are made of). America’s already got it, Apple’s got it, Germany’s got it, Korea’s got it. For God’s sake, Estonia’s got it. Britain, which prides itself on being at the heart of the digital revolution, has not. Why not? Because of years of government dithering over the auction structure. Gordon Brown made a bit of an idiot of himself by appearing to hand out the lucrative 3G spectrum to the telecoms carriers for a song. Successive administrations since have been determined not to make the same mistake twice, but seem uncertain how to prevent it.

Now events have caught up with them. The situation is complex, but distils down to a simple reality. Apple has launched its latest ‘must-have’ iPhone with a 4G capability that no one in the UK will be able to take advantage of in the near future. Well, almost no one. The exception: those who use EE, as of October 30th. Er, let me qualify that. No, not all users of Orange and T-Mobile, the brands which have had all their resources pooled into the Everything Everywhere receptacle (or EE, as it is now known – what a whoopee cushion of a brand name). EE itself has the exclusive iPhone 5 franchise, and only new subscribers, not old customers, will benefit from the 4G offering. Everyone else – that is, the vast majority of UK mobile phone users – will have to wait at least 8 months to subscribe.

It may well be objected that what gives the EE brand a timely ‘digital’ lift is actually brand suicide for the company’s premier and better known brand, Orange. But that’s one for UK chief executive Olaf Swantee and his strategy team to worry about. In the meantime, they can congratulate themselves on having – unlike their competitors – farmed existing spectrum to make space for the 4G platform. A merry Christmas is assured, thanks to the exclusivity of their iPhone 5 4G contract.

Once EE’s rivals, O2, Vodafone and Three, realised what Swantee was up to, cries of  “Unfair” and “Unlevel Playing Field” were heard to rend the air. EE had played the ant in Aesop’s fable, and harvested its existing resources wisely, but the grasshoppers were beside themselves with rage that they would have to wait another six months to grab their share of the new spectrum via a dilatory government auction – and then some before the service could actually be implemented. What’s more, they were prepared to act decisively: they threatened to blunt EE’s leading edge with legal action. That might have been explicable in terms of competitive advantage and buying extra time to build the necessary 4G infrastructure. But as a prelude to launching the 4G standard in the UK, it would have created a public relations disaster. How do you explain to an iPhone-crazy public that access to much higher broadband speeds is being blocked by red-tape, selfish industry interest and legal chicanery?

Miller has therefore done well to defuse the legal wrangling by agreeing to bring forward the spectrum auction date 6 months to the end of January. But implementation of the 4G dream is still a long, long, way away for most of us punters – we’re talking at least the latter end of next year. In the meantime, all sorts of teething problems will need to be sorted out: poor signal distribution, patchy network coverage, a quite possibly incompetent auction process that leads to further legal action and, let’s not forget, potentially incompatible 4G phones.

“Wrong spectrum”. We’re going to be hearing a lot of that in the next 12 months, while the phone companies sort themselves out. If my mobile phone contract were coming up for renewal (which it is not), I would be very tempted to let it ride until at least the beginning of 2014 …


Let’s Raisa stirrup-cup to David Cameron’s poor personal judgement

March 5, 2012

The time has come to fess up to my role in Horsegate. I have ridden a horse since 2010, and more than several times too. It would be a surprise if I hadn’t, you see, because I own one.

Well, two …er, three now I come to think of it, but that was an accident that last one. Yes, I know, inexcusable isn’t it? Also, I’ve ridden to hounds – but long, long ago. Just after the 2005 Hunting Act came in, actually. Not of course that any fox was involved, just a smelly old rag impregnated with urine. Oh, and no more than two dogs …

Did I mention my connection with the Metropolitan Police? Another lapse on my part. It’s all my farrier’s fault really. Until recently, he worked full time for the Met, and he used to shoe Raisa, the police horse that has caused poor Mr Cameron so much trouble with his increasingly defective memory. A bit of a beast, apparently. No end of trouble to shoe, ever since that unfortunate stint with the Riot Squad which made her virtually unrideable. You couldn’t even clench a shoe-iron without the mare rearing uncontrollably.

No, let’s get a grip. I made that last bit up. Just like Mr Cameron’s advisers – starting with the late, unlamented Andy Coulson –  who have constructed a tissue of half-truths and lies around Dave’s not-very-secret interest in horses, the company he kept with race-horse trainer Charlie Brooks and with Brooks’, er, dear wife, the ever lovely Rebekah.

Oh! What a tangled web we weave, When first we practise to deceive!

And for what purpose? Ex-plod horse Raisa, now sadly deceased, is of course Cameron’s worst political nightmare incarnate. What could more emblematically sum up Flame-haired Medusa, News International, Andy Coulson, phone-hacking, Rupert Murdoch, police corruption, political favouritism and poor personal judgement in just one word?

Yet, in a way, that’s not the worst of it.

Never mind that Charlie Brooks took the near-useless nag on at personal cost and out of compassion, to save her from the knacker’s yard. To the uninitiated – that is, to most of Cameron’s voters, urban-dwellers who may never have encountered a real horse in their lives – it looks like yet more upper-class horse-trading.

Never mind that most horse-owners (in my experience at any rate) appear to live in an economic twilight zone where they can barely afford to keep themselves, let alone what’s in the yard – the horse in this country is an inescapable symbol of poshness and privilege.

And poshness and privilege being unforgivable electoral sins, Dave and his Lord Snooty chum George Osborne have, not without cause, a deep psephological neurosis about them.

Remember that undertaking Cameron made to hold a free vote on fox-hunting in this parliament? No, he can’t either. Another lamentable example of his fading memory.


Sorrell’s slap on the back for George Osborne

March 24, 2011

What a felicitous endorsement. Chancellor of the Exchequer George Osborne had no sooner erected his “Open for Business” sign than in stepped his first customer: none other than Sir Martin Sorrell, chief executive of the world’s largest marketing services company, WPP. Where Sir Martin treads, other multinationals will follow in droves – or so Osborne piously hopes. It’s the crystal in the copper sulphate solution, the grit in the oyster – the first serious step towards reflating the economy, just in time for the next General Election in 4 years’ time.

So why has Sir Martin become one of George’s best buddies, exactly? Corporation tax: the salivating prospect of paying a lot less of it. In political circles, it’s a matter of some national embarrassment that one of Britain’s biggest and most successful companies isn’t British at all, any more. Since 2008 it’s been Irish. And all because Dublin has been warm and inviting, with the most enticing corporate tax regime in Europe; while Britain’s had become one of the most hostile, with increasingly uncompetitive tax rates and, more ominously, a piratical approach to profits earned outside our territorial waters.

But no longer. Thanks to the Budget, all that onerous tax is a thing of the past. Rates will come down by 5% in 4 years to 23%, making Britain once more the cheapest place to do business in Europe. And Osborne has simultaneously promised to reform those punitive overseas levies as well. A cagey Sir Martin says he’ll wait to see the legislation enacted, but we can be pretty certain – judging from his chipper performance on the Today programme this morning – that it’s all over bar the WPP board meeting plus assent from its shareholders.

And, frankly, that’s a formality. Ireland’s once unbeatable welcome pack now looks a will o’ the wisp. Corporate tax rates will soon soar – a quid pro quo to the European Central Bank’s bail-out of its economy (which in any case looks poleaxed for years to come). The fair-weather corporate friends can’t wait to get out: it’s not just WPP; media company UBM is also packing its bags. Besides, all those flights, just to attend a meeting over the water…the tedium, the expense.

Don’t tell George, though. He thinks Martin’s doing him a big favour. It must be worth a peerage at some point. Or, at very least, the Conservative Party advertising account. Services to British industry, and all that.


VAT reverse means healthy Innocent smoothies must remain a guilty pleasure

November 23, 2010

“It’s crazy,” says Innocent chief executive Richard Reed. “This ruling is definitely not in the interests of the nation’s health. It’s absurd that smoothies, which contain two portions of fruit and help people live more heathily are subject to VAT when junk food like burgers, chips and doughnuts are sold tax free.”

Yep, Richard. Not many of us will disagree with you there – unless of course we work for Her Majesty’s Revenue and Customs (HMRC) or the Treasury, which is slavishly serves.

Reed’s anguish and ire stem from a three-year legal wrangle over whether Innocent – and its customers – should continue to pay 17.5% VAT on its smoothie products, which it has just lost.

Only the healthy one on the left is subject to VAT

Reed chooses to classify smoothies as “liquified fruit salad.” It’s an oddity of our tax rules that, while people in this country need pay no VAT on “essential foods” such as the aforementioned burgers, “luxuries”, such as smoothies, are not exempt. But even if smoothies are categorised as a “beverage” (which, in all honesty, they more commonly are), Reed would still be in trouble with the tax authorities. Beverages – which for tax purposes are defined as “liquid commonly consumed to increase bodily liquid levels, to slake thirst, to fortify or to give pleasure” – are non-exempt. Unless they happen to be milk, tea or hot chocolate.

Where’s the fairness in that you, like Reed, might ask? Fairness, sadly, is not in the rule-book of an institution which joyfully plunders our just earnings, without so much as an apology when it is caught in the act. Its instinctive reaction on those rare occasions when it suffers a legal reverse is to vindictively rewrite the law in its own favour – lest future appellants succeed in pulling the same stroke.

This, apparently, is how the current eccentric definition of exempt and non-exempt beverages came about in the first place. It dates to a tax tribunal case in 1993, when HMRC (then Customs and Excise) was thwarted in its attempt to impose VAT on slimming aid Bio-Light.

Someone really should push Health Secretary Andrew Lansley a little harder. It’s time this government did more joined-up thinking on food policy, and Lansley leaning on George Osborne at the Treasury is where they should start. There is an inherent contradiction in the DoH’s position. On the one hand, it seems to expect the food industry to pour infinite resource into propagating healthy eating. And on the other, it lifts not a finger to criticise another department of state when it actively undermines that goal by reinforcing an out-of-date and absurd tax regime, with a view to screwing every last penny out of the consumer.


Finding marketing meaning in Big Society rhetoric

August 5, 2010

What exactly does David Cameron’s vision of the Big Society amount to? The cynical, but evidence-based, conclusion is: spontaneous acts of unrewarded generosity by almost every segment of society except the state itself.

While ‘mad axeman’ George Osborne frenziedly appeases the rapacious dictates of international capital markets, the rest of us  – it appears – must supply the deficit with sundry forms of “volunteer” work. At the local community level, Cameron seems to be proposing a boy-scout initiative with a bit of unpaid crowdsourcing thrown in. Similarly, business is expected to dig deep into its pockets to subsidise national policy initiatives – such as Change4Life – left destitute by the annihilation of the public funding formerly underpinning them.

Nowhere, right now, is the fallout more visible than in the marketing communications community, which is tasting the bleak disparity between political rhetoric and reality encapsulated in permanently truncated public sector budgets and a crippled COI.

What can be done to reverse this dreary cycle of perpetual cuts and reignite some top line growth? The glimmerings of an answer has been provided by Cameron’s friend Sir John Rose, who happens to be the chief executive of aerospace engineering company Rolls-Royce. Rose is trying to persuade Cameron to engage in a long-term industrial innovation strategy. That may seem a far cry from the immediate needs of the cash-starved marcoms community but, believe me, there is a marketing angle in all of this for those with the skill to exploit it.

Rolls-Royce has recently produced an audit, based around an analysis by the Oxford Economics consultancy, which seems to demonstrate that its activities contribute a quite extraordinary amount of added value to the UK economy. The figure quoted is 0.56% of UK GDP: £7.8bn of £1,400bn. All the more extraordinary, as the FT points out, when we remember that Rolls-Royce employees account for only 1 in 3,000 of the UK population.

Even allowing for exaggeration, there is clearly an important multiplier effect here. The calculus is apparently based on such things as former workers leaving to start their own ventures (one cited example used the skills he had acquired to set up a coffee-machine factory); through to suppliers who assimilate new engineering techniques by working with the company.

The detail is less significant than the power of the idea behind it. Rolls-Royce is embarking on a new form of corporate social responsibility – dubbed in some quarters corporate social activism. Part educational and part public policy oriented, it is designed to help transition Britain from being a vulnerable service economy to a high-value engineering one.

Rolls-Royce is not unique in this endeavour. Only last month BAE Systems, our biggest aerospace and defence contractor, announced a £50m investment in its Skills 2020 programme, which aims to supply the UK with a continuous stream of high-level engineering talent. Crucially, BAE has managed to persuade the government to actively support its initiative.

Corporate social activism need not be restricted to prominent aerospace corporations. Look to the United States and you will see that Geoff Imelt, chief executive of GE, recently launched the Ecomagination Challenge. It offers $200m of venture capital money to anyone enterprising enough to find a winning solution to revolutionising the US power grid.

Nor is the consumer goods sector excluded from such activism. Pepsi has recently announced a ‘Refresh Everything’ project, which is funding social enterprise at the local level with hundreds of millions of advertising dollars diverted from supporting the Super Bowl earlier this year.

Here, then, are a few ideas that appear to chime readily with Cameron’s Big Society rhetoric. It’s up to marketers to provide the small print, according to Alan Bell, chairman of Bell Design & Communications – whose company recently pitched for the Rolls-Royce account:

“There needs to be a debate about what the Big Society actually means in terms of industry participation. One of the problems with this country is its ‘quick, quick, quick’ City mentality. We don’t look enough to the long term. And now, as this recession is demonstrating, we’ve  been caught out – with devastating consequences for our service-driven economy. In a funny sort of way, the age of austerity may prove a catalyst for new thinking. If we don’t – for example – train our engineers of the future they, too, will be lost to China and India. That new thinking also applies to marketing. It takes time to understand the longer view; branding is not all about identity makeovers.”

Bell speaks from an unusual standpoint. His was the only agency to be selected by UKTI – the government-sponsored body that promotes British businesses internationally – to represent Britain at the Shanghai Expo this year. Bell Design, which now has an office in China, has been conducting a series of branding workshops that brought its team into contact with some of the country’s most powerful regional bosses.

One thing the Chinese certainly understand, Bell says, is the longer view. He is fond of quoting the late Chinese leader Zhou Enlai. When asked what he thought about the impact of the 1789 French Revolution, Zhou – the architect of China’s industrial take-off – replied: “It’s too early to tell.”

The message is: take a leaf out of China’s book, or get left behind.


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