It’s time to say something

by James

I was reading this blog post Opinion: Calling All Bloggers – Don’t  make me a tax avoidance accomplice quite by chance and just decided I’d had enough and it was time to say a few things, specifically in response to this post but generally to try and actually take a dispassionate view and present as objective a consideration of the matter at hand as I can.

An interesting piece of basically (party political) propaganda but the issue of tax avoidance is so emotive that facts often get forgotten about and given how serious is the state of our public finances, it’s worth having a look at reality in the cold light of day.

First, the usual suspects of Boots, Top Shop and Vodafone. As stated here ‘the trio is in the champions league of tax avoidance‘.  By any measure, it’s hard to defend Philip Green, but a lot of the outcry seems to be to do with high profile events that happened years ago, that a lot of people probably don’t even understand the mechanics of . You can say what you likes about the apparent ethics of how he runs his business, whether it’s worker conditions in the UK or possible use of sweatshops in his supply chain, but it’s the very opacity that makes him a target, as very few people know what’s really going on.

The fact remains though that he’s an extremely successful businessman who’s taken a ragtag bag of humdrum British fashion retailers and created a global empire. We should be singing his praises not condemning him for structuring the ownership and financing of his business in a tax efficient way. Think of all the jobs he’s created and the beneficial impact of the spending power of his employees in terms of income tax and NIC and of course all the VAT all this economic activity generates. Think of the beneficial impact having thriving stores has on high streets and shopping centres in terms of business rates, rents paid etc. It’s all manna from heaven compared with the the parlous state of the rest of the retail sector and so much of our economy. How many high street chains have gone out of business in recent years and how rare are these sorts of success stories. HMRC should be amongst his most ardent aficionados shouting from the rooftops.

Vodafone at first glance obviously pays a low rate or little tax. But hang on, few people seem to bother to differentiate between which part of the business they’re actually talking about, let alone define which tax they have in mind, before even coming close to thinking about why that might be the case. Say Vodafone UK, yes indeed, it does pay little corporation tax, but let’s not forget the billions of pounds (£5.9 bn to be exact) they paid to the exchequer for the 3G license back in 2001. A cost that almost bankrupted the industry.  That equates to close to £600 million a year paid to the treasury just for the license  before the company even begins operations. This is before we start to think about the massive amounts of capital expenditure required for rolling out the network. Now we can start to think of the costs of running the business and generating some taxable profits. Again Vodafone is a successful FTSE 100 company that we should be proud of.  It generates those benefits described above and even more.  As one of the most valuable companies in the world, it constitutes a core element of almost all our pension funds. Those dividends that the Greens send offshore are one of the largest individual contributors to the income that actually pays for our retirement, helps fund our insurance schemes and all sorts of other benefits.

Finally Boots. Again the critics demonstrate the same poor attention to detail in specifying what they object to and a general lack of  a understanding of its corporate and ownership and financing structure. Essentially, having been subject of a leveraged buyout, it’s possible we should be throwing brickbats at the LSE and PTM and complaining about the market for corporate control in the UK. All of which are legitimate concerns. For what it’s worth though, again we should be thankful that Boots has ended up as part of a thriving global concern rather than victim of an asset stripper, and even if they pay little tax, the same positive benefits accrue to all of us across the UK economy.

My last point is concerning the quote from the article in the New Statesman  which generally muddles tax evasion and avoidance all over the place and the author of the post it’s quoted in doesn’t seem to consider it worthwhile to differentiate between the two. Specifically to deal with what he writes about HMRC’s spending on publicity reducing tax evasion versus benefit fraud. Most noteworthy is that it’s publicity he’s talking about (not actual enforcement action, to be clear) and on this occasion not avoidance but tax evasion, so once again a completely different issue, but a few things need to be said so let’s deal with it briefly just to finish off.  Obviously, it’s hardly news that it costs a lot more to reach the entire population on any matter. In this case, inform them about action they’re taking to reduce the occurrence of an offence that involves a small amount of money committed by a large number of people. In fact, more often than not, publicity to reduce tax evasion can hardly be said to be publicity in the mass market or normal sense of the word.  And to be clear, HMRC has set up a special unit consisting of close to 400 members of staff to focus on tax evasion by the wealthy that in three years has already netted around £500 million.

While tax evasion is a whole other area and illegal, tax avoidance is legal and we all attempt it at some level. The schemes get bigger and more elaborate and more expensive the wealthier people are or larger the company. It’s human nature.  We tend to be outraged because we normally only find out about what they’re getting up to when people get caught and high profile cases arise. This though is as much a fault of the tax system, which creates the situation that just about the only people who get rich are the lawyers and accountants.