There's one aspect of Starbucks tax-dodging that hasn't had the attention it should. To see it, ask: who loses when multinationals don't pay tax? The answer is not just the Exchequer, but the small businesses competing with the big firms. The independent cafe owner competing with Starbucks is already at a disadvantage because Starbucks size allows it to bear losses and to buy in bulk. Starbucks' tax-dodging gives it a further edge - because in retaining more of its cash, Starbucks can more easily open new stores, taking custom from the independent cafe. Similarly, independent booksellers who do pay tax are disadvantaged when Amazon doesn't.
You would therefore expect the backlash against multinationals tax-dodging to come not just from lefty moralizers, but from supporters of small businesses.
But I haven't been deafened by such complaints. To those of us whose outlook was formed in the 80s, this is weird. The Tories then claimed to be the party of small business: Thatcher never lost a chance to remind us she was a grocer's daughter.
And, ideologically, Conservatives have alleged that there is an affinity between them and small business. Thatcher claimed that such businesses "embody freedom and independence". And David Willetts wrote in the early 90s that:
Modern conservatism aims to reconcile free markets (which deliver freedom and prosperity) with a recognition of the importance of community (which sustains our values) (Modern Conservativism, p92)
And aren't cafe and bookshop owners pillars of local communities?
Which poses the question. Why, then, aren't today's Tories so angry about the threat to small businesses posed by the multinationals? Surely, many small businesses are threatened more by multinationals' ability to use their tax-dodging to expand than they are by employment protection laws. So why the silence? (It's not just multinationals' tax-dodging where Tories are surprisingly quiet; I got the impression they were equivocal when farmers complained about supermarkets using their buying power to drive prices down.)
It's not because small businesses are less numerous now than they were in Thatcher's day. Quite the opposite. Since 1987, the numbers of self-employed have risen by one-third, much faster than the growth in employment generally. You'd therefore expect politicians to speak more about the interests of independent sole proprietors than they did in the 80s. But it seems they speak less.
This is a puzzle. I mean, it can't be that the Tories were never sincere about being the party of small business, and only ever used such talk as a front for being the party of big business, can it?
* It seems that, in Starbucks' case, tax-dodging has recently been a bad business strategy, but this is because of lefty customers boycotting it, which only emphasizes the puzzle that the right is no longer the party of small business.
Could it be the case that Conservative politicians nowadays don't have the same unhealthy fetish for small businesses as their counterparts did 3 decades ago?
After all, all big businesses started out as small businesses at some point. The reason that they're now big businesses is that they've been successful. The reason that most small businesses are still small, assuming they're not new start-ups still in infancy, is that they're not as successful as most big businesses.
There is no particular reason to favour small businesses over large businesses, in the same way as there is no particular reason to favour TV manufacturing firms over architecture firms or logistics companies over food processing plants.
Posted by: Al | December 13, 2012 at 02:25 PM
"Starbucks' tax-dodging gives it a further edge - because in retaining more of its cash, Starbucks can more easily open new stores, "
A very important point. This entire cry that "not paying your tax" gives you an advantage. Means that it must be true that forcing corporations to pay tax disadvantages them.
So, why do we do it? Don't we want them to invest in new stores, new factories, new jobs?
Posted by: Tim Worstall | December 13, 2012 at 02:48 PM
I get the impression that small business representatives would rather complain about tax rates being too high than complain about some finding ways to avoid the tax. The tories and the business of representatives (of all sizes) give the impression of aspiring to being able to do a starbucks themselves rather than eliminating the possibility for anyone to do this.
Posted by: dcomerf | December 13, 2012 at 02:54 PM
I get the impression that small business representatives would rather complain about tax rates being too high than complain about some finding ways to avoid the tax. The tories and the representatives of business (of all sizes) give the impression of aspiring to being able to do a starbucks themselves rather than eliminating the possibility for anyone to do this.
Posted by: dcomerf | December 13, 2012 at 02:56 PM
"There is no particular reason to favour small businesses over large businesses, in the same way as there is no particular reason to favour TV manufacturing firms over architecture firms" ?
My point is that survival prompts business to grow (in whatever way it can); once a certain point reached however the large business is in position to 'distort' the market & can effectively hold national governments to ransom! Lesson is become "too big to fail" then not only can you detroy competition, you can control media & political outlets & benefit from a cosy form of privatised "socialism".
Markets work (up to a point) & then they fail! WE're living through the proof!
Posted by: Mcunning0708 | December 13, 2012 at 03:02 PM
Tim W
I think advocates of taxing corporations understand that taxes are a cost to the corporation and thus "disadvantage" them (although you'd normally add a point about tax incidence here).
The fact that if one company pays tax and other evades tax, the tax payer is at a disadvantage does not demonstrate that we should tax no companies on the basis that tax "disadvantages" them.
Posted by: Luis Enrique | December 13, 2012 at 03:29 PM
tax dodging? What does that mean? As far as I can tell Starbucks have been guilty of complying entirely with all the relevant tax laws. The only thing that is legally dubious is their offer to fiddle their taxable profits in order to pay tax that otherwise would not be due. The worrying aspect of your article here is just how much you misunderstand the nature of competition.
Posted by: alastair harris | December 13, 2012 at 03:32 PM
Tim -
The same reasoning could be applied to scrapping health and safety standards altogether. Are you advocating that too?
Posted by: Chris E | December 13, 2012 at 04:00 PM
"There is no particular reason to favour small businesses over large businesses"
Yeah, individual freedom is *so* last decade. We should just shut up and get a real job at Tescos.
Posted by: Neil | December 13, 2012 at 04:14 PM
@Tim Worstall
No, requiring large firm to pay tax on their profits contributes to a level playing field. It does not disadvantage large corporations viz a viz their smaller competitors.
Why do we tax corporations? Because they are separate legal persons. All persons, whether natural or artificial are liable to tax on their earnings.
As an aside, corporations are protected by the Human Rights Act, just as natural persons are. This means corporate property rights are protected by the Act just as for natural persons.
Of course, corporations are always free to relinquish their corporate status and to trade as a partnership. There is no legal requirement for a firm to trade as a corporation.
Posted by: Anonymous | December 13, 2012 at 04:20 PM
@ alastair harris
Here is a link to a blog piece by John Kay which you may find interesting and relevant:
http://www.johnkay.com/2012/12/12/starbucks-shows-need-for-tax-change#.UMnVf2yjrq8.twitter … … …
Posted by: Anonymous | December 13, 2012 at 04:23 PM
The party of small business appears to have migrated to UKIP.
Posted by: FromArseToElbow | December 13, 2012 at 06:16 PM
Lets go back to were these tories want us to go the 1850 & we are back in the politics of the day Free Markets v Protectionism,this con-lib-dem coalition is a protectionist government
Posted by: paul | December 13, 2012 at 06:16 PM
Tim Worstall argues:
1) This entire cry that "not paying your tax" gives you an advantage.
means
2) that it must be true that forcing corporations to pay tax disadvantages them.
No it doesn't.
Not paying *your* tax gives *you* an advantage -- it disadvantages everyone else.
Posted by: Simon Reynolds | December 13, 2012 at 06:17 PM
"Tim - The same reasoning could be applied to scrapping health and safety standards altogether. Are you advocating that too?"
Careful. He probably is!
Posted by: Guano | December 13, 2012 at 06:47 PM
"There is no particular reason to favour small businesses over large businesses"
Or vice versa, and the problem with the current tax setup is that large multinationals have the opportunity to essentially choose not to pay tax, whereas their smaller local competition has no option but to pay tax on its full profits.
A rational person (of any political stripe) is left with two options - either adjust the law to place the multinationals on an equal footing with their domestic competition, or adjust the law by eliminating corporation tax, and shifting that tax burden to personal income, or property or something.
Proponents of the first approach face the difficulty of identifying which profits "belong" to the UK. The arms-length approach is viable when a physical commodity is being traded, but it's just not possible to derive an arms-length price for the value of the Starbucks brand, let alone having HMRC unwind loan arrangements and establishing whether an arms-length business would have taken a loan from an independent commercial lender on the same terms as they took one from their foreign parent company.
So if it's too hard to implement a tax in a fair and equitable way, maybe we have to consider taxing something else instead.
Posted by: Sam | December 13, 2012 at 07:10 PM
Simon Reynolds:
Tim is correct. Everybody agrees that if company X pays tax but its competitor Y doesn't, then Y has a competitive advantage.
It is also true that taxing corporate profits places that corporation at a disadvantage with respect to the situation that would have existed had that corporation's profits been untaxed. This isn't complicated.
However, everyone, including Tim, will agree that it is necessary for governments to tax something in order to raise revenue. The question is how to distribute this tax burden in a way which is both efficient (causes the smallest economic harm) and equitable (people in similar financial situations pay similar amounts of tax). This question is independent of the question of big government vs small government (although higher taxes have a bigger economic impact than lower taxes, the optimum relative distribution of the tax burden must be largely independent of the absolute tax income desired).
Posted by: Sam | December 13, 2012 at 08:05 PM
Sam:
I think Tim is wrong. The statement, "This entire cry that 'not paying your tax' gives you an advantage" does not imply, "that it must be true that forcing corporations to pay tax disadvantages them."
I think you are wrong when you say:
"It is also true that taxing corporate profits places that corporation at a disadvantage with respect to the situation that would have existed had that corporation's profits been untaxed. This isn't complicated."
There are reasons why a corporation benefits from the taxation of its profits -- for example these taxes: help provide roads that can be used to distribute its products; provide education of the people who it employs; fund the NHS which keeps its workforce healthy. This *is* complicated.
Posted by: Simon Reynolds | December 13, 2012 at 11:06 PM
Small businesses have one very significant tax advantage over large one - they don't have to charge VAT if their turnover is less than £77K. This means they either can charge 16% less than their larger competitor, or charge the same and make a higher profit margin, or a bit of both. One of the biggest barriers to small businesses becoming larger is the expansion into the Vatable economy.
Posted by: Jim | December 14, 2012 at 01:02 AM
Shirley Porter is also a grocer's daughter.
All grocers are equal, but some grocers' grosses are grosser.
Posted by: RichGreenhill | December 14, 2012 at 01:45 AM
"... they don't have to charge VAT if their turnover is less than £77K".
But neither can they claim VAT back. It depends on what the value added is, so not quite as clear as you suggest.
Posted by: gastro george | December 14, 2012 at 10:02 AM
No one has spotted the blindingly obvious reason for Tory silence: big business funds the Tory Party.
Why will none of the senior people at HSBC responsible for years of criminality resulting in the $1.9bn fine be prosecuted? Same reason.
Or have I missed something?
Posted by: Ralph Musgrave | December 14, 2012 at 03:28 PM
Maybe it's simply that politicians are wary of comparing the tax arrangements of large and small businesses. Big businesses may have be able to avoid tax by the use of devised structures, but small businesses and the self-employed frequently (an estimated 27% of all self-assessment returns) evade tax simply by underdeclaring their income - see http://www.hmrc.gov.uk/statistics/tax-gaps/mtg-2012.pdf
And given that I'd guess millions of voters are complicit in these arrangements ("Pay me cash I'll knock off the VAT"), I'm not surprised that politicians are wary of the subject.
Posted by: Churm Rincewind | December 14, 2012 at 03:32 PM
"After all, all big businesses started out as small businesses at some point. The reason that they're now big businesses is that they've been successful. The reason that most small businesses are still small, assuming they're not new start-ups still in infancy, is that they're not as successful as most big businesses."
Wrong. The reason is that the great majority of owner managers have no desire to turn their businesses into multinationals, for any number of good and sufficient reasons. Someone who earns a living as an electrician for forty years, puts his/her kids through college and retires comfortably is every bit as successful as Lord Sainsbury; they just have different objectives.
Posted by: chris y | December 14, 2012 at 06:34 PM
The Kirkus review is not online yet, but they call it a "thought-provoking, hope-inspiring manifesto." And it's made a bunch of top fall books lists, which is always nice.
Posted by: local seo | December 15, 2012 at 07:31 AM
It is not, incidentally, true that all companies started as small companies. Some companies are formed as mergers. Other companies are formed when larger companies are broken up.
Posted by: Hidari | December 15, 2012 at 08:10 AM
A corporate culture permeated with greed will eventually counsel any kind of company to try and get away with "it".
"It" being deaths attributable to poor (i.e. cheaply done) testing, LIBOR rigging, any sort of financial fraud perpetrated by means of cunning technicalities ("rubber stamped mortgages"). Taxes unfortunately are no different, and would naturally and logically be the first legal step any company will try to implement.
The culture needs to change, and to change that one needs to address the tricks-of-trade being taught e.g. in those popular Master in Management courses. Wink wink, nudge nudge.
Posted by: PauW | December 17, 2012 at 04:29 PM
Anyone who talks of corporations being persons (legal or otherwis) has not got a frim grip of reality. Wasn't it Mitt Romney who infamously opined, 'Corporations are people, my friend'?
Posted by: Broilster | December 17, 2012 at 11:06 PM