Opinion: Lobby your MP not your Barista at Starbucks
October 21, 2012 2 Comments
This isn’t strictly startup related, but I feel moved to write on this subject because I feel we need a serious and wide-ranging debate about how best to improve the environment for UK business (including startups), and instead our press and parliamentarians seem hell-bent on distracting us from the real issues by demonising individual companies.
Starbucks is the most recent in a chain of international businesses to be heavily criticised in the UK press for not paying UK corporation tax. Personally I think the campaigns to boycott Starbucks, and other such businesses is misguided – there is a much better target for the ire of campaigners and it is the UK government. Here’s why.
I am not an economist – nor do I claim know what is likely to best serve the greater good. Politically I’m not sure where I stand on this issue. I think there are two very basic points that are being missed by those who are demonising Starbucks however.
- Directors MUST by law act in the best interests of shareholders. For international businesses, that means that in so far as regulations and law permit, directors have an obligation to shareholders to minimise their companies tax bills. Not only is this a legal requirement (in the UK it’s part of the Companies Act), but stock exchanges reward companies that generate profits for shareholders (which are maximised by careful tax management). The governments we elect and the pension funds we invest in drive a behaviour of minimising tax.
- What Starbucks are doing is Legal and it is legal because the governments we elected have made it so. The accounting procedures and subsidiary relationships that allow the UK arm to have low profitability and to minimise corporation tax are all completely legal.
Combined, these two facts mean that the governments we have elected created laws that force Starbucks to act this way, along with most other international corporations. Boycotting Starbucks is essentially shooting the messenger – we are responsible for their behaviour!
If we believe that the situation is immoral, then we should be lobbying government to change the law on corporation tax. Boycotting Starbucks (or Vodafone, or other companies) hurts their employees in the UK far more than it hurts their global organisation, and is ultimately likely to be ineffectual.
I’m not sure the some of the arguments surrounding immorality are good. Starbucks and other international corporations contribute to our economy by creating jobs, paying taxes associated with employment, and by paying VAT, rates and import duty. It’s not like they have a low total tax bill, just a low corporation tax bill. If we were to tax them more aggressively, perhaps they would choose to invest elsewhere. Perhaps not. I’m not smart enough to answer that one.
What I believe is wrong about the system is that it penalises UK companies relative to their international counterparts. If I were to set up a UK based coffee shop chain, my corporation tax bill would be greater than that of Starbucks (who pay their corporation tax in low-tax locations), so I have an economic disadvantage created for me by the UK government. That seems wrong. The playing field should not advantage incomers over indigenous business. Nor should the playing field encourage me to establish an offshore holding company.
There are already some ways in which this is redressed, for example, we have a lower corporation tax rate for small companies in the hope this will help them to grow. Various tax reliefs and credits help companies save corporation tax where they are investing in their own future, and there are sometimes grants and incentives for new business.
I recognise that the problem is not a simple one. Much of the regulation around accounting is harmonised internationally to ensure smooth trade between countries, so changing it unilaterally is not straightforward for the UK (especially as a member of the EU). However, if we don’t like the status quo, can I suggest that the following are really positive actions that we could take.
- Lobby parliamentary representatives and ask them to take responsibility for fixing the problem
- Strive to elect people who are brave enough to confront the issues and smart enough to find solutions.
- Spread the message, and encourage your friends to do the same.
By doing this we would address the root cause of the problem, not just one symptom!