by Anthony Painter
I imagine the first Starbucks store that opened in Pike Place market in Seattle was quite an exciting affair. The coffee was probably great. It must have been a remarkable local institution. Four decades later, Starbucks is now synonymous with corporate greed. What a few weeks it’s had – a long way from Pike Place.
What has taken place shows that direct action works. No, not UK Uncut. But that of MPs. Step forward Margaret Hodge, a name mostly associated with New Labour. Who’d have thought it? But when a special report appeared on Reuters in the middle of October, it was the House of Commons public accounts committee that reacted. A few weeks later and Starbucks is £20 million out of pocket. Investigative journalism and a backbench House of Commons committee – it doesn’t get much more old politics than that but it did the trick.
Starbucks seem pretty par for the course when it comes to multinational tax avoidance. In this case, moral outrage seems to have done the trick as thousands turned away from Starbucks, helped by campaigns such as 38 Degrees (UK Uncut have a habit of putting people off rather than encouraging them to join their campaigns – whatever the claims of the direct action left or paranoid right). But moral outrage only goes so far. Starbucks will be hoping it’s all died down in a couple of years and then get back to business as usual.
In preventing this becoming the case, we need to answer “why Starbucks“? The answer reveals quite a lot about the modern nation-state and global companies.
Amazon and Google were also hauled in front of the public accounts committee but have not acted in response. Like many, I have boycotted Starbucks but not Amazon or Google. Yet they are all as bad as each other. The simple reason is that I can do without Starbucks – there are many other options – but not Amazon (for e-books though others will be getting my dead tree Christmas book purchases) or Google (any information I ever look for online). While tax avoidance has been talked about in moral or legal terms, there is clearly a competition question to be addressed also.
Coffee shops exist in a genuinely competitive market; on-line book sales and internet search are not genuinely competitive markets. Yes, this is an aspect of Amazon and Google’s success but so was the market dominance of Standard Oil or Northern Securities aspects of their success. Starbucks basically was caught at the centre because its product is immobile, it is in a genuinely competitive market, and, also, because it has tried over a number of years to pretend to be so damn virtuous – when they are pretty much the same as any other global company. Despite its size and power, it was a sitting duck in the way Amazon and Google weren’t.
So this whole episode becomes about corporate power. The Telegraph desperately tried to pretend such power was in the public interest in an editorial that described the row as “synthetic.” Well, it’s not synthetic to those businesses who struggle to compete with Starbucks’ ability to invest and profit in ways they can’t. This is not just about tax revenues but about unfair competition. Starbucks’ investors and senior executives are advantaged in a way that, say, Caffé Nero’s aren’t. And we all lose tax revenues as a result which is even less tolerable while billions are being cut from public services. This all made the moment to tackle tax avoidance right (and campaigners have been at this for years).
George Osborne’s argument in his Autumn financial statement that he was reducing corporation tax to ensure that the UK was internationally competitive is particularly laughable given the ability of multinationals to value shift to avoid tax. Many more competitive countries than ours have higher rates (of the major economies, only Turkey and Russia have a lower rate). If tax is essentially voluntary then the tax rate doesn’t really matter. In fact, rather than cutting corporation tax for international competitiveness, it is the opposite: it gives more of a fighting chance to domestic companies! Google, Amazon and Starbucks aren’t going anywhere – quite simply, they can’t as they have to be here to do business.
Actually, what now makes sense from the perspective of international and domestic competitiveness is taking on corporate tax avoidance. The first step to doing this is understanding that we have talked down the power of the nation-state to far too great an extent.
Moral outrage will only last so long and go so far- regulation and law need to take over at a certain point. What action is possible depends rather on our assessment of the degree of power we have to pursue avoidance without damaging our economic interests or stepping on international law. This is rather more than is supposed.
The government is already committed to legislate on a general anti-abuse regulation (GAAR) in next year’s finance bill. This should be similar to the economic substance doctrine introduced in the US by the Obama administration – if an activity is designed for tax avoidance rather than economic reasons it should be outlawed with the burden of proof on the firm rather than the authorities.
HMRC needs to step up. It should start by going through the tax affairs of the top UK multinational companies and publishing an annual report of their sales and tax paid. It should go back ten years and be supported by a legal requirement to publish separate and detailed UK profit and loss accounts. It should identify items which shift value within the same firm – especially to low-tax jurisdictions. EU governments should require that any multinational in the EU should, by law, publish country by country accounts for all of their global operations. Transparency is the first step and enormous credit to Richard Murphy for his work in this area. Combined with a GAAR these should start to tackle the issue.
There are two further avenues for action. Firstly, UK and EU competition authorities need to step up their interventions to confront concentrations of corporate power. There also should be action to ensure that the tax rate that any company pays as negotiated with the relevant tax authority across Europe should be published. And finally, there needs to be a stronger stewardship commitment in corporate law. Explicitly, this should be a long-term commitment to manage risks and create long-term value. Tax avoidance then may be seen as a longer-term reputational risk rather than simply a cost to be minimised to maximise short-term shareholder value.
In some respects, we have as a nation-state tied one hand behind our back. In other respects, we can build a bit more muscle in taking on multinational corporate tax avoidance. Labour is looking for a new driving mission in the era of austerity. Taking on reservoirs of corporate, state and private power would be a pretty striking one. Tax avoidance is one of the places to start. It is ultimately about power rather than morality whatever the initial impulse. We have more power than we pretend. If we are smart then we can use it, make more than £20 million in the process and create new opportunities for the Starbucks-style successes of the future.
Anthony Painter is an author and critic