Why should an American company pay British taxes on Irish profits?by John McTernan / January 29, 2016 / Leave a comment
Whisky represents 25 per cent by value of UK food and drink exports. Sales are rising rapidly—with two-thirds of growth coming in the massive markets of the growing Indian and Chinese middle classes. New distilleries are being opened, old ones re-opened. It’s boom time. And it is very profitable. Where should those whisky distillers pay their taxes? In China and India where the sales are made? After all, both countries need tax income to build up public services. Of course not. British companies should pay British taxes on British profits. So why are we getting quite so upset about Google and demanding that an American company pay British taxes on Irish profits? The reason is simple—we are angry and confused in equal measure.
The anger is economic in origin and, appropriately is endogenous and exogenous. We are angry in ourselves at what is going on in the world. There was a financial crisis—the Great Recession—which nearly became a Depression. It was, we believe, caused by the banks, but they weren’t punished. Instead they were bailed out. No one went to jail. Bonuses continued. Real wages have been squeezed. We feel like Howard Beale’s audience in the film Network leaning out of their windows and screaming: “I’m as mad as hell, and I’m not going to take this anymore!”
Here’s where external factors come into play. The main one is political dishonesty. No politician told the truth. Which is understandable when you see what happened to Alistair Darling when he warned about the looming recessions—the “forces of hell” were unleashed on him, apparently from his own side. What was that truth? There was a Global Financial Crisis, caused by sub-prime mortgages in the United States, but rapidly transmitted through the world because of the interconnectedness of finance. The banks had to be saved because they are utilities as fundamental as gas, water and electricity. The alternative was the dystopian world of Alan J Pakula’s 1981 paranoid thriller Rollover where money is rendered worthless in a financial crash. The UK economy took a battering—it was a recession after all—and we lost 7 per cent of GDP. Probably permanently. And because the UK lost that wealth we were all going to suffer.
It’s blunt. It’s true. It’s simple. It just wasn’t attractive politically because there was no-one to blame. Much of modern politics is about blame because many politicians want to keep voters in a state of permanent outrage, not least because angry people don’t think straight. So, George Osborne blamed a financial crisis made in Wall Street on Downing Street. This was the original sin, a deliberate untruth deployed in a successful attempt to infantilise political discourse. This is unforgivable, not because the Tories played for and gained political advantage but because Osborne and Cameron (and Clegg, Alexander and Cable in the Coalition government) know exactly how close the world economy came to a depression, how hard fought that recovery was and how fragile things remain. There have been tough times and there are more coming. They will require some difficult choices—knowledge and transparency can only improve those choices. But that is not the government’s game and too often for Osborne it is an actual game.
That anger is all around us. In the insurgency of the SNP in Scotland. In the four million votes for UKIP in the General Election. In the election of Jeremy Corbyn as Labour leader. But it is of a very particular populist type. There is a three-step argument for any problem. First, an angry statement—“this is wrong”. Second, a passionate assertion—“this must change”. Third, conclusion in a promise—“this will change”. What is never stated is how things will change, outside, that is, of a totalising change like independence, Brexit or nationalisation. Anger is not channelled or converted into action. It is merely banked, like peat in a fire.
So, we come to Google. As ever, Osborne’s defining characteristic is that he is too clever by half. He wants to assuage public concern that multinational companies pay to little tax and attempts to do so by announcing that Her Majesty’s Revenue and Customs (HMRC) have come to an agreement on tax owed by Google. This is, of course, not of his doing and none of his business. Tax authorities are rightly independent of government; it is in corrupt and totalitarian states that they are the apparatus of political force. Governments propose tax laws, parliaments pass them, HMRC enforces them. But Osborne didn’t want to stop people being angry. He wanted a kick at the Labour Party on the way through as well. So the Chancellor, followed by the Prime Minister, has claimed to have collected taxes that Labour left uncollected. Well, it is a matter for HMRC not individual governments to enforce tax liabilities, a fact behind which Osborne tried to shelter when called on to defend the amount of tax Google actually paid in the UK. But having “nationalised” the credit, he couldn’t outsource the blame.
This would all be a delicious irony if it weren’t for the fact that this whole row ends up further blackening the name of the system that provides our food and drink, our health and wealth, our schools and hospitals: capitalism. I said earlier that the public is confused as well as angry, and they are. There is a view abroad that companies are, in some way, a source of free money and that they are hiding resources that could otherwise be painlessly taken from them and give us all a pain-free public spending bonanza. Osborne’s antics over Google encourage this dangerous fiction. In the end, companies have shareholders, workers and customers. If you tax them more then they will reduce dividends to shareholders—mainly pension funds, so most of us eventually. Or they will cut wages—other real people. Or they will raise prices—which hits all of us eventually. Just as the Bank of England has no magic money tree to fund public spending, so companies aren’t a magic porridge pot of cash that can be seized at will.
Google are currently innocent bystanders in a battle between George Osborne and John McDonnell to see who can do most damage to the reputation of the system by which we live and prosper: capitalism. Currently Osborne is winning and we are all losing.