Starbucks is a company that never stops telling us how much it cares. On its corporate website you will find, prominently displayed, the legend: “We’ve always believed that businesses should have a positive impact on the communities they serve.” Underneath that are sections headed “Environment”, “Ethical Sourcing”, “Wellness”, “Diversity”; and after that another screed, the “Starbucks Global Responsibility Report”.
No wonder the Seattle-based firm has had conniptions over the accusation by the House of Commons Public Accounts Committee that its tax planning – along with that of other multinationals such as Amazon and Google – is “immoral”. When your brand is meant to include the concept of ethical virtue, such criticism is potentially lethal. It’s not surprising then, that Starbucks has indicated it will in future pay more corporation tax in the UK, presumably by altering the so-called “royalty fees” to a sister company in Holland which had the effect of shifting to other jurisdictions part of its tax burden on coffee sold here.
Whether Starbucks needed to panic in this way is not so clear. Or at least that is the conclusion of a friend of mine who walked past the Starbucks on Islington Green yesterday morning, expecting it to be less crowded than usual; after all, this the very epicentre of London’s left-of-centre bien pensant culture. To her amazement, despite the weekend papers being full of accounts of Starbucks’ alleged wickedness, there seemed to be an even longer than usual queue of customers waiting for their caffeine fix.
Yet it is not just a question of addiction. What Starbucks offers is somewhere people can while away hours online in comfortable surroundings, neither home nor office, while spending nothing more than the (admittedly steep) price of a cuppa. This is, indeed, a social amenity: and I suspect that for the overwhelming majority of its customers it is this which makes them feel warmth towards the brand, not any number of its tracts about “ethical sourcing”.
This is also the most important sense in which companies can do good – by making the lives of people better through the service they provide. Sometimes that service is to provide goods more cheaply and conveniently than anyone else. This is what another of the companies stigmatised by the MPs – Amazon – has done. At a time of general economic recession, when people are especially concerned about the cost of living, there is a particular benefit in families being able to buy products at the lowest possible prices. It means their standard of living is not falling as much as otherwise it would have done. It also increases trade generally, which is good for producers, too.
None of this justifies companies indulging in tax evasion; that is illegal and should lead to prosecutions, fines and even imprisonment. What companies such as Starbucks and Amazon have been doing is – so even the MPs who have accused them recognise – tax avoidance. That is, they have operated within the law to reduce their tax bill to the minimum. This is a constant intellectual battle between big multinationals and the customs arms of individual nations. In response to the MPs’ report, a clearly stung HMRC (Her Majesty’s Revenue and Customs) declared: “We relentlessly challenge those that persist in avoiding tax and have recovered £29bn additional revenues from large businesses in the last six years.”
The problem is legal
If there is a problem with the system, that is not a moral issue but a legal one and should be addressed via legislation (your job, honourable members) and pan-governmental agreements. In any case, it is not as if our own governments – of all political colours—have wanted to be seen as ferocious in extracting the last tax pound from international business. That is more a description of the French government, and British ministers have been delightedly advertising the more favourable fiscal environment here, in order to persuade more multinationals and also smaller businesses to cross over the Channel.
Obviously, if our government takes more in corporation tax from behemoths such as Amazon (which employs roughly 15,000 people in the UK) then it will have more revenues to spend on all the things it wants to provide, such as schools, hospitals, nuclear deterrents and aid to other nations. Or it would, if corporate taxation is not raised to such a level that it causes the businesses concerned to redirect their activities elsewhere. When we increase taxes on corporations, we increase their cost of doing business. Other than reducing the dividends paid to shareholders (pension funds and the like) that increase can be met in two main ways: by cutting wages and benefits, or by increasing the prices of products. The extent to which those extra costs are divided up between shareholders, employees and customers is a matter outside the ability of governments to control.
The strongest case against the accounting practices of multinationals is that made by companies wholly British-based, such as the John Lewis partnership, who have complained that this gives the likes of Amazon an unfair competitive advantage: the head of John Lewis told Sky’s Jeff Randall that Amazon was able to “out-trade” UK companies such as his because they were “having to pay Corporation Tax of 27 per cent to the Exchequer”. Yet the only way Amazon can “out-trade” is if it passes those lower costs onto the consumer. It is for this reason I doubt Amazon is so very worried about a consumer boycott, despite the MPs’ strictures: its compact with the customer (unlike Starbucks) is entirely based on value for money, not some sense of superior social morality.
Stones in glass houses
Anyway, one should always be wary of legislators when they talk of morality: as Harold Macmillan once said, that is the proper province not of politicians but bishops. For example, Danny Alexander, who as Chief Secretary to the Treasury is responsible for making the public budgets add up, has said that he is personally boycotting Starbucks because of its artful tax avoidance. Yet the talented Mr Alexander had designated his London apartment as his second home, for the purpose of claiming £37,000 in “parliamentary” expenses, but then described the self-same residence to HMRC as his main home, to avoid Capital Gains tax when he sold it.
In so doing, he behaved quite legally, as many other MPs had done, including the present Speaker of the Commons, John Bercow; but this constituted tax avoidance, in the sense that a course of action was undertaken solely for the purpose of reducing tax payable. There is, naturally, a vast difference in scale between the operations of Starbucks and that of the MPs, but I am not sure where the moral distinction lies and therefore how much authority these MPs have in criticising such businesses as “immoral”.
This may also be a doubt in the public’s mind; who knows, they might actually have more trust in Starbucks and Amazon than they ever would for the politicians urging a boycott.