Corporate freebooters always put shareholders first

Popular anger against tax avoiding transnational corporations like Starbucks, Amazon, and Google is rising fast as government spending cuts accelerate. Now Rupert Murdoch’s Sun is beating its drum against Npower.

A petition from 38 degrees reveals that the energy company manages to pay no tax in the UK, avoiding an estimated £108 million bill by sending its profits through a shell company registered in Malta.

According to tax expert Richard Murphy, Npower borrows money from RWE, its German owner, and then pays the interest on the debt to the Maltese company – Scaris. It’s a legal scam that allows Npower to record a loss in the UK.

The Sun says “foreign” companies are buying up British assets, and more of “our” hard-earned money is heading abroad. This is deliberately misleading, nationalist rubbish.

Profits come from the hard work put in by millions of ordinary people all over the world, many employed in dangerous conditions, who are paid as little as employers can get away with. They end up in the managed wealth funds of shareholders located wherever they can find the most tax-efficient homes. That’s the normal operation of the 21st century capitalist economy

Corporations exploit competition between governments. During the Blair/Brown New Labour governments, business taxes were driven down to attract investment. Last month, Tory chancellor George Osborne announced plans to cut the corporate tax rate to 20%, the lowest in the G20 group of advanced economies. Treasury minister David Gauke, said ominously: “We must recognise that we are in a global race. There will be economies that succeed and those that fail.”

On the scale of tax-optimising accounting tricks used by all corporations, Npower’s £108 million hardly registers. The Netherlands – a key destination for the profits of many corporations operating in Europe - attracted $3.5 trillion of inward investment in 2012

However, just $573 billion ended up in the “real” Dutch economy.

The rest found its way into “special purpose entities”, the finance and holding companies often designed to help businesses avoid tax. In tiny, Luxembourg an amazing $2.28tn came into the country disguised as investment but just $122bn – 5% - entered the real economy.

If these huge, incomprehensible numbers make your head spin, let’s just focus on one well-known name to shed some more light on the murky activities of corporate freebooting.

Yesterday, despite holding $145 billion in spare cash, and having no debt at all, Apple sold the largest amount of bonds ever issued by a non-bank company. The corporation borrowed $17 billion from investors on the debt market to be repaid in periods up to 30 years. So why did one of the world’s most successful companies decide to get into debt?  

It turns out that Apple is under pressure from its shareholders, who are anxiously watching the precipitous 45% decline in the company’s value over the last seven months. The plan is for Apple to drive its value back up, not by investing in new production, but by increasing dividends – giving more of the profits to shareholders, and buying back a proportion of their shares to make those remaining more valuable.  

Apple doesn’t want to use its cash to do that because $105 billion of its $145bn is parked outside the US, and repatriating it would incur US taxes. Better to use borrowed capital - and the additional tax sweeteners that borrowing attracts. Microsoft is doing the same.

So the profit-maximising logic of capitalist production actually requires the most successful companies to avoid tax, borrowing from one set of gamblers to keep the favours of another.  

Meanwhile, in the Foxconn sweatshops of China, workers assemble the latest iPad, for a relative pittance. And workers making clothes for Western corporations in Bangladesh are killed when their poorly-built factory collapses. Tax avoidance is only an aspect of a system that is rotten to its core.

Gerry Gold

Economics editor

EDF has ConDems over a nuclear barrel

So much for the so-called virtues of the free market. The Coalition government, desperate to maintain energy supplies at any price, has abandoned its previous policy and will now offer nuclear generating companies cash to build new power stations.

French-owned global energy giant EDF has demanded – and is going to get – 40-year's worth of subsidies in what amounts to an outright state bribe to run new plant in the UK.

The ConDems swore after the election that new nuclear expansion would have to pay for itself. But now the government is frantic because the dash for gas has left the UK frighteningly dependent on a global market where a dwindling supply is meeting a growing demand.

The on-shore dash for gas opened up by the government will allow fracking and coal-bed methane capture. Even fully exploited, however, these deposits are small potatoes, leaving the UK reliant on ever-more expensive gas imports.

There are new sources of gas from wholesale fracking in the US but this won't reduce prices, only temporarily fill the gap left by giant north European fields that are now running down.

Two of the major energy corporations have decided not to bid for the UK's new nuclear plants, so EDF is the last firm standing. From that monopoly position they are demanding "contracts for difference" that guarantee a minimum price. If the market price falls below that, the government will pay the balance.

So as youth centres close, and elderly and sick people die lying in their own excrement, and months of austerity stretch into years to appease the financial markets, EDF will be shouting "Vive l’Entente Cordiale" as they rake in taxpayers’ money.

Alistair Buchanan, head of energy regulator Ofgem, is warning that UK customers face higher bills for years not as a result of subsidies for renewables (Tory Neanderthals take note) but because of reliance on expensive imported gas.

So what the 15 nuclear energy staff currently seconded to government departments (according to campaign group Nuclear Spin), are whispering in ministers' ears is something alone the lines of "come on you might as well agree a subsidy price, because it will probably never kick in. Prices will go on soaring for years, and we'll make a fortune, but the guaranteed minimum will help us borrow the £16 billion we need to build the new plants."

Now the gas plant owners are not happy. If nuclear is getting subsidies, they are demanding the same to build new gas plants to replace the older coal-fired stations that are closing.

And the oil industry – well that is already floating on a sea of tax breaks. A briefing published by Platform shows that BP's pre-tax profits tripled in 10 years from 2001 to 2011 but its UK tax payments stayed more or less the same. Profits went from $13.1bn in 2001 to $39.8bn in 2011 – tax payments from £707 million to £730 million. If the corporation tax payments had risen in line with profits that should be $2.1bn.

Shell actually paid less tax - down from £958 million in 2006 to £783 million in 2011. This despite global pre-tax profits rising from $44.6 billion in 2006 to $55.6 billion in 2011. So profits up 25% - tax to HMRC down 18%.

The energy market delivers nothing but a lose-lose scenario for ordinary people. They pay ever-higher fuel bills, subsidise energy corporation profits through their taxes, get no help to make their homes more energy efficient, and suffer the effects of climate change and pollution. And they watch as the nuclear industry leaves deadly waste lying around in canisters for our grandchildren to worry about. It is, as Buchanan said, a "car-crash of an energy policy".

Access to energy at an affordable price should be a basic right. Profiteering corporations have all but converted that right into a privilege, like so much else in Britain. Lower fuel bills and a transition to a clean, green energy future demand democratic ownership and control of the industry. That’s a goal we’ll have to achieve ourselves.

Penny Cole

Environment editor

The whole system is 'morally wrong'

Following the official announcement by a Tory minister that it is “morally wrong” to pay people like plumbers, carpenters and other socially useful citizens cash as a way of reducing household bills, we present a number of other dilemmas to discuss during the Olympics.

First of all, we should say that the minister in question, David Gauke, himself claimed over £10,000 in expenses back from taxpayers to avoid paying stamp duty and fees on a property transaction. We should also note the fact that his wife works at a firm advising tax lawyers who specialise in tax avoidance schemes.

Leaving the issue of total moral hypocrisy aside for a moment, because it’s far too easy to put the boot in, let’s examine some real quandaries society needs to take a stand on. For example, is it “morally wrong” that:

-         the top 10% of Britain’s wealthiest households are more than 500 times richer than those in the bottom 10%, with the gap widening all the time?

-         the least wealthy half of households in Britain have 10% of the total wealth, while the better off half have 90% of the total?

-         despite their best efforts a quarter of households can't achieve a decent standard of living, according to a recent Rowntree report?

-         the bottom fifth of households pay 31% of their disposable income in indirect taxes, compared with 13% for the richest fifth, an increase from 2009/10 when the proportions were 28% and 12% respectively?

-         UK companies paid a record £22.6 billion in dividends to shareholders in the second quarter of this year?

-         Carphone Warehouse Group chief executive Roger Taylor will collect an estimated £34m in cash and shares this year despite the failure of the Best Buy retail chain whose creation he oversaw?

-         at BP Plc, the top executive earned 63x the amount of the average employee in 2011, versus 16.5x in 1979 while in the case of Barclays, top pay is now 75x that of the average worker, versus 14.5x in 1979?

-         in the last ten years alone, average CEO pay for FTSE 350 companies has increased by 108%?

-         a group of 36,000 individuals – only 0.6% of the population – own 50% of rural land (their assets account for 20 million out of Britain’s 60 million acres of land)?

-         1.6 million children in Britain live in housing that is overcrowded, temporary, or run-down?

-         5.9 million homes in England fail to meet the government's Decent Home Standard?

-         more than 70,000 homeless children in England are living in temporary accommodation?

-         3.6 million children in the United Kingdom live in poverty after their housing costs have been paid?

-         the average rent for a two bedroom home in the capital at £1,360 is almost two and a half times the average in the rest of the country?

-          ordinary working families face unaffordable private rents in 55% of local authorities in England?

-         major corporations like Vodafone and Boots escape/avoid paying tax on all their activities in the UK?

-         that banks who helped wreck the economy are propped up with taxpayers’ money still repossess homes and refuse loans to small enterprises?

This abbreviated list neatly exposes the very real state of Britain, where social class defines power, privilege and wealth and not abstract morality which aims to disguise growing inequality. Contrary to what the ConDems say, we are not “all in it together”.

Older people, for example, struggle to find the money to pay for care while a minority live it up at our expense. The solution lies in our hands.

Paul Feldman

Communications editor

Relief for the rich but council workers to suffer

Jeremy Hunt’s appearance at the Leveson inquiry yesterday was obviously a good day to bury bad news, and not just on the part of the government. While chancellor Osborne was abandoning plans to limit tax relief on charitable donations, unions were signing off a pensions deal that will leave over a million worse off.

Osborne’s budget U-turn – the third this week – will please those among the super-rich who use donations to charity as a way of reducing their tax liabilities. But for ordinary workers in local government, the opposite was true. They’ll be worse off from 2014.

Unison and the GMB union leaderships have been desperate to avoid a repeat of last November 30’s massive strike against the government’s plans to make public sector staff work longer, pay more and get less on retirement.

Yesterday they agreed a deal with local government employers that includes the ditching of payments linked to final salary. Instead, the scheme will be on the government’s terms, with pensions linked to career average salaries. And adjustments will be made on the base of the CPI inflation index, which is always lower than the RPI index.

The retirement age will be brought into line with the state pension age, which is heading towards 67 and ultimately 68 under Osborne’s plans. While lower-paid workers will pay no more, higher paid staff will face increased contributions in 2014. All in all, the deal is expected to save the state £600 million a year at the expense of working people.

Heather Wakefield, head of local government at Unison, claimed “we have achieved the best possible outcome”. That’s not how the rank-and-file will see it, and a campaign to reject the deal will surely take off.

On the same day, perhaps in return for services rendered to the government, the head of Unison, Dave Prentis, was made a non-executive director of the Bank of England on the recommendation of Osborne himself. Quite rightly, Prentis is considered a safe pair of hands in a crisis and not someone who is going to rock the boat.

In practice, the collusion between big business and the government stretches right round to the trade union bureaucracy. How else to explain why a government which resembles the maiden voyage of the Titanic, and which is despised by the majority of people, is still in office?

In a little over two years, the ConDems have savaged public services, created the conditions for the privatisation of healthcare, undermined state education and sabotaged the welfare state. Yet the resistance from the trade union leaders, with a few honourable exceptions representing civil servants and transport workers, has been reduced to a whimper.

The truth is that the Labour Party and the Trades Union Congress are doing everything to avoid a confrontation with the coalition. The last thing Ed Miliband wants is to be propelled into Downing Street on the back of a popular struggle. Miliband knows that a Labour government would be doing more or less the same in response to the  gravest economic crisis since the 1930s.

While Labour, the TUC and the ConDems conduct an elaborate political dance at our expense, the rest of us are effectively disenfranchised by a corporatocracy where big business and the state share the corridors of power. If Leveson has achieved nothing else, his inquiry has made this absolutely apparent for all to see.

When the pomp and pageantry surrounding the unelected, hereditary head of state’s jubilee is over, we will be back in the real, harsh world of inequality, mass unemployment, failing services and declining pensions. And facing the challenge of creating a real political and economic democracy in place of the present façade.

Paul Feldman

Communications editor

From welfare to warfare

A smiling Gordon Brown pictured sitting in a helicopter gunship at the weekend may have been dreaming about new ways to persuade disillusioned voters to back him or simply how he was taking New Labour further down the road from welfare to warfare. For today, the government declared war on people scraping by on miserly state benefits.

Heavily-trailed proposals will compel the long-term unemployed to clean streets and pick up litter – not for a wage but just to go on claiming their benefits. Those who decline will be left without a penny. Naturally, the Tories are cock-a-hoop because they thought of these ideas first. So naturally they will vote with the government when these plans come before parliament.

Work and pensions secretary James Purnell said that his plans would "transform lives". He is right there, although perhaps he should have said “destroy lives”. And yet people still tell me that however bad this government is, the Tories would be worse! The only people they are fooling are themselves.

Actually, these proposals are no more than the modern version of the Poor Law and the workhouse introduced in 1834 by the newly-enfranchised capitalist class. Relief, as it was called in those days, was conditional on being in a workhouse. The only alternative was starvation, especially in rural areas.

The contrast with how the government treats global economic elites could not be greater. As Purnell was knocking the last nails into the coffin of the welfare state, news was emerging about how the government had caved into caved into business demands over foreign profits taxation. According to the Financial Times: “The concessions mark the latest in a string of climb downs by the chancellor, who has been forced to rewrite large sections of his Budget and pre-Budget report, including proposals on income tax, capital gains tax and fuel duty.”

Proposals to impose a worldwide tax on “passive” income, such as royalties from intellectual property, provoked a backlash from leading transnational corporations. Some decided to relocate their headquarters to Ireland for tax purposes. So this week the Treasury will announce that these anti-avoidance proposals have been axed. “Business felt the changes [to the anti-avoidance] rules were not acceptable or workable and we’re talking with them to resolve those concerns,” a Whitehall official said. So that’s alright then. Business has spoken and, as usual, has got its way. The weak, the poor and those on benefits have no clout and so they get clobbered.

Still the illusions in New Labour persist in some quarters, especially amongst the supine trade union leaders. In exchange for keeping the party afloat financially, this week they will present a shopping list of demands to Brown with the aim of getting him to change course and avoid electoral disaster. They simply don’t get it and never will. New Labour and Brown are not for changing. They are 100% committed to meeting the needs of global capital, insofar as they can, as the climb down on tax confirms.

As the economy goes into freefall, with unemployment climbing rapidly, the attacks on working people will intensify. We will have to defend our interests independently of the state and the weak-kneed union leaders. Our Stand Up for Your Rights festival and rally in October is a contribution towards building such a movement and you should register to join us there.

Paul Feldman
Communications editor

Every little helps

Amidst the kerfuffle of Gordon Brown’s humble pie about his “mistakes” over the abolition of the 10p tax rate, and anxiety to help those who face difficulties as a result of rising prices, we should bear in mind a few home truths about the true relation between New Labour and corporate taxpayers.

Last month, Tesco, Britain's biggest retailer, reported a 13% rise in full-year profits to £2.55bn. They have made the most of rising prices and their dominating position in most towns. On top of that, the reality is that while low-income earners face an increase in taxes courtesy of New Labour, Tesco has allegedly avoided paying around £100 million in tax - and there is very little that the government can or will do about it.

The details of Britain’s biggest retailer’s tax avoidance was revealed at the weekend in a special report published by The Guardian in response to a libel writ issued against the newspaper in April. Tesco was angry about star reporters Felicity Lawrence and Ian Griffiths’ discovery of a chain of offshore companies it had set up for tax avoidance purposes.

Tesco’s legal action is a serious matter for the newspaper, which currently faces charges of libel and malicious falsehood. To defend itself, The Guardian had to assemble an expensive team of corporate tax experts, specialist accountants, academics and lawyers, including two QCs, so that they could untangle the complex web of companies set up by Tesco over a period of years. It took them all of four months to work out how the company created a chain of off-shore companies so that it could raise £5 billion over five years through property sales and a leaseback programme of some of its stores.

The paper's editorial provides a graphic description of a secret trail, which would have defied the likes of Sherlock Holmes:

“To follow the cleverest tax avoidance twists and turns is beyond all but a tiny group of experts - usually the very experts who are paid to outwit the Treasury and the evident intention of parliament. [my emphasis] Understanding a really sophisticated scheme - involving offshore structures, including unit trusts, limited partnerships and companies which are liquidated almost as soon as they are established - involves an arduous trawl through the tangled world of Cayman, Jersey and Guernsey brass-plate companies, cross-checked with published company accounts and a minute reading of stock exchange announcements.”

The complexity and secrecy of these transactions is such that “even the Treasury and Revenue, with considerable resources in forensic tax analysis, find it hard to keep track of the sophisticated tax avoidance devices used by modern corporations”. The Guardian noted: “The Treasury has particularly voiced its frustration at the artificial structures used by some companies to avoid SDLT [the Stamp Duty Land Tax which Tesco sought to avoid paying].”

Whatever the outcome of Tesco’s legal threats, one thing is clear. Tax evasion is the name of the game for all the global corporations, who have monopolies in the provision of the essentials for our existence, be it food, clothing or fuel – and vast power over their suppliers. And there is actually nothing that governments or the main political parties can or will do about it because the state has hitched its star to the very same global corporations who are able to ignore the rules of taxation that apply to ordinary people.

And if journalists challenge corporations like Tesco, they find an army of lawyers outside their door delivering writs. In fact, it’s not just The Guardian that's under attack. Tesco in Thailand is suing two columnists from a Bangkok business newspaper, one for £1.6m in libel damages.

And, of course, while Tesco excels at tax evasion activities, they naturally haven’t forgotten the need to screw their labour force. For its new chain of shops in California, Tesco has placed job ads for two senior managers which listed their responsibilities. These included "maintaining union-free status" and "union avoidance activities". As the Tesco slogan has it, “every little helps”.

Corinna Lotz
A World to Win secretary