Do Companies Pay Their Tax? (A Brief Look At Amazon)

Yes. They do. If they didn’t, this would be tax evasion. Tax evasion is illegal and firms face penalties for evading tax. So why is there such a big fuss about companies such as Amazon, Google and Starbucks not paying their fair share?

There are two issues here. The first is that too many people do not understand how business taxes work in the UK and are misled by left-wing media. Linked to this is that too many people do not understand the difference between illegal tax evasion as mentioned above, and legal tax avoidance which is common sense.

 The second is that this question sometimes get mixed up with: do companies pay their fair share of tax? This is a question that I’m not going to go into as it is primarily concerned with political philosophy – my aim is not to tell people how to think but give them the knowledge to think accurately.

Therefore this blog post is hopefully going to tackle some misconceptions. I’m going to mainly stick to Amazon’s tax affairs as this is the company which I know most about. Last year, the Guardian stated that “Shoppers have been urged to boycott Amazon's British business after it paid just £4.2m in tax last year, despite selling goods worth £4.3bn.” There are two main things wrong with this statement.

The first is that corporation tax is not paid on revenues and as such, the statement makes no logical sense. Corporation tax is a tax levied on profits at a rate of c. 21% (this can change slightly depending on the size of the company). However, companies can make deductions from their trading profits if they make charitable donations, or invest in capital.

The second fault with the statement is that the goods worth £4.3bn mentioned were not sold by Amazon UK but by Amazon EU Sarl. This is the company based in Luxembourg from which we buy goods from when we place an order through Amazon’s website. Amazon UK is merely a distribution company which Amazon EU Sarl pays to distribute the goods.

Amazon UK made £17m of profit in 2013, and paid £4.2m of that in corporation tax to HMRC. This is a rate of over 24%, meaning the company paid all the tax due in the UK. Maybe you object to the fact that Amazon is based in Luxembourg, and if you do, you can blame Jean-Claude Juncker, the former president of Luxembourg and current president of the European Commission. He offered Amazon a special rate of corporation tax (3.5%) if they set up their headquarters there as he knew that the Luxembourg government would reap the benefits (support for the argument that lowering the corporation tax rate brings in more business and therefore more money to the government).

You could blame Amazon for setting up in Luxembourg and “avoiding” tax but be honest, if you had the choice of paying 3.5% income tax or 20% income tax and both options were completely legal, which would you choose? It’s interesting that we don’t describe individuals who put money into their pensions or take part in cycle to work schemes, so that they have less taxable income, as “tax avoiders”.

It is also worth noting that Amazon is not a profitable company in general. Even if they had no “tricks” to avoid tax, they would not pay much corporation tax. On global revenues of $89bn in 2014, Amazon.com made a loss of $241m. This is because Amazon offer so many of their goods and services at a loss. Their Kindle tablets and Fire phones are both sold at a loss, and Amazon loses millions of pounds on delivery every year. Now, I’m not going to pretend that this is for the benefit of consumers – it is purely to gain market share in as many markets as possible. However, a side effect of this is that we, as consumers, get a great deal. As Milton Friedman once said, “The social responsibility of business is to increase its profits” – and the best way to increase profits is to look after both your customers, and your employees.

So boycott Amazon if you must, if you feel that they are “cheating the system”, but please be aware that the only person who will suffer as a result is yourself. I hope that you are now in the loop on corporation tax but if you’d like me to explain anything else on this topic, please leave a comment below!

Ed

Note: Since planning this blog, Amazon announced they would be changing how they report their sales and items distributed in the UK would be reported as sales for Amazon UK. This should lead to Amazon paying more corporation tax in the UK but this is not guaranteed as, again, corporation tax depends on profits and not revenue! This is a voluntary move by Amazon, but it has possibly been hastened by the investigation currently ongoing by the EU into Luxembourg’s relationship with Amazon. It should be noted, however, that it is Luxembourg’s offer of reduced corporation tax that is potentially illegal. It is not Amazon’s business structure that is being investigated. There are also investigations at present into Ireland’s relationship with Apple, and the Netherlands’ relationship with Starbucks.

Electoral Reform: Voting System

15.4 million. The number of people who went out to voted two weeks ago today only for their vote to be completely worthless. One in three people eligible to vote didn't vote at all. How many of these did not vote because they knew it was pointless? It is shocking that in the UK, a country with one of the oldest parliaments in the world, 76% of people did not vote for the party that currently holds all the power.

 

Some people have blamed those who did not vote, or those who didn't vote Labour out of fear of the SNP. In reality, there is only thing that can be blamed for this, our broken voting system, First Past The Post (FPTP).This is a system designed for two party politics, something which we do not have in the UK. Six parties received over one million votes, and I have no doubt that the smaller of these might have garnered more votes had people believed their vote would have meant something.

 

The most proportional voting system is the D'Hondt method of Proportional Representation or Party List PR, usually just referred to as PR. However, I would advocate a slightly different version of Proportional Representation known as the Single Transferable Vote. Below I have included a table showing the estimated number of seats that would have been won under each voting system. It is important to note that these are estimates as it is impossible to know how people's votes might change under a different voting system, and the results would depend on how the new voting regions were drawn up.

 

Party	Vote Share	FPTP	PR (D’Hondt)	STV
Conservative	36.9%	331 (50.9%)	242 (37.2%)	280 (43.0%)
Labour	30.4%	232 (35.7%)	199 (30.6%)	241 (37.1%)
UKIP	12.6%	1 (0.2%)	83 (12.8%)	38 (5.8%)
Lib Dems	7.9%	8 (1.2%)	51 (7.8%)	29 (4.5%)
SNP	4.7%	56 (8.6%)	31 (4.7%)	37 (5.7%)
Green	3.8%	1 (0.2%)	24 (3.7%)	2 (0.4%)

 

Party List PR: parties present lists of candidates and seats are awarded according to their party’s share of the vote. This is usually done using an electoral formula or a quota which prevents too many small parties from winning seats.

 

You may wonder why I am not advocating the most proportional system available. There are a few reasons, the main one being that it gives parties even more power over who is elected. They can choose the order of the candidates on the list and independents are not able to stand. Also, people will no longer have constituency MPs as regions will be much larger as they are for the EU elections to enable the results to be as proportional as possible. Finally, one of the main arguments to keep FPTP is that it delivers majority governments. PR almost destroys any hope of a single-party majority (which is not a bad thing in my book but one party does need to be big enough to give it the impetus to form some sort of coalition).

 

Single Transferable Vote (STV) solves many of these problems, at least partially. I have borrowed the Electoral Reform Society’s explanation of STV as I don’t feel I could explain it as well as the experts:

 

“The Single Transferable Vote (STV) is a form of proportional representation which uses preferential voting in multi-member constituencies.

 

Candidates don't need a majority of votes to be elected, just a known 'quota', or share of the votes, determined by the size of the electorate and the number of positions to be filled.

 

Each voter gets one vote, which can transfer from their first-preference to their second-preference, so if your preferred candidate has no chance of being elected or has enough votes already, your vote is transferred to another candidate in accordance with your instructions. STV thus ensures that very few votes are wasted, unlike other systems, especially First Past the Post, where only a small number of votes actually contribute to the result.”

 

By using STV, some power is taken back from the parties as the public can rank their preferred candidates, not all from the same party. A friend of mine had a dilemma in the recent election where the party he wanted to vote for had put up an abhorrent candidate in his constituency. This would not be an issue under STV.

 

Although people would still not technically have a constituency MP, STV tends to work best when constituencies elect 3 or 4 candidates so the constituencies would not be quite as large as they would likely be under PR. This would also allow constituents to contact the MP they feel is most closely aligned to their viewpoint when they feel they need to contact one of their representatives.

 

As you can see from my table above, STV also is more likely to deliver slightly more seats to the biggest parties so that a coalition is able to form. There is another benefit to this as well. People argue that PR is not the best voting system as it gives too many seats to extremist parties e.g. UKIP. STV allows people to rank their preferences, which means that parties like UKIP who are unlikely to be anyone’s second choice party would be less likely to gain seats.

 

The result is that STV is much more likely to deliver a parliament that people voted for, and that people are happy with.

 

Thanks for reading, and please comment below if you disagree or you need something about STV explaining. I have not gone into depth about how the votes are counted because this can get quite complicated. However, the voting process itself is straightforward!

 

Most importantly, thanks for letting me keep you In The Loop. If you feel like the voting system does need to change, then don’t forget to sign one of the following petitions:

 

http://action.makeseatsmatchvotes.org/ea-action/action?ea.client.id=1754&ea.campaign.id=38262&ea.tracking.id=msmv

https://www.change.org/p/david-cameron-reform-our-voting-system-to-make-it-fair-and-representative-makeseatsmatchvotes

 

Ed

 

 

 

 

Privatisation of the NHS

So there are a couple of internet memes doing the rounds which made my mind up about what topic to blog about next, including this one:

When I saw this meme, I finally clicked as to why so many people are so unwilling to even have a sensible debate about the NHS. They think that privatisation of the NHS means that we will have to pay for healthcare. This is completely untrue. Privatisation means that the government pays private companies to provide certain services, It does not mean that we will move to a private healthcare system where everyone has to either pay for treatment up-front, or pay for health insurance as they do in the US.

So what's the point of privatisation? The best way to explain this is to imagine the government as a "jack of all trades, master of none". Essentially, although the government can do a good job of proving healthcare, education, transport, it is by no means an expert in the provision of any one of those sectors. However, private companies have to be experts in their field to make a profit, and this can lead to massive efficiency savings. 

To illustrate this, and these numbers are completely fictional, imagine the government spends £100bn on healthcare per annum (in fact, the NHS budget for 2013/14 was £95.6bn). Now imagine private companies come along and offer to run these services (to the same standard) for £80bn per annum. The government saves £20bn each year which it can then spend on other services (or more likely, pay off some debt). Brilliant, everyone's happy, or are they?

The criticism of privatisation is that out of the £80bn being paid over to the private companies, those companies are keeping £5bn of that as profit. Many people (usually to the left of the political spectrum) believe that private companies should not be allowed to profit out of providing healthcare, a necessity for people to live happy and healthy lives.  I am not going to argue that people are wrong to hold this belief but I have come up with a hypothetical scenario to enable you to judge whether you are against privatisation in principal. So, would you rather:

1) have a healthcare system which is good but not great (let's say 7/10); or

2) have a healthcare system which is great (let's say 8/10) but a few people make lots and lots of money out of it (note: there is no cost to you; in fact you have access to a slightly better healthcare system.)

I am not trying to tell you which is the right answer here, I just want you to be well informed about the issue.

Personally, I believe that privatisation should occur up to the point that it stops becoming beneficial for the NHS. My answer in the above scenario would therefore be Option 2. However, I do not believe that it should be privatised for the sake of it - there are some services which private companies will not be able to provide more efficiently than the government.

I would also add that people who don't trust the Conservatives with the NHS because they want to completely privatise it should bear the following in mind: it was Labour who first started privatising the NHS and in the grand scheme of things, privatisation had, at most, increased at the same rate under the Coalition as it had under the previous Labour government. For your reference, at present, the NHS is roughly 6% privatised.

Interestingly, Singapore has what is generally considered to be one of the best healthcare systems in the world and definitely the most efficient. Singapore's healthcare system is two-thirds privatised (unfortunately, Singapore's healthcare system is too complicated to discuss now but if people want me to, I will write a blog post about it.) Another strong performer is Valencia's healthcare system, where 20% of services are provided by private companies at absolutely no cost to performance.

I therefore suggest that anyone who is against privatisation, despite never having considered what it actually means, has a good think about what they want from their healthcare system. I, for one, would like a healthcare system that works and that we, as a country, can afford.

Thanks for reading and allowing me to keep you.. In The Loop.

Ed

The Human Rights Act

One thing which was promised in the Conservative manifesto upon which they won the election last week was the scrapping of the Human Rights Act (HRA) and the introduction of a British Bill of Rights. Many people assumed this to be a manifesto "filler". It would be a policy the party would be willing to give away when the need to negotiate a coalition arose - after all the Lib Dems blocked the Conservatives from doing this during the last government. However, after winning a majority, the Conservatives have made this one of their first policies to push on with. 

To understand the HRA, we need to understand the European Convention on Human Rights (ECHR). The ECHR is an international treaty drawn up to protect human rights across Europe. It was drafted in the early 1950s by the Council of Europe. Britain not only signed the treaty but had a large hand in drafting it – the final draft committee chairman was a British Conservative MP. The ECHR enabled any citizen in Europe to take what they considered a violation of their basic human rights to the European Court of Human Rights in Strasbourg.

The rights included in the ECHR are: right to life, right not to be tortured or subjected to inhumane treatment, right not to be held as a slave, right to liberty and security of the person, right to a fair trial, right not be retrospectively convicted for a crime, right to a private and family life, right to freedom of thought, conscience and religion, right to freedom of expression, right to freedom of assembly and association, right to marriage, right to an effective remedy, right not to be discriminated against, the right to the peaceful enjoyment of one’s property, and the right to an education. 

So what is the HRA? It is an act of parliament which incorporates the rights of the ECHR into British law and forces all public bodies (e.g. the government, the NHS and the police) to abide by these human rights. It was enacted in 1998 with support from all of the major parties. The HRA enables any citizen in the UK to take human rights cases to domestic courts instead Strasbourg. This became possible as the domestic courts would have to abide by the ECHR. If they did not, appeals could be taken to the European Court.

So why do the Conservatives want rid of the HRA? They claim that the HRA gives Europe too much power over our laws. It cites the ruling that prisoners should be allowed to vote; and the blocking of the deportation of Abu Qatada, accused of terrorism offences, as the UK could not guarantee that he would not be tortured in his homeland of Jordan.

However, the ECHR has less power than the Conservatives claim. For example, despite the ruling that prisoners should be given the vote, the European Court cannot force Britain to change its law. So, in Britain, prisoners still do not have the vote.

Nor does the ECHR meddle in British affairs as much as claimed. In 2012, Britain tried to deport 2,146 foreign offenders. 256 of these successfully appealed on human rights grounds - less than 1 in 8. Interestingly, even if the HRA was scrapped, these offenders could still have appealed under the ECHR. However, their appeal would have been heard in Strasbourg and not in the UK. More interestingly, even in Britain withdrew from the convention that it helped to draft, many of these potential deportees could have appealed under the UN Convention against Torture.

There are plenty of issues with scrapping the HRA and leaving the ECHR. For example, the ECHR is a pillar of the Good Friday agreement. However, and here I am going to give my own opinion, scrapping the HRA will restrict the rights of individuals and for it truly to have an effect, we would also need to leave the ECHR which would be a catastrophic blow to human rights across Europe. If the UK will not stand by the ECHR, how can we expect countries such as Russia and Turkey to do so? N.B. These two countries account for nearly half the ECHR violations between them.

It seems to me that scrapping the HRA will be a lot of effort for very little gain. The Conservative party is purely pandering to its right-wing backbenchers and populist media even though doing so will damage our relationship with Europe – a relationship they should want to keep intact if they are to successfully negotiate any change in EU laws.

Thanks for reading and allowing me to keep you In The Loop. I feel like this is a topic that can not be covered adequately in one blog post so if there’s anything obvious that I've missed, drop me a question in the comments.

Ed

The Radical Centre

Ok, so a short post this evening because there is football on and I'm tired! However, I promised that I would set out why I feel my political philosophy will mean that any bias I might have should hopefully be minimal.

I have no doubt that many of you will have heard the term "radical centre", most likely being used by Nick Clegg. I have little doubt that a majority of you had no idea what he meant by it. The term can be split in two: radical and centre.

The important part in considering my (hoped) lack of bias is the centrism that this philosophy is based on. Centrists believe that solutions come from a pragmatic approach and not just an ideological approach. Essentially, it does not matter whether a policy is from the left or right; what matters is whether a policy works.

The "radical" part of the philosophy is less important for the purpose of this blog, although it is important to me personally. This refers to a need to reform institutions, for example, I am strongly in favour of electoral reform (again, something I intend to blog about in the near future).

Speaking of what I intend to blog about, I have a few topics in mind for the next week: electoral reform (specifically the voting system), privatisation of the NHS, the scrapping of the Human Rights Act and, although I would like to resist, tuition fees.

I am open to suggestions though. If there's any policy you have heard about but don't really understand or want to know about it in more, unbiased, depth, then please just comment below and I'll see what I can do.

Thanks for reading and allowing me to keep you... In The Loop.

Ed

In The Loop

If there's one thing I have learnt from the recent General Election, it is that too many people amongst the general public are politically ignorant. Now I have no doubt that there are a whole host of reasons for this. It could be that people don't feel that politics affects their day-to-day life enough for them to take an interest. It may be that people just find politics boring, or feel disconnected from the mostly privately-educated MPs who run this country.

However, I think there is another reason that so much of the general public is ignorant of what is truly happening in politics and that is that they do not believe they are ignorant. They tell themselves that even though they don't go out of their way to really understand government policy, at least they read the newspaper every day.... or the headlines at least. This, however, is an issue. The majority of the media in this country is sensationalist, and only a few of the national papers are independent of the political parties. Therefore, many of the public who have a set newspaper will never change their mind on a party or even an individual policy.

Now, onto the reason for this blog. I have faith in the British public. I understand that many people believe it is their duty to vote even if their vote has only the tiniest impact on what happens in this country (note: I will almost definitely blog on the voting system in this country in the coming days or weeks) and I respect anyone who casts a vote. However, many of these British citizens do not have the time to fully immerse themselves in politics and have to quickly decide who to vote for in the last few weeks of a government's term. Sure, there are plenty of websites which try to make this easier for people and I highly commend their efforts but this isn't enough. To use these websites, people need a basic understanding of the policies they're choosing between. These websites also give favour to the parties nowhere near government with policies which sound good but aren't possible in real life. Unfortunately, this is what came back to haunt the Lib Dems when they realised their policy to scrap tuition fees was not realistic when they actually got into government.

Therefore, this blog will be an attempt to explain policies that are proposed and implemented over the course of this government. I will try to present these in a balanced way backed up by facts. I hope that my blog posts will be to the point where possible, enabling anyone who wants to understand our government to do so without sacrificing too much of their time. On the other hand, if a short explanation does not do a policy justice, I will not apologise for explaining it in depth.

I plan to follow this post with a post explaining my position in the political spectrum to allow people to eliminate any potential bias I may include inadvertently. Once I explain my political philosophy, it should, however, become clear why this should not be an issue for me.

Many thanks for reading and I hope that you will stay with this blog for the long haul so that you can stay... In The Loop.

Ed