Monday, 9 April 2012

Glasgow -v- Edinburgh

There's been a lot of comment recently on Amazon's tax avoidance (see this Guardian article).

By structuring the company in such a way that all the revenues are controlled via Luxembourg it seems that Amazon has created a position where £billions of its UK sales are not subject to UK corporation tax. The result is that Amazon's profits increase and the company pays hardly any tax in the UK.  So when you buy through "" you are actually contributing plenty to "amazon" but not a lot to "uk".

Some would say that this is merely clever accounting by Amazon and good luck to them. Others might point out that, if UK sales are not subject to UK taxes then the UK Government has less than it would/should have to pay off debt, support Government costs, cut other taxes, improve schools, hospitals and etc. etc.

Tax Research UK linked the Guardian story to one in The Scotsman last year in which Alex Salmond fronted a £10million grant to Amazon to open up a warehouse in Fife. There followed criticism of the SNP's stance, but also a defence from Professor Brian Ashcroft.

Far be it for me to argue with an economist as eminent as Prof Ashcroft, but I think he rather misses the point. By concentrating on the narrow point that some jobs have been created in Scotland and that's a good thing (which it is), he does not address the wider position of the SNP: the introduction of competitive corporation tax levels into;

a) a unitary devolved state.  

b) an "independent" Scotland (if it ever happens) on the island of Great Britain.

To take the second instance first: an "independent" Scotland which tried to reduce corporation tax would face several barriers. If it was a member of the EU then that organisation has made its displeasure with the tactic clear. Neither Ireland nor any other EU country will ever again be allowed the previous laxity to compete with other EU members on company taxation, nor would an "independent in Europe" Scotland. The recession has put paid to that scam. So an "independent" Scotland accepts the rules of the EU and tholes its punishment or it is no longer an EU state. So much for "independence" in Europe.

It would also face the wrath of its biggest trading partner and neighbour, the UK. It is unlikely that England Wales and Northern Ireland would sit back and take a tax avoiding strategy from their new neighbour. What sanctions there would be is not clear, but there would certainly be diplomatic pressure and other (overt and covert) sanctions.

As for option a): can you imagine a situation where Glasgow could cut corporation tax to compete with Edinburgh?

All of Edinburgh's businesses would hightail it along the M8 in short order and reap the rewards.  Fine for Glasgow and bad for Edinburgh.....if Edinburgh cannot respond. But what happens if Edinburgh cuts even lower?

We get a predictable and destructive downward spiral. Competition creates cutthroats: businesses bounce back and forth, changing the address of their HQs, and benefiting from a continuous reduction in its contributions to society while the cities face a reduced tax income and an unstable business base.

That's what the Nationalists want to do with Edinburgh and Newcastle and Glasgow and Birmingham and the ret of the UK landmass.

It's nuts and it's nasty.

To return to the original argument: are the Nationalists wise to give a subsidy to Amazon to create new jobs in Fife?

Answer: probably not. The short term boost is welcome of course, but history shows that companies like Amazon are ruthless in taking any grant or subsidy on offer locally but they have no commitment to any particular country or people.

They may stay in Fife for the duration, but they may not. And it won't be our £10million that decides that. Amazon have got our money already and their behaviour shows that they could not care less about the exact location of their workers or the morality of accepting UK tax-payers money while avoiding UK taxes.

That's a perennial for those who wish to encourage inward investment, an its one to which no-one has found a completely satisfactory answer. The SNP's particular folly is to invest in Amazon when it has been known for years that the company has a predatory stance toward paying its taxes in jurisdictions like the UK and other, non shelter, economies.


  1. You forgot one point: the "living wage".

    If an independent Scotland had a living wage that was higher than in the rest of the UK's minimum wage, will it really attract investment, even with lower corporation tax?

    And at present, despite the private sector picking up, the retail sector is suffering. All Amazaon does is balance some of the job losses elsewhere.

  2. And it kind of demonstrates the futility of lowering the corporation tax rate to attract the likes of Amazon anyway if their profits are taxed in an even more tax-friendly jurisdiction.

    If Scotland was in a position to close the loophole then rUK would be more attractive to Amazon et al, and if it kept the loophole open then it's Westminster all over again.

    Hence the SNP's inability to address the question.

  3. well said, braveheart. the jobs should have gone to the north of england!!

    and then, you would be on here with a totally different take from the one above.

    HMRC loophole allowed under the watch of westminster?

    your blog is tiresome. so i will do you and me a favour and no longer read it.

    now andrew page, there was an excellent non-partisan blog that i mourn the passing of.

    take care


    1. Cheerio.

      Sorry for all the long words....

      PS, how will I know when you don't come back?..... :)

  4. So just to check - your position is that the SNP could somehow secure LESS than zero tax from Amazon than successive Labour and Tory'Lib Dem UK governments have?

    1. Stu...

      the bad news: it's a blog, not an inanity competition.

      the good news: if it was an inanity competition you would be well in the running.