It's the Tax Laws, Stupid!

Yesterday Google admitted that in ten years they had paid £10m in taxes in the UK and collected £12bn. Then they said they had obeyed all the UK tax regulations. The chilling truth is that they probably did. I wonder how many people like myself are shouting at their radios "It's the tax laws, stupid!" It is not greedy evil capitalists. They have been encouraged by the ethos of modern crony capitalism to do exactly what they have done. By the standards of the market they have not 'been evil.'

So why are successive governments taking so agonisingly long to change, if indeed there is even a serious intention to do so. I suspect that Europe is the lesser obstacle. Indeed the anti-Europe lobby, growing stronger every day and with good reason, could seize on exactly this fiscal necessity to lever us out of Europe.

The greater reason, one of which we are fearful in so many economic spheres, is the spectre of international competitiveness. The argument goes that if we step too hard on the multinantional's toes they will simply lose interest, up stakes and quit the market. OK, maybe that wouldn't cost so much in taxes. But the jobs. And the insult. Cue collective shudder.

So here is a lesson from little New Zealand. In the reform of the health system the labour government of Helen Clark instituted Pharmac, a body whose sole function was to manage the supply of medicines. In order to get the best deal for the New Zealand consumer they started to play hardball with the pharmaceutical companies. Unfortunately they had to show their cojones to be taken seriously, which they did in a couple of instances by refusing to pay the demanded price and refused to fund the cost of the drugs in contention, forcing some patients to settle for a less effective alternative. In effect, they used patients as hostages whom they were clearly prepared to shoot. Ouch!

It worked. The drug companies sat down, furious, squirming, at the table and started to talk. Impressive deals started to flow, to the benefit of sick kiwis. Over the next couple of years one company after another declared in the media that this had gone too far, they couldn't recover their costs, they would pull out of the country. No big deal, surely - four million customers? Ha! The loss of the NZ account would scarcely register on their global spreadsheet.

To date, how many companies have actually quit the market? One, their product easily replaced by generics (another reason they hate leaving any market). Lesson - never, ever, underestimate the greed of the multinational corporation. Who would have dreamed a tiny handful of customers on the edge of the world could produce so much muscle? I promise you, no corporation will forgo a single penny they can get their lunch-hooks on.

Look at the fines Microsoft paid in Europe. Even when European Court fined Microsoft €561m for leaving the browser choice pop-up out of 15m copies of Windows 7, finely calculated to equal their total share of income from those sales, Microsoft did not consider for a second quitting the European market.

Because it is also not just about the money, but global strategy. The world-dominant brands cannot afford to leave any significant market open to give a competitor the space to grow and become strong. The UK may be smaller, but in the English-speaking world - the rich part - the UK is still hugely influential.

Conclusion: no matter what they threaten, no significant multi-national will quit the UK over tax rates. The implicit threat to quit the UK if the taxes become too fair is a paper tiger. Do it, Jimmy. Do it George.