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It’s time Britain stopped dancing to the tech giants’ tune

January 11, 2017

Mark wrote the following article for today’s City AM. It can be read online here.

Few tears were shed last summer at the plight of Apple Corporation, whose sweetheart deal with the Irish government was ruled unlawful by the European Union to the tune of a £11bn fine.

Predictably, Eurosceptic voices were raised on this side of the Irish Sea relishing the day when the UK will no longer be subject to EU state aid rules. Who knows, Brexit may yet open the way to the whole gang of global technology giants being domiciled here. But we should be careful what we wish for. While in the years ahead the UK will rightly wish to create the firm impression that our economy leads the pack as welcoming and commercially-friendly jurisdiction, we should not be comfortable with being regarded as a soft touch on business tax.

Government not only needs new sources of revenue at a time when deficits remain dangerously high, but it would be wise not to ignore public anger at the wilful tax avoidance by digital disruptors, which have damaged the reputation of capitalism across the West has been destructive. Until recently, these disruptive disintermediators threatened to sweep away regulations, competitors and all before them. Voters, and belated politicians (hello, President-elect Trump!) have started the fightback.

The sobering reality is that the global technology and communication service providers’ stratospheric growth over the past two decades has been vastly assisted by their ability to avoid taxation. I accept it might be wise to reflect that this has been the price – unarguably an overly generous gift from taxpayers – that Western governments have been willing to pay in order to secure essential cooperation in the sphere of internet surveillance, which they believe is so vital to national security.

However, it is evident that we are at a crossroads in public sentiment. The high tide of global technology dominance may be upon us. Perhaps it is no longer the prerogative only of the Luddite to wish to see the tech giants brought down to size, however loudly their advocates insist upon the virtues of a “sharing economy” or their array of apps that freeload on existing infrastructure.

Needless to say, all this has been developed and paid for out of our fusty “old economy” taxation. Yet at the same time as the tech giants now strike a public pose standing up for their customers’ privacy against Big Government, their very business models hinge upon the exploitation of knowledge and information from their own users. Information which can then be sold for profit to third party advertisers.

The British economy found itself particularly susceptible to the temptations of the disruptive economy even before the outcome of the EU referendum. The UK’s retail e-commerce is the largest in Europe; our openness to foreign investment is augmented by the fact that so much in the tech world is governed by the English language and English law.

There is a critical mass to the UK creative industry that makes it attractive to the US tech giants and, as we have seen in the ongoing tussles with Uber, UK regulators are less intrusive than their continental counterparts when it comes to the brushing aside of home-grown restrictions to trade.

While the London black cab industry is often its own worst enemy as it defends its barriers to entry, it does have a point. Uber’s tactics are to destroy local competition and compromise safety standards, while avoiding regulation and taxation on a near industrial scale.

Arguably, if the UK is to move towards becoming a fully-fledged knowledge economy, it requires genuine investment in skills, rather than a headlong rush to lower standards and costs, however superficially beneficial the latter may seem to consumers. Remember, it will be white collar, professional jobs that will be lost in the next phase of the rapacious casual capitalism that Big Technology seeks to impose upon us all.

So perhaps it is also time to recognise that corporation tax is past its sell-by date as an appropriate means of capturing value in our modern globalised economy. A levy on turnover, rather than profits, might well be the best way forward.

At the beginning of the year, Google made the headlines when it was revealed that, despite employing 2,400 people in the UK and harvesting a notional estimated profit in excess of £1bn, it was able to pay corporation tax at three per cent. Even before its recent travails, Apple last year declared foreign pre-tax profits of $47.6bn, on which it paid $4.7bn (9.9 per cent) tax, compared with group-wide income taxes of $17.7bn. A similar story could be told by examining the accounts of all other leading global tech players.

Rather than joining the hue and cry of criticism at the EU Commission’s alleged high-handedness, a more sensible UK approach would be to support moves towards US multinational tech firms being obliged publicly to report country-by-country and disclose their earnings and tax bills in Europe. Next time we bemoan the fact that, despite hosting Tech City, the UK has not been able to incubate a competitor to the US digital giants, we should reflect that our mid-sized players in this field do not benefit from the opaque tax structures, yet alone the lobbying clout, of their US counterparts to compete effectively.

It may be tempting to see Brexit as an opportunity to arbitrage against EU regulation in this sector. The UK government needs to be absolutely sure that it has the support of an increasingly exasperated British public.