Small Welsh town takes on tax avoiding giants

Family-run shops in Crickhowell are protesting against tax avoidance by copying major corporations’ tactics. Is it naive to think grassroots action can change unscrupulous behaviour?

Crickhowell is a small market town in the Brecon Beacons. Its main attractions include a 309-year-old bridge and a former coaching inn. Each year visitors come to its art trail and walking festival. The local tourist board calls it ‘the jewel in the vale’.

But this sleepy place could now be the birthplace of a British revolution after every business in the town moved their tax affairs to the Isle of Man. The initiative, which follows the lead of the Caffe Nero chain, will allow Crickhowell’s coffee and book shops, opticians, bakery and salmon smokery to avoid corporation tax. It will be the focus of a BBC documentary to be shown next year entitled The Town that Went Offshore.

The fiercely independent, family-run businesses of this town are protesting against multinational companies’ use of similar arrangements to reduce or eliminate their tax bills. Companies should pay 18% of their profits to the government in corporation tax, but some giant firms use complex accountancy methods to move large sums of money abroad, minimising their declared profits in the UK. The methods are legal, and the response of Mark Fox, Starbucks’ UK managing director, to revelations about his company last year was to say: ‘It happens across the sector. It didn’t bother me at all’.

But Jo Carthew, who sells local produce in Crickhowell, said she was ‘shocked’ by the behaviour. ‘We do want to pay our taxes, because we all use local schools and hospitals, but we want a change of law so everyone pays their fair share’. She added that, if the government does not clamp down on tax avoidance, the expert advice Crickhowell has benefited from ‘could be rolled out to every town’.

An OECD report last month estimates that from 4 to 10% of global corporation tax is being lost as a result of avoidance tactics. Companies divert money to small states such as Luxembourg and overseas territories including the Cayman Islands, British Virgin Islands and Bermuda, where taxes are very low.

Taxing issues

Bring it on, say some. Crickhowell’s small businesses are fighting for a level playing field with major competitors who are deviously avoiding paying for services they use. The government must close the tax loopholes.

A naive stunt, say others. If governments bring in new rules, the multinationals will soon find ways around them. And bashing these corporations will do more harm than good: they employ many people and provide services from which consumers benefit.

Jonathan Isaby, chief executive of the Taxpayers’ Alliance, says both arguments miss the point: tax law is too complex. Make it simple and the accountants’ schemes will become impossible. Everyone will pay, and taxes will be lower for all.

You Decide

  1. Would you avoid tax if you could?
  2. Will the Crickhowell protest change government policy?

Activities

  1. Write down five questions which you would like to see answered in The Town that Went Offshore.
  2. Write (and, if possible, act out) a sketch in which a small business owner from Crickhowell meets the CEO of one of the companies they are protesting against. What would they ask each other, and how would they each respond?

Some People Say...

“In the real world Goliath always wins.”

What do you think?

Q & A

Why do people care so much about tax avoidance?
Tax pays for vital services like education, health, transport and the police. Businesses often rely on these directly — the education of many of their employees, for example, is paid for through tax. And when some avoid tax, everyone else has to pay more to allow the government to raise the same amount.
What has big business ever done for us?
Big business is often a source of heated controversy. Its defenders point out that major companies employ large numbers of people and that even small businesses rely on the money which they make — for example, waiters at Starbucks make money which they then spend, boosting the economy for everyone else. But others attack it as anti-competitive or destructive, for example on environmental grounds.

Word Watch

Isle of Man
Low tax is a feature of life on the Isle of Man, where there is no capital gains tax, inheritance tax, corporation tax or stamp duty. But the IMF and OECD both accept that the island should not be classed as a tax haven, as its laws comply with international guidelines.
Caffe Nero
The chain has not paid corporation tax in the UK since 2008, despite its sales figures totalling £1.2bn in that time.
BBC documentary
The programme will be shown on BBC2 in 2016 as part of a series which, according to BBC2 controller Kim Shillinglaw, will ‘explore who are the winners and losers in Britain’s black economy’.
Fiercely independent
On Tuesday, it was revealed that campaigners in the town had successfully resisted plans to build a supermarket on the High Street, on the site of a historic pub.
18%
Lowered from 20% in this summer’s Budget in an attempt to encourage business and attract investment to Britain.
Some giant firms
For example, Amazon paid just £11.9m of corporation tax last year on £5.3bn of UK sales, while Starbucks paid no corporation tax at all between 2009 and 2012.