In which the Daily Mail resorts to an outright lie

It may be the sheer ubiquity of the US chain that had people spluttering into their morning lattes. Whatever the reason, the revelation that the coffee shops have paid nothing whatsoever into the UK Exchequer for three years achieved the unlikely feat of turning corporation tax into a national obsession.

‘Starbucks is a game changer,’ says tax expert Richard Murphy. ‘And we should be very glad of it. This is an important issue.’

It\’s as if the Mail and the country\’s leading tax expert have not heard of business rates, isn\’t it?

You know, that rather close approximation to a Land Value Tax, the least distorting of all taxes, that this country levies at a higher portion of tax revenue than any other OECD country.

From memory we get 11% of tax revenue from property taxes (of which business rates are 40-50% or so) as opposed to the OECD average of something like 4%.

Declaring that those occupying retail frontage contribute nothing whatsoever to the UK Exchequer is simply an outright lie.

42 comments on “In which the Daily Mail resorts to an outright lie

  1. Ah but, in Murphy’s view, if we didn’t have Starbucks we would have indigenous coffee shops, full of happy employees whistling while they ground the beans.

  2. Murphy is being an absolute prick again. On his blog today he claims that EU law has nothing to do with the tax that multinationals trading in Europe are supposed to pay. He seems to think that EU law only applies when he thinks it should.

    Unbelievable.

  3. @Richard. Coffee! Coffee! Are you mad man? Coffee is the drink of the elite. You’ll have a cup of over-brewed tea and like it.

  4. Please, please. please let Starbucks close their UK operation and throw all those barristas onto the dole. Please.

    Followed by Philip Green closing TopShop down. Please. It’s all I want for Christmas.

    Let Murphy run the country. I will be somewhere warm.

  5. Why would Philip Green close TopShop – surely its for the owners to decide?

    The 1/6th VAT is collected by a company, and the amount paid to HMRC is less the VAT payable to the company for purchases.

  6. “You’re losing it, Worstall.”

    Not so sure about that but certainly better than being a complete tosser who never had it.

  7. Well, as I pointed out in another comment section, there’s the power of the narrative for you. Now the Mail’s running with our famous ‘tax expert’. Half the country believes Starbucks pay no taxes & are defrauding the Revenue. As are E-bay, Top Shop, Barclays & anyone else Murph doesn’t like the look of. No doubt Polly’s next column will reveal they exploit single mothers & Monbiot’s, the milk for the lattes is radioactive.
    Be nice to think truth conquers all but truth has a very small voice.
    Meanwhile, politics is all narrative & this one says Ed Millipede waltzes in to #10 in ’15.

  8. Remember Dr Eoin Clarke wants there to be only one type of coffee sold, so we won’t need all this choice of coffee shops.

  9. @TheThoughtGang

    Oh dear, oh dear. VAT is NOT paid by consumers. There’s a reason why it is called VALUE ADDED tax – its a tax on the gross margin of companies in the supply chain.

  10. ShineyMart (#17), no.

    VAT is (theoretically) a tax on consumers; the “Value Added” bit is just the collection mechanism.

    We know this because VAT is not charged if the customer is outside the EU, even where there’s a fully UK “value added” supply chain.

    At least, that’s the theory of who it intends to tax. Who actually bears the economic incidence is debatable, but that’s true of all taxes.

  11. Bloke in Spain.

    I agree. But the problem with ‘narratives’ is that when they unravel (the BBC is truthful, politicians aren’t actually stealing directly from us) there is hell to pay.

    This narrative will eventually unravel. What the alternative? Are Starbucks, eBay, Amazon, Apple etc. actually going to leave the UK? Is Ritchie actually going to change EU tax reporting law? Is Jo Blow going to stop going to Starbucks, eBay, Amazon because of this?

    No.

    The truth will come out and lots of people will be pointing at Ritchie as the idiot that lied. His footprint is all over every article and interview on this subject.

  12. The incidence of VAT is partly on the consumer, partly on the producer. Obviously.

    Either way, it’s an awful tax, taxing companies even if they aren’t making a profit.

    And if you tax something you get less of it. We want more Value Added, please, not less.

  13. How is VAT not paid by consumers?
    In the last 10 minutes I’ve sold an item, customer has paid the item price which is 5/6ths to me and 1/6th VAT. Certainly looks like the particular customer has paid the VAT. Don’t recall charging anyone else this person’s VAT instead…

  14. Murphy et al want the UK economy to turn from being an innovative one open to new ideas and methods to being a copycat one where people only start businesses that have been tried elsewhere.

    For better or worse, Starbucks invented the current coffee shop culture. Of course there were cafes before but there were not the Costas and Neros and other that we have now.

    If Murphy succeeds in his campaign we won’t get the next high street (or any other) development.

    Also the point about business rates is extremely important because coffee shops have shoved up high street rents massively, leading to a huge increase in rates collected.

  15. You can of course get the exact Business Rates figure by typing each Starbucks shop into the VOA website.

    Richie should be onto Oxfam, who’s 80% discounts on rates on their 120 (?) specialist bookshops is worth something like £1.3m without the other 500+ shops.

  16. Martin Davies: in the absence of VAT items would cost less and therefore more would be sold. Ergo retailers would make more profit. So VAT does in some ways fall on the the business as well as the consumer, in the form of lost sales and profits.

    For example, now VAT is at 20% on cooked chickens in supermarkets, they will be higher in price. So people who continue to buy them will bear some of the incidence, and the supermarket will bear the rest in lost sales. People who do not purchase due to the price increase bear a sort of non monetary incidence – they no longer can have a cooked chicken.

    What the exact proportion is I guess depends on the elasticities of demand for the items thus taxed. Something everyone has to buy (basic food items say) mean the incidence is mostly on the consumer, on discretionary items (meals out at restaurants) the incidence is more on the supplier.

  17. @TheThoughtGang – depends on the price elasticity of Supply and Demand and relative market power within the supply chain. Some things did indeed go up when the VAT rate went up. Some didn’t. I would ask how many ‘promotions’ did the supermarkets run holding the price when VAT went from 15-17.5-20%? And how many prices went down when the rate went from 17.5 to 15%?

    Also, do you think the price of an iPad or iPhone would go down if the VAT rate was dropped? Honestly?

    @Richard – tax incidence I agree with.

    The fact is a proportion of the VAT on Starbucks products will come out of their margin and/or the margin i their supply chain.

  18. Shiney, thanks for linking.

    The notion that “the consumer pays the VAT” is another big fat stonking lie perpetrated by the powers that be, and even if it were true, I fail to see why that is a good thing.

    Fact is, Starbucks pay about £80 million a year in VAT on their £400 million turnover, plus maybe £20 million for Business Rates and probably as much again in PAYE (regardless of who bears these taxes), so that looks like about half their turnover going to HM Govt. So as per usual, Murphy is wrong, the Taxpayers Alliance is wrong, they’re all just factually provable wrong.

    That said, TW is quite correct, Business Rates is very close to LVT and hence the least bad tax.

  19. @ Blue eyes:
    Don’t think you are right about coffee chains pushing up rents. Huge amount of retail space in the UK is vacant and landlords are desperate to find tenants. In some places rents are below 1989 levels.

  20. Yes, lots of retail is vacant. How much more would be vacant (and therefore not earning much rent) if the coffee shops were as prevalent as they were before the mid 1990s?

  21. @ Jim

    “in the absence of VAT items would cost less and therefore more would be sold. Ergo retailers would make more profit. So VAT does in some ways fall on the the business as well as the consumer, in the form of lost sales and profits.”

    If you follow that line of thinking, then the incidence of all taxes (and, indeed, expenses of any kind) fall on those who would sell us goods.

    If I have less money to spend on stuff because VAT has gone up, then the incidence is on me… because I have less money.. so I will have less stuff. That retailers will subsequently sell less stuff is a secondary issue.

    In a competitive market, VAT will be uniformly applied and, thus, will be born by the consumer. If that were not the case then a complete abolition of VAT would see companies all adding 20 points to their gross margins… which seems rather unlikely.

    @ ShineyMart
    I don’t see how looking at one retailer, who sells a high proportion of non-vatable goods, during a period of economic turmoil, is going to tell us much. I do. however, note that their GM% stayed fairly stable during the period… indeed, it was 5.6% with 15% VAT and 5.6% with 20% VAT. If Tesco were bearing that VAT increase then we’d expect a big margin drop.

    There will always be exceptions, of course, but the principle is pretty well set… and the labour VAT cut to 15% was a stimulus to consumer spending.. not (directly) to corporate earnings.

  22. Dear Mr Worstall

    @TaxTeddy // Oct 23, 2012 at 10:08 am [comment] 1

    “Of course, you can also include employer national insurance at 13.8% of staff salaries!”

    Or not – so-called “employers’ ” national insurance contribution is an element of the employees’ income which is taxed at 100%. Their marginal tax rate is (income tax + NIC + ENIC) / (100 + ENIC), whatever that works out at this week.

    @Pete // Oct 23, 2012 at 11:01 am [comment] 7

    “He seems to think that EU law only applies when he thinks it should.”

    Mr Murphy must be French. Or Italian. Or Spanish. Or French. Or …

    @Richard // Oct 23, 2012 at 1:33 pm am [comment] 16

    “Remember Dr Eoin Clarke wants there to be only one type of coffee sold, … “

    D’you think he would like a Victory cigarette and a Victory gin to go with his Victory coffee?

    DP

  23. I’m struggling to make sense of some of the comments here. Why should it matter if Starbucks chooses to leave the UK? Surely if demand exists for so-so coffee, and the premises and staff are available, another company will step forward to fill it. Who knows, the new company might even sell better coffee, and make a profit doing it.

  24. PaulB – “I’m struggling to make sense of some of the comments here. Why should it matter if Starbucks chooses to leave the UK?”

    If our pet WGCE whips up a lynch mob that drives Starbucks out, I think it matters very much indeed.

    “Surely if demand exists for so-so coffee, and the premises and staff are available, another company will step forward to fill it. Who knows, the new company might even sell better coffee, and make a profit doing it.”

    So driving the Jews out wouldn’t matter as someone else would take over all the kosher butchers? Interesting.

  25. Mark, think your sums are a little wrong. £80 million tax on £400 million turnover would be a tax of 20%. VAT is an added tax of 20%, not the same.
    Can be easier to think in terms of fractions instead, 1/6th being the VAT. £66.6 million VAT on £400 million paid by customers.

  26. @ Martin

    Companies report their net turnover, so VAT is added to it, not subtracted from it.

    Of course… the reason for that is that the VAT is neither cost, nor revenue, for the company. Which is rather the point.

  27. So driving the Jews out wouldn’t matter as someone else would take over all the kosher butchers?

    This is in spectacularly poor taste. Because whereas the Murphy-inspired lynch mob you speak of is purely figurative, Jews actually have been murdered.

    Also, it makes no sense as an argument…

  28. @PaulB

    “Jews actually have been murdered.”

    Yes. Mainly by a crazed socialist who thought that all the ills of society could be blamed on a small number of rich people ;-)*

    (* does a wink mean that Goodwins doesn’t apply)

  29. TTG: no, the wink doesn’t help.

    Can we bury the canard that Hitler was some sort of socialist? The Nazis adopted the word from Oswald Spengler’s Preußentum und Sozialismus, and Spengler’s notion of what he called socialism was a sort of undemocratic corporatist meritocracy, with no redistributive element. And Spengler was strongly opposed to Nazi anti-semitism.

  30. OK. But we can agree that Hitler liked to run a couragous state, yeah?

    Sorry.. more flipancy. Sensitive topics aside, your initial point that the Starbucks/Jews analogy makes no sense is spot on. I also agree that Starbucks packing up and going home would not portent the end of days.

    However, if companies aren’t wanted here then it’s for the people to decide, not Richie. He and his friends can highlight practices they don’t approve of, but then it’s for us to decide whether we want to take our custom elsewhere.. not for Richie to have laws drafted so that he (or those he approved of) can force out anyone he doesn’t approve of until all coffee is supplied on the Eoin Clarke model.

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