Tech tax: Hammond waves a wooden sword

How many high street chains will have to close, or local newspapers be driven to extinction, before anything meaningful is done to make the big tech firms pay fair tax, asks Ray Snoddy

It would be very easy to mock Chancellor Philip Hammond taking on trillion dollar tech giants of California with the wooden sword of a 2 per cent revenue tax.

It wouldn’t even happen until 2020 – if at all – and might raise around £400 million a year. Or not. The Office of Budget Responsibility ascribes “a high degree of uncertainty” to the number.

At the very least a tax on the proceeds of the superhighways might contribute something to the £420 million promised to redress another great British issue, the disgraceful number of potholes in our bog standard highways.

Given that the measure is merely seen as a stopgap – a close cousin of Brexit’s backstop – in case attempts to reach agreement on concerted international action fail, it should not be taken too seriously.

Leave aside for now arguments about the largely unintended consequences of social media: the spread of fake news and hate speech, the damage caused to traditional industries such as retail and media and the psychological damage caused to the brains of the young.

The financial figures are all too clear and beyond dispute.

As The Times editorialised, because the social media giants are dealing mainly with intangible intellectual property rather than bricks and mortar “they are able to game the system building valuable businesses in one country while reporting profits in another.”

As a result, according to EU figures, such aggressive tax planning means that across Europe the social media companies are paying an effective tax rate of 9 per cent compared with the 25 per cent of traditional businesses.

Such a gap equates to the loss of between €50 billion and €70 billion in taxes a year even before the issues of competitive disadvantage that result are taken into account.

[advert position=”left”]

Chancellor Hammond’s £400 million, very approximately, amounts to a wooden sword with the point broken off.

At least at a very crude level it makes a sort of sense. It’s a revenue tax, which would apply to advertising income rather than a sales tax which would be picked up directly by consumers.

It’s aimed at established search engines, social media companies and online marketplaces – no more precise definitions are forthcoming – that generate global revenues of more than £500 million a year. So UK tech start-ups and companies that are loss-making would not be affected.

The kindest thing that can be said for Hammond’s little initiative is that he is sending a message by the slowest of slow mail that the current tax regime enjoyed by the tech giants is unacceptable and ultimately unsustainable.

The problem is how many High Street chains will have to close – it seems to be happening on an almost daily basis at the moment – or local newspapers driven to extinction or editorially disembowelled through lack of resources, before anything meaningful is done.

Hammond is of course right that concerned international action and international agreement is not just desirable but vital.

The tech companies themselves even agree that this is the right approach, although you have to ask how sincere they really are.

Heaven forfend that they should be stalling for time and relying on the main international bodies involved, the Organisation for Economic Cooperation and Development (OECD), and even the EU, to become mired in disagreement and inaction about what to do in the face of this unprecedented challenge.

The main player, the OECD and its 110 member nations, is deeply divided and has had to set a new deadline for action, appropriately enough, for 2020. That too might slip and lead to more individual countries taking their own action – something that would enable the tech giants to play one off against the other.

In the real world it is perhaps the EU which is most likely to take action, mainly because it has shown a willingness in the past to levy eye-watering fines for monopolistic behaviour and is moving on with serious fines to speed up the taking down of anti-social material.

In this as in so many other areas, Remain supporters will argue that the UK would be in a much stronger position to tackle some of the most fundamental global ills of the age as part of a 500 million market rather than standing alone waving a wooden sword.

You can have endless arguments about what constitutes fair taxation. The tech giants contribute greatly to UK society by providing thousands of jobs, and outside those working in the giant warehouses, highly paid jobs with future-facing skills.

But the €50 billion to €70 billion a year tax imbalance is one that cannot be ignored and has to be addressed as quickly as possible.

Just think the obvious – the extent to which social services of Europe could be boosted by some of the unbridled profits of the social media if they contributed their fair share to society.

In an ideal world, all the negative “externalities”, as economists would term them, would be addressed in a comprehensive way, but that is almost certainly impracticable.

Going for the money first is undoubtedly the best way of gaining the attention of the tech giants, or tech publishers as they should more properly be called.

Not only might they listen more in future as a result but it could pave the way towards reaching agreement on what is deemed unacceptable about their information policies.

A small step in the right direction has just come from Damian Collins who chairs the Commons media and communications Select Committee.

Collins has set up an “international grand committee” with his Canadian counterpart Bob Zimmer, with other countries invited, to meet in London on November 27.

They have asked Facebook founder Mark Zuckerberg, who has turned down all previous requests for an appearance before the Select Committee, to come and address “the failures of process” that has allowed propaganda and false information spread on his network.

He has been asked to reply by 7 November.

Were he to agree to turn up it would be evidence of a change of heart.

Alas Damian, Bob and friends should not hold their breath.

This is going to be a long campaign but one that eventually must be won for the sake of civil society and fair taxes.