Gestures rather than principles on display at the Co-op
“Principles [are] more valuable than profits,” says the headline on the Coop Group’s description of its values, but the co-operators forget to mention the small print. The boast, it seems, does not apply to the principle that food retailers should pay business rates when their stores are open and trading strongly.
In the absence of an asterisk, Allan Leighton, the chairman, attempted an elaborate defence of the refusal to repay £66m of relief from business rates. Financial support from the government was welcomed “on the basis that it was not a loan and we would not need to pay it back – and we took business decisions accordingly, he said. Fine, but that misses the point. Tesco, Sainsbury’s, Asda, Morrisons, Lidl and Aldi could make the same argument – but all coughed up.
To confuse matters further, the Coop is repaying £15.5m it claimed in furlough support. That money was similarly not a loan. So why is it being returned? The answer, one suspects, is simply that the sum is smaller and a gesture of some sort was deemed necessary in a year in which the Co-op’s profits rose steeply to £92m or £127m, depending on which measure of profitability you prefer.
Leighton would have saved time by getting to his real point: the idea that the Co-op is a relative pauper, which is half-correct. It was a good year for profits but the balance sheet is still too burdened with debt for a group that cannot raise fresh equity.
Yet even the implied plea of poverty is confused when you see that the Co-op simultaneously thinks it can afford bonuses for executives at pre-pandemic levels. So the financial danger, or whatever we’re meant to assume, can’t be too extreme.
Maybe it all makes sense within the boardroom and on the members’ council that apparently blessed the stance on business rates. But, from outside, it’s hard to detect anything resembling a principle at work.
Biden’s multinational tax plan
“We play by the rules. If governments don’t like the rules, they should change them,” runs the standard plea of profit-shifting multinationals. For a couple of decades it has been issued in the confident expectation that international agreement on tax reform would remain over the horizon. The Organisation for Economic Cooperation and Development produced a sketch of a plan last year, but political sign-off felt impossible when president Trump was in the White House.
Here, though, comes a potentially critical development. The Biden administration is in favour of a worldwide minimum tax rate of 21% and endorses the idea that global companies – think the US tech giants – should pay a greater proportion of their tax in countries where they generate their revenues. Since nothing can happen in this field without US agreement, president Biden has genuinely changed the mood.
Do not, though, think pure altruism is the motive. This is more a case of an alignment of interests caused by events. The new US administration hopes to pay for its huge stimulus and infrastructure programme with higher corporate taxes and does not want to undermine its international competitive position.
Not everyone will jump to the new tune from Washington, however. The lobbying clout of US tech giants, some of whom could face substantially bigger tax bills, should not be underestimated. The European Union will also face a job and a half in persuading the likes of Ireland and Luxembourg that limits should be placed on tax competition.
In other words, the tantalising clarity of a 21% minimum rate may not be what is delivered. Prepare to see get-outs, fudges and compromises. And that’s if high-level interests continue to align on the aim of bring the taxation of multinationals into the digital 21st century. Since we’re now in the third decade of that century, it’s a point where something sounds very much better than nothing.
Asos is clearly over its teenage traumas
Asos was founded 21 years ago, so it’s about time we stopped thinking of the online clothes retailer as an upstart. The financial numbers certainly suggest a business that has overcome its teenage traumas of profit warnings and cost overruns at warehouses.
Profits in the half-year jumped from £30m to £106m and, if City analysts are correct, the full-year outcome should be close to £190m, even as lockdown effects fade. Asos has still to prove it can absorb the Topshop, Topman, Miss Selfridge and HIIT brands smoothly, and thus earn a decent return on a £330m outlay. But claims of “seamless” integration sound more credible these days.