A global agreement on the taxation of multinationals, including the shape-shifting tech giants, seemed impossible until it came into view at the weekend.
There are hurdles to be cleared, of course. The G7 nations need to win support from elsewhere. Important details around how profits and profit margins are calculated need to be thrashed out. Meanwhile, the centrepiece – a global minimum tax rate of 15% – is not as ambitious as originally advertised. But one can say the accord is now more likely than not to bring about the first change in multinational taxation in a century. That is a major shift.
So why, one might reasonably ask, does the Treasury make it seem so hard to reform another 20th century tax – business rates – that looks equally out of step with 21st practices? No international co-operation would be required to bring sense to a domestic property-based charge that has been widely viewed as dysfunctional for at least a decade.
The basic unfairness is the competitive privileges bestowed on online-only retailers versus bricks and mortars operators, a position made worse by lags in adjusting property valuations. A messy system is then made even more complicated by a clunky process of relief and appeals.
There would seem to be two routes to improvement. One school advocates an online sales tax to catch up with the age of Amazon (a company, incidentally, that may be untouched by the G7 initiative thanks to its low profit margins). The other says a revenue-neutral outcome could be achieved simply by hiking charges on warehouses and lowering them on physical shops. Either might work from a practical point of view. The important thing is to act.
After the last pandemic-induced delay, Rishi Sunak, the chancellor, promised a “fundamental review of business rates” would finally happen this autumn. Outsiders’ expectations are not high. The Treasury’s timidity over a tax that generated £30bn a year before Covid reliefs tends to run deep. The instinct is always to tinker, rather than find a fairer way to raise the same sum in an online world.
Maybe Sunak will surprise us. What is certainly true is that there are no excuses for inertia. If G7 can agree on multinationals, the Treasury ought to be able to manage the infinitely simpler task of redesigning business rates.
IWG spoke too soon
“It looks like the worst is behind us,” declared Mark Dixon, chief executive of IWG, the serviced officer provider behind the Regus brand, at the end of April. Six weeks later, he has demonstrated the folly of a global operator in a lockdown-sensitive sector making predictions.
IWG’s top-line profits this year – before interest, tax and suchlike – will now be “well below” the level of 2020, which itself showed a plunge to £134m from £428m in 2019. Since it was always a possibility that new coronavirus variants and extended lockdowns would undermine the recovery predicted for 2021, this profits warning was mildly embarrassing. You’re not obliged to stick your neck out. The shares fell 10%.
In the long term, Dixon may be right that the rise of hybrid working will create opportunities for IWG as a provider of flexible spaces and short-term office leases. The company is not as skewed to city centres, and thus urban travel, as dreamy WeWork. And the genuinely global make-up of its 3,300 sites makes it possible to sign corporate membership deals with global firms.
But the hybrid thesis is still to be tested on the ground over time. Many employers will be happy to give it a go, but they are experimenting. It’s also hard to assess what the glut of office space will mean for rents, the other critical variable for a company in IWG’s shoes.
Undeterred by the rapid evaporation of his last forecast, Dixon is still counting on a “strong recovery in 2022”. Given how far the baseline has fallen, that’s probably a safer prediction than the last one. But the list of unknowables remains long.
BoE has no reason to fear stablecoins yet
The Bank of England is obliged to model extreme risks, but a situation in which a fifth of UK households and businesses move their deposits into digital money, thereby creating big headaches for banks, feels very speculative.
Anything is possible eventually, but it’s hard enough to persuade customers to move their current accounts from one bank to another. If history is a guide, the adoption of stablecoins, the boring currency-pegged versions of cryptocurrencies, may be a slow process.