Is this the start of a new coalition against the corporate scorpions?

A broader view of what is wrong with business in this country is emerging – triggered by business itself

• 
• • Will Hutton
  • The Observer, Saturday 17 November 2012 21.04 GMT

Mothercare chairman Alan Parker has added his voice to those businesses speaking out against those who avoid paying tax in the UK. Photograph: Graham Turner for the Guardian

It's a well-known fable. The scorpion wants to cross a river and pleads with the reluctant frog to carry him on his back; it would be pointless to sting the frog because that way both would drown. Halfway across the river the scorpion stings, dooming both. Why? asks the dying frog. Because it is in my nature, replies the scorpion.

Too many owners and managers of British companies, along with the Big Four accountancy firms that provide them advice on how to structure their affairs to evade and avoid taxation, are like the scorpion. They just can't help themselves from behaving badly, even if it brings everyone down. It is in their nature.

As it becomes clear that we are living through the most protracted period of economic depression for more than 100 years, the result of not just policy mistakes but the way Britain has done capitalism, business itself is beginning to ask the first tough questions about what is wrong. There always was a distinction between good and bad capitalism, but so far the critics of bad capitalism have not strayed far beyond the leader of the Labourparty, some trade unionists, business secretary Vince Cable, the odd business maverick and one or two liberal commentators. But last week some serious companies weighed in, plainly worried about the corporate scorpions riding on their backs.

Andy Street, managing director of John Lewis, broke cover to say that multinational companies trading in the UK but deploying overseas tax havens necessarily must "out-invest and ultimately out-trade" businesses paying full taxes in the UK, who now risk being driven out of business. "Ultimately there will not be a tax base in the UK."

Mothercare chairman Alan Parker joined in. "Unfair pricing from international UK tax dodgers puts our long-term ability to survive and grow under threat," he said. Sebastian James, chief executive of Dixons, tweeted that he agreed with Andy Street: "Retailers making profits in the UK should pay tax in the UK."

Unlike in manufacturing, retailing still has a critical mass of British-owned and British-based companies that have collective heft. With Comet recently joining a lengthening list of retailers going into receivership, Street, Parker and James are breaking ranks from the default position of British business that whatever leaves the mouth of a Tory politician must be good and the words of a Labour politician must be bad.

The ritual ideological incantations of, say, the Free Enterprise Group in the Conservative party – that all British business needs is yet more labour market deregulation, further dismantling of welfarism and striking a detached bargain with the EU – have hitherto gone unchallenged by business. Now a broader view of what is wrong is emerging, triggered by business itself.

What prompted Street's intervention was the disastrous performance by Amazon's public policy director, Andrew Cecil, before the House of Commons public accounts committee, aided and abetted by two flanking cameos from Starbucks and Google. The three scorpions were being quizzed about their tax dodging, but the comptroller of the National Audit Office, Amyas Morse, felt that the lack of evidence brought to the committee by Amazon was " insulting". Meanwhile, Starbucks' claim that it made no money in the UK was palpably disingenuous and persuaded none of the MPs. And Google admitted in effect that it does what it does because it can. It is just in a scorpion's nature.

Senior Treasury officials have worried for many years about the precariousness of the UK's corporate tax base and the ease with which companies could use a combination of transfer pricing and offshore tax havens to avoid UK tax. Mortal threats come from the rise of private equity – for example, private equity-owned Boots is now domiciled in Zug in Switzerland – and the emerging dominance of foreign multinationals in the UK because of our careless indifference both to who owns our companies and how they organise their operations. They need addressing.

For a long time, the arguments about the British economy have been defined by exchanges between opposing poles of the Free Enterprise Group and advocates of a bastard Keynesianism. Director generals of the CBI may have privately conceded that the argument needs to be broader and more sophisticated; that an overvalued exchange rate, the shortcomings of the financial system, the bias against innovation or the abuse of tax havens were all chronic problems. But persuading the powerful CEOs within the CBI to back them has been impossible.

Importers want a high pound. Banks allowed no criticism. Nobody wants to be on the side of high taxation by inveighing against tax havens or to give Labour any succour if it can be helped. A candidate for CBI director general who withdrew from the final shortlist to succeed the outgoing Richard Lambert in late 2010 told me that the job allowed little scope beyond urging more and better training, on which everybody could agree. On many big issues, the CBI was mute or followed the Tory line. Indeed, Lambert, ready to attack wildly overpaid CEOs as risking being aliens in their own country, was felt to have overstepped the line.

At last there is a breaking of ranks. Desperate economic circumstances and a chancellor more anxious to score political points than develop an imaginative economic policy are forcing a transformation in established positions. John Cridland, the current director general, has used the space to develop a more sophisticated policy agenda than his predecessors were allowed. And now British-based retailers are speaking out.

But any effective move against the scorpions requires the state to act and the more it can act with others the more effective it will be. Tax havens were a barely mentioned part of Britain's most effective postwar industrial policy: the swath of concessions used to support the growth of the City. We sponsor more of them than any other advanced country. That has to be reversed. There are many possibilities, ranging from taxing companies on their turnover in the UK to outlawing the use of tax havens, action that is best delivered if the EU can move together, but this is always opposed by the British.

Our fifth-columnist Eurosceptics, allies of the scorpions, are happier that the UK corporate tax base is destroyed and the British economy is owned by foreigners indifferent to their public obligations than to act together with Europeans to further joint British and European interests. Mr Miliband and the Labour party say they are for a better capitalism, against tax havens and are pro-Europeans. Now there is an opportunity to say it and to build a new coalition. Let's hear them.

Germany has benefitted from the Euro and should protect it.

There is only one alternative to the euro's survival: catastrophe

Little Englanders – and blinkered Germans – need to wake up to the implications of a fractured eurozone

• 
• • Will Hutton
  • The Observer, Sunday 13 November 2011
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It is hard not to have the gravest of forebodings about the European and British economies, and about the future of Europe itself. Nobody would start from here – an ill-designed single currency interacting with an insupportable burden of private debt created by oversized, undercapitalised banks. And it's as much a problem in the US and China as in Europe. There are only least bad ways forward: none good. This is a crisis in contemporary capitalism as much as a crisis of Europe's monetary regime and governance. It needs to be seen in those terms.

But so saturated is British commentary in jingoistic Euro-scepticism that Europe's travails are portrayed as proof positive that it is European visionary delusions rather than contemporary capitalism that is at fault. Greece, and indeed Ireland and even Italy, are urged to get out of the euro, for the euro to be smashed and for the entire EU project to be abandoned. This is the route to prosperity and wellbeing – with no trace of self knowledge as British trade performance deteriorates even after a monumental devaluation while our economy is still years away from recovering to 2008 levels of peak output. That is Europe's fault, or so runs the line – not the fault of our dysfunctional economic structures and policies.

However, Britain's interest is unambiguous: it lies in the survival of the euro. There is too much easy talk about countries leaving. Last week, financial policy committee member Robert Jenkins spelled out the consequences for Britain and for Europe of Greece now quitting the euro. There would be seismic bank runs in Ireland, Portugal, Spain and even Italy as citizens and companies, fearing the same could happen to them, moved their cash out of their countries. Weaker banks, tottering from losses in Greece, would fold. The European Central Bank would be overwhelmed. The European economy would slump – and Britain with it.
Greece's fight is our own. But what is being asked of Greece's new interim prime minister, Lucas Papademos, is impossible. Unemployment is 18.4%. The schedule of its foreign loan repayments over the next five years beggars belief. On the other hand, Greek capitalism, a network of family oligarchs rigging Greek markets and leading a society in which tax evasion is morally and socially acceptable, is in acute need of reform. Europe could have been organised around floating exchange rates rather than a single currency, but the vast overhang of private debt alongside crocked banks demands similar medicine.

And while staying in the euro is in the interest of Greece – and Italy – it is in the rest of Europe's interest too. But there has to be a quid pro quo for all the pain that such severe austerity involves. Private and public debt needs to be radically lowered; and in a world of little growth there are only two routes. Either it has to be forgiven by their creditors, or there has to be inflation. If the eurozone can deliver neither, its future is in question.

In July and, again, in October, the EU signalled it understood what needed to be done and moved towards it – a combination of decisive debt forgiveness, the creation of a European Monetary Fund, substantially financed by Germany and which could bail out stricken banks and even governments, and the empowerment of the European Central Bank to go beyond supplying emergency cash on crisis terms. Instead, it could act as a lender of last resort everywhere in the eurozone.

The system could potentially be put in place fast; the right sentiments have been uttered – but after each summit Germany has consistently blocked making the money flow. It has said no to the European Central Bank operating as a lender of last resort across the eurozone; no to creating a genuine European Monetary Fund on the scale needed; no to the creation of single euro bonds. Ireland, Greece and Italy are all doing their part. Germany must now do its – or the euro will buckle.

Germany's phobias are well-known – inflation and then slump led to Hitler. What's more, the German constitutional court has ruled that the EU is a Staatenbund (a group of states). This means that Germany can only constitutionally make fiscal transfers to other members if each one is agreed by the German parliament. But phobias and constitutional courts cannot trump the agonising choice facing Germany and Europe.
Germany profits richly from the way the eurozone is organised. It is the only country in Europe whose share of world trade has risen over the past 10 years. But it enjoys the same exchange rate as much weaker exporters such as Greece or Spain – a huge boon. Even Britain, with our much vaunted floating exchange rate, has seen our share of world trade fall by a third over the same period.

Germany now has to accept its part of the bargain. The choice must be confronted. One option to secure the euro's future is via widespread debt forgiveness and fiscal transfers backed by Germany; the only other route out is inflation.

Here I make a modest proposal. Instead of delivering purposeless lectures from the sidelines about the need for action while he prepares to blame Europe for the ongoing British stagnation, for which he is primarily responsible, David Cameron should make the intervention of his life. He should travel to Germany and make a speech in German – however embarrassing – spelling out the choices. If Germany is unprepared to accept them, he should argue that the least bad option is not for Greece to leave the euro – but for Germany, whose economy is strong enough to take the shock, to do so.

He should say that while it was right for Britain not to join the single currency as it was previously constructed, if Germany were to act responsibly, Britain would peg sterling to a reformed euro and in the long run even consider joining the regime. Moreover, Britain would do this either way, he could argue – eventually joining a single currency in which Germany accepted its responsibilities or a single currency without Germany.

Such a speech – which, of course, will never be made – would create turmoil in Germany. It fears isolation in Europe even more than it fears inflation. It prizes the undervaluation of its exports priced in euro. It would force its leadership to recognise that there are other potential ways of organising our continent other than around German preoccupations – and perhaps trigger the change in German policy that is needed. It would change the rules of the game at a stroke, and show that Britain is a European force with which to be reckoned. But Cameron is trapped into Little England isolationism. And Little Englanders, along with moralistic and blinkered Germans, threaten to sink both the idea of Europe – and its economy.