Tuesday, 13 November 2012

Sales are not profit - duh, stupid politicians again!

One of my hobby horses (amongst many) is how little understanding modern politicians have of business. Career politicians like Cameron and Osborne, Milliband and Balls have no real experience of business and it shows. They say they consult business all the time but certainly don't give that impresssion - I've blogged about Osborne's shortcomings before.

 I was reminded of their business illiteracy as I was watching a parliamentary select committee giving Google, Starbucks and Amazon a grilling yesterday. Margaret Hodge the chair of the committee and other assorted MP's were grandstanding to the cameras and their constituents, trying to outdo each other in their aggressive questioning of US corporate bosses. They were berating them for paying too little tax in the UK but simply weren't up to the task of questioning them.

 There were too many examples of their business ignorance on show to go through here but the one that really stood out was they kept talking about Starbucks failure to pay corporation tax in the UK when it had a £367 million pound turnover, as though the two were linked - what has turnover got to do with profitability, taxes are paid on profits! Amazon has yet to make a profit in the UK.

 The UK electrical retail chain Comet has just gone bust - it had a £1.5 billion turnover last year. Did it pay any tax ? - no! - because in 2011 it had a £9 million loss.

 Maybe Margaret Hodge and the rest of her rabble should read a bit more Dickens:

 [Mr Micawber]  "Annual income twenty pounds, annual expenditure nineteen shillings and sixpence, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery."
Charles Dickens, David Copperfield

It's no different for businesses such as Comet and many others that have gone broke on the High Street  - more expenditure than income equals misery. So, politicians please note, sales/turnover has nothing to do with profit and its profit that companies pay tax on - get it!?
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2 comments:

  1. Anonymous15 January 2013 at 11:02

    Turnover is vanity, profit is sanity

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  2. Andy M Turner23 January 2013 at 02:28

    Philip, I watched some of this and had a similar reaction; reminded me of that famous Dennis Healey putdown of mild mannered Tory minister Geoffrey Howe: "It's like being savaged by a dead sheep." What this is really about is financial engineering, clever accounting and corporate HQ domicile - all perfectly legal activities. What the MPs - and their constituents - don't like is the idea that big companies organise their affairs so as to minimise their tax liabilities, thereby declaring scant profits regardless of turnover. If you think about it, they were saying "we don't like the fact that you're playing the system we created." It's neat because they can demonise large corporations, do some televisual ‘showboating’ whilst deflecting attention from the fact that they introduced the tax legislation in the first place! What I find interesting is that more companies didn’t see this coming and adapt accordingly – or at least have some much better arguments marshalled to defend their corner. Were the managers of corporate reputation asleep on the job? Haven’t they heard the phrase “we’re all in this together?”

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