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I am an international hybrid and a long-time journalist with a broad span of intellectual curiosity and a passion for ideas to help business work better, with basic human values to underpin the process.

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Tobacco PLC: UK Reporting And Levels of Taxation "Wholly Inadequate", Says Study

Tobacco PLC: UK Reporting And Levels of Taxation "Wholly Inadequate", Says Study

Where do tobacco companies sit amid the rise and rise of interest in Environmental, Societal and Governance (ESG) issues among institutional investors, consumers and civil society ? As health and well-being rises on the agenda, particularly for millenials, it is a question well worth asking. Instead of being considered ‘touchy-feely’, ESG is at last being regarded as being fundamentally about risk, of critical importance when it comes to the relationship between business and society.

In order to revive that relationship, we need to focus on the views of all stakeholders. The Edelman 2019 Trust Barometer for the UK finds that although Britons are split on whether the way that business works today is good for British society or not, the most common reason for a negative response (67%) was that companies thought profit was more important than looking after people, while half (50%) thought that companies did not pay their fair share of tax.

The world’s four major tobacco companies - of which Imperial Brands and British American Tobacco (BAT) are headquartered in the UK - are paying minimal UK corporation tax despite enormous reported profits, according to findings from new research published in the Journal of Public Health.

Research from Dr Rob Branston at the University of Bath School of Management and Professor Anna Gilmore, Director of the Tobacco Control Research Group at the University of Bath, finds that from 2014, Imperial Brands “were allowed to stop reporting UK-adjusted profits.’ BAT and Philip Morris International (which has a UK subsidiary) the report says have never done so, and “none of the four transnational tobacco companies (TTCs) reported profit before tax in the UK.”

Instead, the comanies have re-organised corporate structures to enable profits to be shifted overseas, says their research. Looking at tax, they state that the major tobacco companies operating in the UK are not paying Corporation Tax “at anything like the rate they should be.” In 2016, they state, Imperial Brands, BAT, and Japan Tobacco International (Gallagher Ltd) together made UK operating profits in excess of £1 billion, “yet paid just £83.6m in corporation tax.”

Over the last seven years (during which time UK Corporation Tax has varied between 20% and 28%), Imperial Tobacco paid “ at most, an estimated effective rate of 13% and often much lower, while BAT paid virtually no corporation tax, including four years from 2011-2014 where they paid nothing at all” the authors report.

If you are looking for an anti-smoking ‘bias’, there is no attempt to hide it, and no apology.

“Taxes are the best weapon we have available to reduce the harm caused by smoking, both in terms of encouraging smokers to stop and in recouping the enormous costs to society. But, despite the enormous profits these companies enjoy, levels of corporation tax paid are pitiful” said Dr Rob Branston.

The government, he said, must better hold these companies to account. An essential first step, he suggested, is the publication of accurate country by country information on sales and profits.

The research states that UK-based tobacco companies are paying significantly more in Corporation Tax overseas, a damning indictment of the UK commitment to best practice on Corporate Governance and its societal drivers.

In 2016, it states, Imperial Brands made £3.5bn in global adjusted operating profits, paying £467 m in overseas profit taxation. On their estimated earnings of £937 for the same period, it points out, it paid just £33m in UK corporation tax, says the research. BAT UK earnings it says could not be determined “due to inadequate reporting”. but adds that “it paid only £7m in UK corporation tax.”

There’s clearly a wider stakeholder concern here, in the context of the United Kingdom and a struggling NHS, much loved by the population. For transparency, Professor Gilmore is also co-Director of STOP (Stopping Tobacco Organisations and Products).

“With the NHS under intense funding pressure, these findings need to be acted upon by the Treasury. It is unacceptable that tobacco companies, which are enormously profitable, are not paying for the harm they cause” said Professor Gilmore.

(By the way, I am not averse to publishing a non-emotive and brief response here, should the tobacco industry wish to have its say. )

But the report states that, according to recent UK government analysis, the cost of smoking to the economy was £11bn to England alone in 2017. In that year, it says, £9.5 bn was generated in excise duty from tobacco products in the UK, leaving a deficit of at least £1.5bn. It is arguing that the corporation tax uptake should at least cover that deficit.

Before the wrangling begins on the numbers - something we are facing as an acute crisis in accounting and audit - they are reported here as in the published report. At the very least, the message is clear in the numbers of the stark reality of the cost of ESG risk.

In the news yesterday it was reported that one in three children in the UK breathes in harmful levels of air pollution every day, according to research published by Unicef UK last year. Current national action “lacks the ambition and direction needed” to protect young people from immediate harm as improvements to air quality are sought, a new report by Unicef UK warns.

Children are victims here, and they do not choose to breathe in that air. Their parents might choose to smoke tobacco, but they still suffer the consequences. Where, then, do you start to draw the line when it comes to ethics and responsibility - surely it is with the companies that make the products in the first place.

If the UK government’s focus on better corporate governance is, as repeatedly stated, in pursuit of ‘fairness’, then it is morally bound to give big tobacco companies the same weight as the smokers among its population. Instead of taxing the consumers harder and harder to get the point across, would it not make sense to do the same for the tobacco companies?

You can access the full study here: ‘The Failure of the UK to Adequately Tax Tobacco Company Profits’ .

Image Credit: Matthew MacQuarrie on Unsplash

Note: Board Talk is interested in commercial sponsors (with no editorial control) to keep up more regularly with posts around #sustainablebusiness, Google me for engagement and outreach analysis around that /see the Recent Events page and #Kred. Commercial sponsorship of Board Talk in the past rolled on happily for both sides for four years.

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