Commentary on a cautionary story from the US which should be heeded by our councils
It was perhaps predictable that the offering of $3bn in government incentives to Amazon in an attempt to entice it to site its corporate campus in New York City did not meet with universal approval.
However, such was the furore that the retail giant yesterday cancelled its plans to build a corporate campus in the city, which would have brought with it 25,000 jobs.
“A number of state and local politicians have made it clear that they oppose our presence and will not work with us to build the type of relationships that are required to go forward,” the company said in a statement.
According to the company, its $2.5bn investment in 4 million square feet of office space would have been accompanied by technology programmes to “help New Yorkers be better equipped for Amazon and other potential employment opportunities”. It would have raised over $27bn in state and local tax revenue.
“The way our agreement with New York works, Amazon is eligible for financial incentives only after we make these significant investments and create the jobs mentioned above,” the company had said previously.
Local polling suggests that while New Yorkers were overwhelmingly in favour of Amazon locating there, they were 46%-44% opposed to the package of inducements offered to it.
When Amazon announced in 2017 that it sought to build an additional corporate headquarters, it led to bids from over 200 North American cities.
Some places adopted what might be considered undignified actions to woo Amazon, the mayor of Kansas City buying and reviewing 1,000 products on Amazon’s website, for instance.
When 20 cities were selected in January last year as finalists, the Washington Post reported how Amazon demanded that the process be carried out in secrecy.
“It’s a process that Amazon is insisting play out largely in private, offering a challenge for elected leaders facing questions from constituents about what taxpayer subsidies might be offered to the $675 billion company and its founder, Jeffrey P. Bezos,” the title reported.
It said Newark’s bid – just to clarify, that’s Newark, New Jersey, not Newark & Sherwood DC – offered $7bn in subsidies, Maryland $5bn and Illinois and Chicago combined to offer at least $2bn.
“Amazon has a reputation for telling potential partners that it will cancel deals if discussions become public,” the paper – which, incidentally, is owned by one Jeffrey P. Bezos – noted.
It is not only the search for an additional headquarters site which has resulted in questions about Amazon’s relationship with American local government. Vanity Fair reports how Amazon was at loggerheads with its hometown authority Seattle City Council which sought to levy a tax of $275 per employee on large employers to be spent on alleviating homelessness.
The firm said the tax “forced [Amazon] to question our growth here” and it even paused construction on a new high rise building in protest. Faced with the opposition the council backed down.
So the company of the world’s richest man – Mr Bezos has an estimated value of $136bn – was unwilling to be taxed extra to ease homelessness, threatened a council and won.
US councils have been falling over themselves to be pals with Amazon. In New York the political mood music changed amid disquiet over the company’s labour practices. The company had opted to build two new campuses following its search, the other being in Virginia, and it will now only be this one that now proceeds. Had the company decided to reopen the bidding, it surely would have been the case that some other city would have stepped in to offer a favourable climate to encourage it to locate there.
This may all be taking place in a different political culture – but the difficulties experienced by American cities should be heeded by councils here.
Although the government’s moves to move towards full business rates retention has been set back by the Conservatives’ loss of a majority, the housing and communities secretary in November announced 15 more business rates pilots in 2019-20, in which the areas will keep three-quarters of receipts locally.
Participation in such a pilot generally equates to extra money and austerity-ravaged councils are in no position to look any gift horse in the mouth. LGC has expressed concern before about how local government could become increasingly dependent on a very 20th century form of taxation, based on business property value, which does not recognise ability to pay in the digital era. But could we also be exposing ourselves to the problems endured by US councils?
The inevitable end goal of local control of business rates is surely a competitive market developing between councils. Set a low business rate and more firms locate there. If you want to keep a big employer, reduce its business rates. This is exactly the same principle as the £80m package of state aid offered to Nissan in the unsuccessful attempt to get it to manufacture a new model in Sunderland.
Agile corporations can locate wherever they want to and rock bottom business rates mean the highest profits. It is notable that of all its 200 plus suitors Amazon chose New York - generally regarded as the coolest place in the world - alongside Virginia. In the UK its headquarters are in trendy Shoreditch. If you are a Sefton or a Sunderland, you are already facing an uphill battle to attract the corporate giants (to put it mildly).
Any competitive business rates market would surely diminish the tax take for local government as a whole. And it will be the likes of Amazon that are best placed to take advantage of it. The most well-located places might benefit but the vast majority of areas will be disadvantaged.
Corporation tax has dramatically reduced in recent years but it is at a national (or, dare it be said, a continental) level that firms can be most fairly taxed. It is the digital giants such as Amazon (which pays £63m in business rates on a UK revenue of over £8bn) that are most able to pay more while smaller, less profitable firms have to make unfairly large contributions. If you look to the future it seems conceivable that Amazon will have something approaching a retail monopoly; Uber could potentially oversee all self-driving cars and Airbnb will be the main hub of the short-term accommodation market. But business rates, as they are currently set up, barely impact on such firms.
British councils must avoid creating a race to the bottom on business taxation. And rich corporations need to make fair contributions for the local services without which they, and the broader society on which they depend, cannot function.
Nick Golding, editor