Diageo chief’s tax tirade is no empty threat

Those expressing surprise at Paul Walsh’s weekend tirade over the UK’s 50 pence tax band would do well to remember that he has previously proved unafraid of making major decisions purely for tax reasons.

The Diageo chief executive once again said that the 50p rate for individuals earning over £150,000 a year was prohibitive to business and may force him to consider relocating the world’s biggest drinks company to take advantage of more attractive rates overseas.

He told the Mail on Sunday that the measure – introduced by former chancellor Alistair Darling – was leading to a “brain drain” from the UK and a relocation of major corporations to more tax friendly nations, which in turn will damage the long-term health of the British economy.

“We will not be able to base people here and increasingly we will have to look at locating our quality people into lower tax jurisdictions,” Walsh said, adding that he was already finding it hard to attract people to London due to the higher tax rate.

“At the moment, if I am going to create jobs I am not going to create them in the UK because it’s a high-cost environment,” he said.

“If I employ staff in Singapore with a 10% tax rate, I don’t have to pay them as much for them to feel good and to go home with more money. This isn’t complex stuff, this is simple common sense.”

Anyone who thinks Walsh is merely voicing an empty threat should consider a number of decisions he has taken in his 11 years at the Diageo helm.

He has relocated the company’s international division to Singapore, while the purchase of a £150 million rum distillery in the US Virgin Islands was carried out on the basis that the operation would be subject to more favourable tax rates than its previous arrangement with Puerto Rican rum producer Destileria Serralles.

To emphasis the point that Diageo feels little loyalty to the UK, it’s worth remembering that approximately half of Diageo’s shares are held via listings in the US.

This doesn’t mean that half the shares are held by Americans, but that half of them are owned by people or institutions who bought them through Wall Street.

While Diageo is clearly unable to relocate its Scotch operations, nearly all of its other products can be relocated at will, with the likes of vodka and gin able to be produced anywhere in the world, provided the cost of raw materials is favourable.

Whatever people’s thoughts are on Walsh’s views, it would be naïve to dismiss them as merely scare tactics for the Treasury.