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26 May 2022

Opinion from Adrian Leopard & Co

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Is British Airways really not allowed to manage its affairs to its advantage? Who next?
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Is British Airways really not allowed to manage its affairs to its advantage? Who next?

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Businesses are now fighting for their very survival. Without them there will be no jobs.

“No man in the country is under the smallest obligation, moral or other, so to arrange his legal relations to his business or property as to enable the Inland Revenue to put the largest possible shovel in his stores…..” So said The Rt Hon the Lord Clyde, a judge in 1929 in a famous tax case. He went on to point out that the Inland Revenue quite rightly did its best to grab as much as it could and the taxpayer was entitled to be astute, albeit honest, to prevent the depletion of his means.

Thus arises the right of the individual to engage in tax avoidance, not to be confused with tax evasion. Evasion is illegal whilst avoidance is legal. Indeed the devising of tax avoidance measures is big business these days as HMRC does its best to close schemes down. Over the years schemes have got more imaginative as well as more controversial. Some work and some do not!

The same principle must surely apply in business generally. I was quite shocked to hear this morning that a parliamentary committee is criticising British Airways for endeavouring to arrange its affairs by making staff redundant and then re-hiring them on different terms and conditions, not least lower pay. And all this after the government has given them a pay-out. It must quite simply come down to whether British Airways are acting lawfully or not. You cannot make people redundant if their jobs are truly not redundant but you can re-arrange your company to provide different jobs if that is going to make it more efficient. Absent specific allegations of breaching the rules, it must be presumed that British Airways is doing just that. British Airways retort that their actions are to help their very survival in what is going to be a very different new economic model.

It does not mean that you have to like it but taking the words of Lord Clyde, they are not under the smallest obligation, moral or other, to arrange their affairs to their own detriment; indeed they have a duty to their own shareholders and in fact their remaining workforce to enable their business to survive in these extraordinary times.

This problem is certainly not going to be limited to BA. It applies to all businesses, many of which are going to be wiped out by the pandemic and many more of which are going to have to re-structure themselves, including making staff redundant, just to be able to survive in what will be a new and very different economic climate.

We hear complaints that Easyjet, following receiving a pay-out, then paid a dividend to shareholders. I can understand why that might rankle with the public – a government grant to pay a huge dividend! Perhaps this indicates the imperfections of our current scheme, no doubt drawn up in haste to try and prevent financial difficulty; I suppose the Treasury did not think that companies would use the money in that way. If they had done, it could easily have been avoided.

I have mentioned over the weeks the problems in the hotel trade. It is clear that business after business has taken advantage of the furlough scheme to pay their staff and keep them on pro tem, but now that companies are having to focus on the end of the scheme and where they go from there, so many businesses are concluding that the redundancies must follow anyway. Is that an abuse of the system? We can now see that business in the hospitality industry is going to recover only slowly and in the short term many businesses will collapse. Indeed, the fact of being able to re-structure after the pandemic passes may well be the saving grace for countless loss-making hotels who will now have the chance to re-build their businesses on the basis of being able to make a profit and survive.

Is that immoral? How can it be? Business is about success – success for its owners and the people it employs. That is how a capitalist economy works. And the country is full of accountants who, if asked, will give exactly that advice – keep your costs down and ensure you make a surplus.

Mark my words – we are in for a very hard time during what will probably be a vicious period of adjustment. Many will not survive but I do not believe you can blame companies for taking whatever steps they can to try and ensure their continued existence. Remember one of those famous remarks from Game of Thrones – “forget chivalry; this is about life and death”.

Adrian Leopard 13-06-20

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