It seems that there has always been a rather uneasy relationship between Richard Branson and the Treasury. The Virgin Groups’ reaction to the COVID-19 crisis has provoked an angry response from some quarters. It is important to understand that this has historical context and is not just about the current situation.
According to the Forbes Rich List, Richard Branson is the 565th richest billionaire in the world. Out of 2,000. He is a 51% shareholder in Virgin Airlines UK, with Delta Airlines owning the other 49% (an American company). He also owns 10% of Virgin Australia.
Branson’s tax issues
His net worth, as calculated using publicly available documents, is $3.48billion. That’s £4.7billion.
He has lived as a tax exile, on his own island, in the British Virgin Islands for the last 14 years. Living in this tax haven means that he has not paid any UK income tax during that 14 year period.
Mr Branson has earned £306m in tax free dividends from Virgin Trains, during the 22 years he held the franchise contract to provide our west coast mainline service.
Virgin Care and the NHS
Virgin Holdings Group is registered in the British Virgin Islands. Virgin Care is part of this conglomerate and they secured £2bn in local authority and NHS service provider contracts. As this branch of the company has been working at a loss, it has never paid UK corporation tax.
In 2016, Virgin Care sued Surrey County Council, NHS England and six CCGS in 2016 over losing a multi million pound contract to provide children’s services. They settled out of court for a reported £2m.
Keep Our NHS Public’s secretary, Dr John Lister, described Virgin health as having “a parasitic role in the NHS, garmenting services and poaching NHS-trained staff and undermining nearby NHS trusts. This is made worse by the fact that the company pays no corporation tax and therefore only takes resources from the public sector while contributing nothing of value. The fact the firm is not making a profit suggests its continued involvement with the NHS is either based on ideological opposition to public services or a series of loss leader contracts hoping to force the prices up and cash in later.”
Non resident for UK tax purposes
Richard Branson bought Nekker Island when he was 28 years old. In an open letter to his employees (and the rest of us) he said he “did not leave Britain for tax reasons but for our love of the beautiful British Virgin Islands and in particular Necker Island. Over time, we built our family home here. The rest of the island is run as a business, which employs 175 people.”
On the Virgin Care legal battle with the NHS and local councils, Mr Branson said: “Virgin Care was never intending to profit from it and 100% of the money awarded went straight back into the NHS. If Virgin Care ever does make a profit, we have committed to reinvest 100% of that back into the NHS.”
Regarding Virgin Care’s relationship with the NHS, a spokesperson said that the £2bn price tag on the contract represents the most Virgin Care can earn from providing the services. This runs from 2010 to 2027. “It is not profit, it is the revenue and the vast majority of this will be paid in salaries to more than 7,000 health and social care staff, which includes more than 1,300 nurses, around 100 doctors and 400 health staff.”
And so we turn our attention to the current situation. Most businesses are suffering the consequences of the corona virus restrictions. The Government has put plans in place to support those businesses in the short term, in order to look after the entire economy in the long term.
At the beginning of April, Virgin applied for an assortment of guarantees and commercial loans from the British government – totally £500m. This is to save the company from collapsing due to the effects of the COVID-19 pandemic.
The money for guarantees is to ease the flow of money from credit companies, to passengers booking future flights. The loans are for ‘fixed costs’ that the company incur because of the absences of most international travel. HMRC were “unimpressed by the initial bid” and Virgin were told to look for the necessary money elsewhere. The government scheme is designed as a ‘last resort’ for businesses, not their first port of call.
Mr Branson has now offered to mortgage his island to secure commercial loans, saying: “As with other Virgin assets, our team will raise as much money against the island as possible to save as many jobs as possible around the group.” This does not include any loan granted by the UK government.
Any future submission to the government for a bailout package has the support of some other connected businesses. Rolls-Royce makes their engines and Airbus manufacture its aeroplanes.
The Virgin Group were already facing criticism for putting 8,000 Virgin Atlantic staff on unpaid leave for eight weeks. Their other option was to take voluntary redundancy. Speaking on behalf of his local economy, Charlie Cornish, the chief executive of Manchester Airport Group, wrote directly to the Chancellor. He asked Mr Sunak to support Virgin because their flights are “directly benefiting the economies of Manchester and the surrounding region.”
What do you think?
Both the Polish and Danish governments have announced that their Corona virus business bailout packages will not be accessible to companies that are registered in tax havens. Following a ‘if you don’t pay anything in, why should you get anything out’ premise. Seems like a fair way to judge things. Why should companies that have actively avoided paying tax in your country receive any kind of state aid?
But, like most things, it’s not always that clear cut a decision. Everything and everyone is connected. The failure of one business impacts others and the wider economy. ‘Wealth creators’ do provide employment, invest and, in the case of Virgin Atlantic, keep us internationally connected.
Somewhere in the Treasury, someone is having to weigh up all the pros and cons. Not just financial, but also considering political consequences and public opinion.
Rather them than me, eh?