Npower: 48 hrs to vote

Is it time to teach Npower a lesson? 3 weeks ago they were exposed for not paying a single penny of corporation tax, while channeling UK profits through Malta. But they still haven’t accepted they’ve done anything wrong. And, they keep refusing to meet us to discuss our concerns.

Luckily Npower customers have got the trump card. We can hit them where it hurts: together we can take our custom elsewhere.

So, time to vote – shall we launch a mass switch-off away from Npower now? Voting closes in 48 hours, so please vote now:

YES       NO

I’ve been emailing the chief executive of Npower, Paul Massara. The whole conversation is pasted below. There’s been some progress, but in my view his response is just not good enough.

Here are the headlines:

– He’s refusing to meet with 38 Degrees members, even those who are Npower customers
– He still won’t accept that funneling UK profits through Malta to dodge tax is wrong
– He makes seemingly contradictory excuses. On the one hand he says that “npower does not engage in tax avoidance” but on the other hand he claims that “HMRC is well aware of the possibility of UK companies using interest payments as a way of reducing their tax bill”. He then seems to admit they were using Malta because it was “efficient” for avoiding tax, but that it’s German taxes they were dodging so we shouldn’t worry about it!

There are some (small?) positive signs too:

– He says he accepts that he needs to be more transparent about their tax affairs and has pledged to sign Npower up to apply the “CBI’s tax principles”
– He claims that they’ve stopped using Malta. But won’t confirm that they’re not using new tax dodge routes instead – it looks like money is now being channelled via the Netherlands.

What do you think? Shall we launch a mass switch away from Npower now?

YES       NO

There are around 30,000 Npower customers who are 38 Degrees members – that means there’s enough of us to have a real impact. 38 Degrees can launch a website this week which would make it easy for Npower customers to switch to other gas and electricity companies in their thousands.

It’s the last thing that Npower’s CEO will want. But it’ll work. And it will also send a crystal clear message to other companies. Tax dodging has consequences.

Shall we launch a people-powered mass switch-off away from Npower now?

YES       NO

Thanks for everything you do,

David
Executive Director, 38 Degrees

———- Forwarded message ———-

From: David Babbs
Date: 13 May 2013 21:31
Subject: Re: RWE npower – Tax Issues
To: Paul.Massara@rwenpower.com

Dear Paul,

Thanks for your email and attached letter.

I’m disappointed that you still refuse to meet with Npower customers who have joined this campaign. I’m sure that your “customer council” serves a useful purpose for you, but in this case there are tens of thousands of your customers how have specific concerns about how your business is operating.  I’m surprised that you don’t think it would be “appropriate” to meet with them.

I’ve explained already that I have consulted our members on how they’d feel about me meeting you without Npower customers being present, and that they voted overwhelmingly that I should only agree to meet if they could also be represented. So I’m afraid I’m not able to meet with you on the terms which you propose.

Your refusal to meet your customers, together with the rest of your letter, suggest to me that you’re still choosing not to engage with the reasons so many of your customers have got involved with this campaign. We’ve not suggested that your channeling of funds via Malta was “illegal”. But whatever the legalities, we believe it’s simply wrong for a company that relies on the goodwill of millions of UK consumers to avoid paying UK taxes in this way. Your emphasis on HMRC’s view that it is legal is therefore not really relevant.

You’ve still not explained why you were using this Maltese route in the first place if not to dodge tax; why you’ve now stopped (anything to do with the German government outlawing a tax dodge structure know within the trade as the “Maltese double whopper”, perhaps?); or what you’re now up to by channeling funds through the Netherlands instead.

I guess your pledge to sign up to the CBI’s tax principles is a step in the right direction. But you haven’t even indicated a firm timetable for this, or explained how this might change your actual behaviour or the amount of tax you pay in the UK.

So, my personal view is that your response is not really satisfactory. Ultimately though it’s the view of your customers and 38 Degrees members that will decide what happens next with the campaign – I’ll be asking them to vote shortly.

I will of course share this correspondence with them as part of that vote. I plan to forward this whole thread of emails as well.

regards,

David

On 9 May 2013 16:01 : Paul.Massara@rwenpower.com wrote:
David,

I attach an open letter to you, 38 Degrees, and all my customers, employees and stakeholders that have been affected by the accusations that my company has avoided corporation tax.

Our offers (of 17 Apr and 2 May) for you to either meet me or our Director of Tax still stand. I am happy to explain why we do not, and will not, engage in tax avoidance.

I very much accept the need to communicate with my customers but I do not believe that selecting only from 38 Degrees members is an appropriate way of identifying people for me to meet. We will continue our ongoing consultation through our Customer Council and other communication channels.

For the past few weeks, I have been taking a lot of time to talk with my employees, my customers and my stakeholders to ensure that they fully understand what we have done and why. Most importantly, I want them, and you, to know that npower is a company to be proud of.

I hope you will take the time to read and pass on to your campaigning members the letter I have attached. It is available freely on our website.

Regards

Paul Massara

(letter was attached but can also be seen on the Npower website)

———- Forwarded message ———-
From: David Babbs
Date: 8 May 2013 11:01
Subject: Re: RWE npower – Tax Issues
To: Paul.Massara@rwenpower.com

Dear Paul,

It’s now 6 days since I emailed you last – I wondered if you had a response to my question as to whether you’d agree to a meeting involving some representatives of Npower customers?

In the absence of a reply from you earlier, I have now polled your customers on whether they’d be happy for me to meet you on my own. There’s quite a strong feeling amongst them at least a couple of Npower customers should also be present.

Please let me know,

Thanks
David

On 2 May 2013 16:26, David Babbs wrote:

Dear Paul,

Thank you for your e-mail.

I think a meeting between us would be a very good idea. However, I am not sure that the most appropriate format would be for it to be “one to one”. We have over 25,000 npower customers signed up to our petition, who have indicated they are considering switching to another supplier unless they can be satisfied that you are not tax dodging. I am not currently an npower customer, so it would seem a little odd for me to be speaking on all these people’s behalf on my own.

So I wondered if you would consider extending your offer of the meeting to myself + one or two concerned npower customers who have signed our petition? If you are not willing to do this for some reason, then I think what I will probably do is poll everyone to see if they are happy for me attend on my own or not.

I have considered your bullet pointed claims carefully. I have included my response to each of them below. I’m afraid that at present my view is that these are unsubstanitated claims and you haven’t really offered any evidence which would lead to us ending this campaign. I’m happy to discuss in more detail with you what that evidence would look like – either in person if we meet, or by e-mail.

– RWE npower does not engage in tax avoidance

We’ve offered substantial evidence that you do engage in tax avoidance. If you want me, or you customers, to believe your claim that you don’t you will need offer evidence as to why we’re wrong. At present I’m afraid I don’t believe you.

The use of Malta-based Scaris very clearly saved the RWE group tax. We cannot see a motive for routing of funds from Germany to the UK via Malta other than tax avoidance and you have not so far offered one.

– The use of Scaris by RWE did not affect npower’s tax position in the UK in any way at all

Again, I’m afraid at present I don’t believe you and you will have to offer some evidence to back this assertion.

If the £2 billion or more of equity share capital that was committed to Scaris had instead been directly committed to npower its tax position in the UK would have been very different. It would have paid vastly less in interest and so would shave significantly increased its taxable profits in this country. Can you explain why you chose to use the Maltese route instead if not to avoid tax?

– I can confirm that RWE stopped using Scaris during 2012

That’s encouraging, but please can you confirm:
Why this has been done when some of the loans were not due for repayment until 2030? What you are now doing instead?

As I explained previously to Zoe in your press team, if you are now simply routing money through a different tax haven instead of Malta that will not reassure anyone.

– We borrow from our parent group to finance our ongoing operations because they can raise money to lend to us more cheaply than from a UK bank (if we borrowed in the UK, this would increase our interest payments, reduce our profits and so reduce the tax we pay!)

But you did not borrow from your parent group in Germany: you borrowed from another company owned by the group and based in a tax haven, and the rates were not always low: some exceeded 6%. In addition, the parent group invested capital in Scaris to let this happen – capital that could have been made available direct to npower. So this was a financing structure, not a loan and as such cannot be represented as the simple loan arrangement you portray. The only explanation we can see for the use of this Maltese route is tax avoidance – again, please offer an alternative explanation if you have one.

Your argument about borrowing from a UK bank is appropriate: of course you might have done that. But then they would have been taxable on the interest paid and so the revenue would have stayed in the UK. The whole essence of our argument was that profits that should have been taxed in the UK were shifted as a result of the structure you used out of this country – and were not taxable in Germany either. As such your counter-argument does not succeed in making your point that there was no tax lost to the UK; there clearly was.

The fact that you offer an alternative funding arrangement as part of your argument also lets us do the same: we can as a result quite fairly argue that the capital invested in Scaris should instead have been invested in RWE npower and if that had been done more tax would have been due in this country.

– I can confirm that it is only because of the massive investment that my company has made in the UK, and the losses we made in our supply business that resulted in us paying little or no corporation tax. The Government uses tax reliefs as a way of incentivising investment and it is saddening to be criticised for exactly the behaviour that the Government wanted to encourage.

We have not criticised you for investing in the UK or for claiming capital allowances and will not do so. We have criticised you for using offshore structures to avoid tax and for not disclosing your activities in a full set of consolidated, audited accounts for the UK that show the true nature of your total activities in this country and the tax you do or do not pay here. We continue to believe that these are total appropriate criticisms.

All best wishes,
David

On 1 May 2013 16:04, Paul.Massara@rwenpower.com wrote:

Dear David,

I have been forwarded a copy of your email to Zoe Melarkey.

To come back to you on your questions (even though most of these points are in the public domain already): – RWE npower does not engage in tax avoidance

– The use of Scaris by RWE did not affect npower’s tax position in the UK in any way at all

– I can confirm that RWE stopped using Scaris during 2012

– We borrow from our parent group to finance our ongoing operations because they can raise money to lend to us more cheaply than from a UK bank (if we borrowed in the UK, this would increase our interest payments, reduce our profits and so reduce the tax we pay!)

I can confirm that it is only because of the massive investment that my company has made in the UK, and the losses we made in our supply business that resulted in us paying little or no corporation tax. The Government uses tax reliefs as a way of incentivising investment and it is saddening to be criticised for exactly the behaviour that the Government wanted to encourage.

I hope the above points are helpful, but if you require clarification, I’m happy to speak to you on the phone or have a one to one meeting.

Regards

Paul Massara
CEO
RWE npower

From: David Babbs
Date: 30 April 2013 13:40

Subject: our phone conversation a couple of hours ago
To: Zoe.Melarkey@npower.com

Hi Zoe,

Thanks for calling. I just wanted to confirm in writing what we spoke about.

Meeting Paul Massara
As I first explained yesterday, I don’t think it will really help to meet an Npower “tax expert”, as the facts aren’t in dispute here. You accept that our description of your tax affairs is accurate but point out that it’s legal. We have not suggested it’s illegal, but argue that it’s unacceptable. So this isn’t really a technical discussion.

We would like to meet with your CEO, and I’m pleased that you indicated verbally that this would be possible. Once this is confirmed in writing we’ll let our members know they can stop contacting you demanding a meeting.

“No longer using the Maltese route”
You indicated to me, and have indicated to the press, that as of last year npower is no longer channeling funds via Malta. That’s encouraging to hear, but for that to mean an end to the campaign:
1) we’d need to be satisfied that it’s true
2) we’d need to satisfied that you’ve not simply adopted a new accounting method to avoid paying tax in the UK (If “the maltese route” has been replaced with the “Cayman Islands route” or something that’s not going to satisfy our members!)

Let me know if you think you may be in a position to provide this kind of information and we can open up a discussion.

Obviously if you are able to get back to me on these points quickly we’ll reevaluate our next steps, but for now we’ll keep prepping the next stages of the campaign.

All best wishes,
David