Running containers: bare metal or VM?

Containers are a form of virtualisation, but one in which the application and all the microservices needed for its execution run on top of the host server operating system, with only the container runtime engine between the two. Virtualised server environments, meanwhile, see the hypervisor run on the host operating system, with guest OSs on top and applications running in those environments.

Most questions around whether to run containers on VMs or on bare metal derive from this basic fact.

Key decisions: Performance vs convenience, perhaps cost too

The decision whether to deploy container infrastructure centres pivots on performance requirements vs convenience. It’s way more convenient to run container orchestrators and their nodes on VMs, but you’ll lose out somewhat on performance. Having said that, if you want to gain the performance benefits of bare metal, you probably need to be running your own on-prem environment and be prepared to do the work needed to make up for the convenience the hypervisor environment brings.

Also, cost can come into things. Because bare metal servers can run a lightweight Linux OS (such as Core OS or its descendants), they avoid a lot of the cost of hypervisor licensing. Of course, that also means they miss out on advanced functionality available from virtualisation environments.

Benefits and penalties of virtualisation

Putting a virtualisation layer on top of the host OS means adding a layer of software to the environment, which brings benefits as well as penalties.

In a virtualisation environment, the hypervisor brings a lot of functionality and allows for maximised hardware utilisation.

Key benefits here are that workloads can be migrated between hosts easily, even when they don’t share the same underlying host OS. That is a useful thing for containers especially, which are desirable for their portability between locations, but are dependent on the OS they were built in. Use of a particular virtualisation landscape will provide a consistent software environment in which to run containerised applications even if the host OS differs.

But at the same time, all the things about virtualisation that bring benefits also come with penalties. That is rooted in the fact that your physical resources simply have to do more computing because of the added layers of abstraction.

That is most clearly visible in the performance difference between containers that run on bare metal and in virtualised environments. Benchmarking tests carried out by Stratoscale found that containers on bare metal performed 25% to 30% better than in VMs, because of the performance overhead of virtualisation.

Meanwhile, VM environments tend to have resources – such as storage allocated at startup – that remain provisioned to them. Diamanti, which provides a Kubernetes platform aimed at use on bare metal and in the cloud, claims resource utilisation can be as low as 15% in virtualised environments and that it can cut hardware use by 5x.

Despite the inherent performance advantages of bare metal over the added complexity of virtualisation, VMware, with its Tanzu Kubernetes platform, has made efforts to mitigate overheads.

Bare metal downsides

Having said all that, there are downsides to containers on bare metal.

Key among these is that container environments are OS-dependent, so one that is built for Linux will only run on Linux, for example. That will potentially put limits on migration and may work against you in the cloud, where bare metal is limited and where you can find it, it costs more. Given that one of the key advantages of containers is to be able to migrate workloads between on-prem sites and the cloud, that’s not good news.

Bare metal container deployments will also lack features that come with virtualisation software layers, such as rollback and snapshots.

Deploying containers to bare metal can also make it more difficult to mitigate risk via redundancy. VMs allow you to potentially split nodes between them, whereas when container nodes are installed on bare metal, there are likely to be less of them and they will be less portable and less shareable.

Why stop tech firms using the super-deduction?

Announced in the March 2021 Budget, the super-deduction has been described by chancellor Rishi Sunak as the “biggest two-year business tax cut in modern British history” which the government claims will unlock £20bn a year in investment during the policy’s lifetime.

It is one of a number of different policies set out in the Budget to stimulate the UK’s post-pandemic economic recovery, with the super-deduction specifically focused on providing companies with financial incentives to invest in the “productivity-enhancing” plant and machinery assets they need to help their businesses grow.

The policy, which runs from April 2021 to March 2023, will achieve this by allowing firms to deduct 130% of the cost of any qualifying plant and machinery investments from their taxable profits, and make use of a 50% first-year allowance for any qualifying special rate assets.

According to the government’s own figures, this means qualifying companies can cut their tax bills by up to 25p for every £1 they invest, leaving them with more money to reinvest in their own business growth plans.

However, concerns have been raised since the policy was announced about the potential for it to be used by multinational tech firms that process their UK sales through overseas subsidiaries to minimise they amount of tax they pay in this country.

Speaking to Computer Weekly, Murray said this was precisely the type of behaviour the defeated amendment was intended to curb. “It is unacceptable that, for many years, multinational tech giants have been shifting their profits overseas while other businesses pay their fair share here in Britain,” he said.

“It cannot be right for the government to give those same large multinationals a further tax write-off, and so we attempted to prevent public money from being spent on a ‘super-deduction’ for the biggest tech firms.

“More widely, the government should be taking clear steps to curb tax avoidance by large multinationals and to level the playing field to stop British businesses being undercut.”

Online retail giant Amazon has frequently been cited in these discussions as an example of a firm whose operations falls into the category outlined by Murray. For example, its UK sales are processed through a subsidiary in the renowned tax haven of Luxembourg, while its plant and machinery investments are made through Amazon UK Services, which provides warehousing and delivery services for its UK operations.

According to George Turner, director of investigative think-tank TaxWatch, the super-deduction could prove hugely beneficial for Amazon’s UK tax affairs if the company took advantage of it.

“Amazon do have a lot of infrastructure in their delivery network and they’re growing a lot, and during the pandemic they hugely benefited from restrictions that were put in place to deal with a pandemic,” Turner told Computer Weekly.

“They pay very little tax in the UK as it is, although they do pay a little bit of tax, but their tax bill will be entirely wiped out by the super-deduction.”

According to figures pulled up by TaxWatch’s research team, Amazon UK Services made a pre-tax profit of £102m in 2019 and had a corporation tax liability of £6.3m, while the company’s own accounts show it spent £66.8m on plant and machinery, £80.4m on office equipment and £15.3m on compute equipment during the same year.

“If expensed at 130% [as per the terms of the super-deduction], this would entirely wipe out the taxable profits of the company before any deductions for staff pay awards,” said TaxWatch in its Amazon tax cut report, published post-Budget.

Upset in the chamber

The TaxWatch report has since been cited regularly by Labour MPs during Finance Bill-related House of Commons debates over the last couple of months, as they have echoed Turner’s sentiments that it is firms like Amazon that stand to benefit most from the super-deduction policy.

Margaret Hodge has repeatedly spoken in the House of Commons about her misgivings about the super-deduction, while voicing support for amendments that also sought to ban multinationals with a history of corporate tax avoidance from accessing the super-deduction. This amendment was not put to the vote.

“These companies refuse to contribute to the common pot, yet they are about to be gifted – by us, from that very same pot – a hugely generous tax relief [through the super-deduction],” said Hodge during the debate ahead of the vote on 24 May.

“These companies need the public services that taxes buy, from improved connectivity to transport infrastructure, from the education of their workforce to investment in the NHS to keep their workers healthy. However, they persist in deliberately not paying their fair share of corporation tax.

“These companies can undercut and destroy our high streets and community businesses. They exploit the price advantage that they gain from avoiding the corporation tax that they should be paying, yet the government is about to bestow on them the largest bonanza for big business in modern times.”

Computer Weekly contacted Hodge, who chairs the Anti-Corruption and Responsible Tax All-Party Parliamentary Group (APPG), for her reaction to Monday’s votes, and she echoed the dismay displayed during previous debates on this topic.

“Huge companies that use artificial corporate structures to shift their profits abroad and avoid paying tax in the UK should not be able to access generous tax reliefs,” she said. “That is why I have campaigned for the biggest multinationals – especially big tech firms like Amazon or Google – to be barred from accessing the government’s overly generous super-deduction capital allowance.

“The government should spend more time backing British SMEs and our much-loved high-street brands instead of dishing out cash to huge multinationals.”

During a Finance Bill debate in the House of Commons on 19 April 2021, Hodge expanded on her misgivings about the policy, particularly with regard to how little time companies without “over-ready capital investment plans” will have to tap into it.

“The tax relief will last for only two years, so it is unlikely to fund the aviation industry or genuinely new capital investment, which takes time to plan and to implement,” she said.

“It will mainly be used to cut taxes for companies that were investing anyway, and those that will benefit most are those that have proposed most during the pandemic. They are the companies with oven-ready capital investment plans, benefiting from the increased demand they have enjoyed over the last torrid year.”

As previously reported by Computer Weekly, Amazon has seen its profit and revenue soar over the course of the pandemic, as stay-at-home instructions across the globe resulted in a surge in demand for online orders and deliveries.

This has resulted in the firm embarking on a series of hiring sprees in the various countries where it operates, including the UK, as well as making investments in building out the underlying infrastructure needed in its delivery and logistics network to accommodate this demand.

During Amazon’s most recent set of financial results, company CFO Brian Olsavsky confirmed that these investments would continue for the foreseeable future.

Computer Weekly contacted Amazon UK Services for comment on this story, and received the following statement from a spokesman in response: “We are proud to be investing heavily and creating good jobs right across the UK. Since 2010, we’ve invested more than £23bn in the UK, creating an estimated £45bn in value-added GDP.

“The UK has now become one of Amazon’s largest global hubs for talent and earlier this month we announced plans to create 10,000 new jobs in the country by the end of 2021, taking our total workforce to over 55,000. This continued investment helped contribute to a total tax contribution of £1.1bn during 2019 – £293m in direct taxes and £854m in indirect taxes.”