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An Amazon tax will not save the high street

Shop closures

Shops are struggling in the internet age, but would an online tax make any difference? (pic: Terry Murden)


 

Brian Monteith portraitChancellor Philip Hammond and Scottish Conservative leader Ruth Davidson may seem unlikely candidates for aping US President Donald Trump but that is exactly what they are doing by supporting dog whistle calls for consideration of a so-called Amazon Tax. 

Let’s not beat about the bush; the proposed tax – which would only target online retailers – is being branded with the name ‘Amazon Tax’ because its adherents think this will make it popular due to the US multinational’s poor record on paying UK corporation tax.

This is precisely the brazen populist behaviour we are told to expect of Donald Trump; it appeals to our lowest weaknesses of chauvinism, jealousy and ignorance – while helpfully covering up policy failings that are the real source of problems

Let me explain. The argument goes that retailers on the high street need help as they pay higher business rates due to their prime central locations and this gives online operators who usually work from edge of town warehouses an unfair advantage. High street retailers are allegedly struggling so the successful retailers who have adopted new methods should be made to pay a levy that will push their prices up and supposedly level the playing field. 

I would have hoped that Conservatives might understand capitalism well enough to realise that comparative advantage is what makes businesses innovative and productive so they can best satisfy their customers and thus make a profit. I can only presume Hammond and Davidson missed out on that class at school.

Not all high street retailers are the same, some are more successful than others, and just as out of town shopping malls changed the way we shop so too has online retailing. Those that adapt do well and survive, those that ignore change often lose market share and disappear.

High street retailers have always faced competition from home delivery companies; it used to come from the catalogue businesses such as Littlewoods, Grattan and JD Williams. I’m old enough to remember George Best and Cathy McGowan modelling inexpensive fashionable clothes that our household would buy, paying them up on a weekly or monthly basis.

Anything from toolkits, to Lego to white goods could be had via a catalogue. While High Street retailers would be paying big business rate bills the catalogue companies would not. Nobody suggested taxing the catalogue companies.

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Eight of the top ten online retailers are household names with an existing high street presence

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What online retailers have achieved is to improve upon the catalogue suppliers offer by cutting costs further, expanding what they can sell and being more responsive to changing customer trends and demands. Delivery, often free, is far more efficient now than it was previously.

The result is that high Street retailers have had to adopt their competitors’ business model, which is why eight of the top ten online retailers are household names with an existing high street presence. The online market is not all about Amazon.

The reality is that for retailers to survive they need to develop their online capability, so why tax them for showing innovation and why punish the customer who will end up paying higher prices? And what about people who use E-bay commercially? In the last eight years I have bought two Jaguars and a Peugeot convertible using eBay – is that to be taxed?

As David Lonsdale of the Scottish Retail Consortium has argued, the solution to the problem of deteriorating high streets lies in actually reducing business rates, especially in Scotland where the costs are greater than in England.

There is also an inconvenient truth for Hammond and Davidson; the Amazon Tax is not necessary to solve the problem of absurdly low corporation tax payments by companies like Amazon. After 29 March, when the UK leaves the EU, the taxation rules that allow not just Amazon but a host of other multinational corporates to route their British sales turnover through countries like Ireland or Luxembourg so as to avoid UK corporation tax will no longer apply.  

Corporate finance expert Bob Lyddon, in a 2017 study for Global Britain, estimated that the UK Treasury currently loses some £10bn in revenue which will start to come to it once the British turnover of multinationals is repatriated.

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Does that mean that Expedia, Go Compare and Trip Advisor will also be taxed too? 

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The problem is that if the UK adopts the Chequers Agreement, as Hammond and Davidson advocate, we will stay in the single market and the tax avoidance scheme will remain legitimate and in place.

Her Majesty’s Treasury, still in thrall to its failed predictions of economic devastation that should already have delivered a recession, mass unemployment and the need for an emergency budget, turns a blind eye to this practice and would rather introduce a new tax which effectively delivers double taxation of business rates and an online levy.

Does that mean that Expedia, Go Compare and Trip Advisor will also be taxed too?  There was no call centre tax when Direct Line changed the face of car and house insurance, there was no new tax when Argos introduced low cost purchases without the extensive need for showroom floor space. As Tesco online, M&S and Debenhams have shown, retailers need to adapt to meet customer demand.

An Amazon Tax is unjust discrimination between business models and anti-competitive – and as Bob Lyddon has demonstrated, it’s not needed to make Amazon pay its dues. Hammond can raise the tax revenues he needs by applying his own party manifesto commitments. That would be good politics.

We can change our high streets for the better by reducing business rates for everyone and accepting that in future for many high street properties planning consents for change of use (that will generate their own tax revenues) are going to be needed. 

See also

https://globalbritain.co.uk/wp-content/uploads/2016/12/The-Brexit-Papers-4-Lost-GDP-Tax-revenues.pdf

 

An Amazon tax will not save the high street was originally published on Daily Business