London
The carnage on the British high-street from the likes of House of Fraser and Homebase naturally leads to calls for blood from internet retailing behemoth Amazon.com Inc. Enter UK’s Chancellor of the Exchequer Philip Hammond, who said he was strongly considering an “Amazon tax” to help retailers.
It’s a bad idea. For a start, let’s just get one thing straight. Amazon didn’t kill the British high-street.
The UK store chains that have collapsed this year did so because they didn’t have the right products at the right prices, invest enough in their businesses, or stay up to date with consumer trends. Associated British Foods’ Primark faces exactly the same pressures as everyone else, and doesn’t even sell via the internet. But it has prospered.
As things stand, retailers pay a disproportionate share of business rates, effectively a tax on property. While store chains account for about 5 per cent of the economy, they pay nearly a quarter of this tax, according to the British Retail Consortium, a lobby group for store chains.
Hammond’s idea, which is short on details, is superficially appealing. After all, Amazon’s UK tax bill fell about 40 per cent last year, and it paid just 4.6 million pounds (Dh20.57 million; $5.6 million) on 2 billion pounds of sales. Asos Plc, a British online-only clothing retailer with a similar level of revenue, paid 15.9 million pounds.
Complaints about how such a big company as Amazon can pay such a low amount of tax in the UK have been around for a while. This focus on the high-street is a different issue. What’s more, an internet shopping tax could well end up hurting the very bricks-and-mortar retailers the government wants to help.
More than 17 per cent of sales were made online in 2017, according to the British Retail Consortium. Over half of those were with retailers that also have shops. So companies such as Next Plc, which has sizeable online and offline businesses, face a double tax whammy.
Consumers are in a fragile state. Anaemic wage growth means their purchasing power is patchy. Retailers would likely pass along any increase in taxes, and that would probably just cause shoppers to draw in their purse strings.
Many orders made via the internet are actually collected in stores. Any pressure on this business could create a headwind for retailers who depend on click-and-collect. The extra items that customers buy when they arrive at a shop to pick up their purchases is useful, and let’s not forget that cup of cappuccino they might buy at a Costa Coffee next door.
A tax on deliveries could sidestep damage to click-and-collect, and be better-focused on online retailers. But in trying to hurt Amazon, this could wind up dragging down the likes of ASOS and boohoo Group plc, fast-growing British success stories in one of the rare bright spots of retail.
A reform of business rates would be the best approach to addressing the disparity between online and high-street retailers.
There has been some tinkering around the edges, with the government raising the frequency of the property values reviews that determine the levies to every three years from every five. Annual valuations would be a better idea. The reduction in retail property values sparked by the recent wave of failures won’t be reflected in rates for several more years.
Alternatively, the government could raise business rates for offices and warehouses and cut them for shops. That would address the disparity between shopfront-heavy retailers and online-only businesses, which rely on distribution centers to serve their customers.
Retailers are right to fear Amazon, but it’s an easy scapegoat. A revenge tax would only backfire. And that is the last thing that the beleaguered British high street needs.
— Bloomberg
