The upcoming Budget has as normal seen a flurry of ‘advice’ for the UK Government’s Chancellor. Much of this is special pleading, especially in the light of the so-called End of Austerity. Within this though the issue of business rates has again come to the fore.
This time of year the September inflation rate (CPI) sets the rise in business rates for the next year. The BRC has calculated that without amelioration this increase will cost retailers an additional £190m. This comes at a time when retailers and business rates have been in the news, with considerable adverse opinion and their impact is blamed for the decline of the high street. Retailers account for almost 25% of the rates revenue – an unfair burden given the scale of the sector (One of many issues with rates)
One of the topics that has been pushed by some in the media and has been picked up by some leading retailers (most notably Tesco) has been the suggestion of a tax on online sales (an “Amazon” tax). This seems to be gaining some traction (though is not without its critics) despite a lack of clarity over how in practice this would work. We may get some indication in the Budget – or maybe not.
The criticisms have come in a variety of guises, and have been bundled by some as a Luddite reaction to change and retail disrupters. They argue that success should not be penalised and that the issue is not rates or physical stores versus online stores but large multi-national corporations refusing to/avoiding paying their fair share of tax by manipulating their in-company transfers and sales. Fix that they say and all is fine.
I don’t really buy that argument. Yes, the tax avoidance should be tackled, but in addition to consideration of the changing sales mix and shift in retailing.
I am reminded of the work done (and we at Stirling did some of it) around the time of the deregulation of Sunday trading. One of the absurdities of the situation was regulations being enforced based on the 1950s list of products enshrined in the legislation. Products had changed since 1950 but the law had not.
The same seems to me to be happening now. Consumer behaviour has changed and the taxation base has not kept up. Out-of-town trading and operating has emerged and online retailing has mushroomed. In a decentralised and now digital world we are persisting in a tax based on physical centralisation and analogue trading. If we do not change track then the situation will continue to deteriorate in physical stores and high streets.
This does not mean that we should abandon all property taxation, but we need to reflect the new consumer behaviour and build a system that flexes with change. This means some form of online tax probably related to the point of distribution and/or receipt and some form of property taxation (and one that probably better reflects distribution’s role in retail and other sectors).
We also have to consider more carefully what we value and tax accordingly. Do we want vibrant town centres and a diversity of businesses and trade? If so we need to adjust their costs base and taxation accordingly. This does mean higher taxation than now on single use sites (see Barclay proposals in Scotland, though the SNP seems to be cooling on an out of town store increase) and amelioration for small independent traders (and this would be better if automatic). It could mean changed VAT rates for towns (allowable post Brexit) and for re-development/re-use of historical and upper-storey buildings.
Business rates have had their day as the way in which to tax retailing and provide local authority revenue. We must step in and change them, to reflect the modern retail and consumer sector, and rebalance the burden of taxation.
In short, the world has changed and taxation needs to catch up.