The origins of this post lie in early March when we were delighted, in what now seems another era, to host Helen Dickenson, the Chief Executive of the British Retail Consortium, at our Retail Futures event. She spoke on the topic Retail Armageddon or Reinvention?
Little did we know that it was going to be both.
In my most recent post I set out some of the steps we might need to take, once we are passed the immediacy of the Covid-19 crisis and are contemplating what future we value and desire/need. One of these steps was the need for a digital tax, and the linked theme of the unfairness of business rates.
This post takes the bones of something I wrote in early March but never used, as Covid-19 intervened. Since then two things have happened that have added to the urgency of moving on a digital tax:
- The Chancellor has shown we can think boldly by abolishing business rates (well at least for a year). We could simply make this move permanent (actually I don’t this would be right).
- Online sales have gained enormously from lockdown, expanding rapidly (we can already see a hint of this in the March ONS figures in the graph below – who knows what April will bring?)
At that Retail Futures event, I tried to discuss/provoke the Panel by suggesting that a digital tax was going to be needed as part of the answer to the long-standing business rates perversity. The Panel liked the idea of lower business rates but baulked at the idea of a digital or online tax! One phrase stood out for me in their comments. It was along the lines
“The moment we see something works we want to tax it”.
As I have noted before (“Houston, we have a problem”), the property based business rates tax is centuries old. We have an analogue tax in a digital world and are paying the price of this. Business rates became a cash cow for Government a few decades ago and they have milked it steadily (dry) since. It is an out-of-date approach, perversely implemented, with well recognised failures, causing immense damage to the fabric of the country (high street vs out-of-town; north of England vs London and others). But Governments love it, due to its predictability (and growing scale in recent decades).
As noted in my last post, we all say we want flourishing town centres and places. We claim we want diversity and a range of independent and entrepreneurial small businesses. A carbon neutral future is going to come up the agenda as essential. And we are now going to be living with enhanced technology use.
Property based business rates are anathema to many of these desires. If we are serious about what we want then we have to protect our centres and small and local businesses, incentivise our start-up tech based entrepreneurs and actively set out to end damaging consumer and business behaviours. This means looking at, and taxing, the real costs of digital online giants (and their delivery mechanisms) and out-of-town activities (not only retail). We also need to ensure a fairer national playing field than the current ‘subsidise London’ one, perpetuated by business rates.
However in doing this we also have to be honest about the economy and society. We can’t simply stop taxing the old (property) and forget about the new, or tax the new and forget about the old. If we want good local places, then local authorities, town managers etc. need to be given the resources to do their job. The mind-set of ‘give me excellent services, for free’ simply gets us nowhere. Our economy has altered, and will continue to do so. So our tax system has to alter with this. This is not only a retail issue; as electric cars supplant petrol/diesel cars then what is replacing car tax? If we want roads we have to pay for them somehow.
And in our current predicament, if we’d only been properly paying for the NHS, would we have had such a traumatic time? If you want public services (and we need them), then government has to prioritise and pay for them. Saying something is new, so we shouldn’t tax it is not acceptable. Nor is allowing online retail giants top pay a trifling proportion of tax on billions of sales and profits (swollen further by the pandemic). They claim to pay what they have to; well then, let’s ask them properly for what they should be paying. This is about being a society, not simply a bunch of automated transactions.
A digital retail tax is not straightforward, but we must confront its need. We can devise a system that works and we can protect the start-ups and entrepreneurs in this space. Simply refusing to contemplate any steps in this direction as it ‘taxes success’ is ridiculous. That success has in part been bought by an unfair playing field and a mis-appreciation of societal costs. This can not be the way forward if we value the things we say we do.