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Would online sales taxes save our shops?

Terry smiling headBusiness rates, staff costs and inflation…all on the rise. Britain’s retailers do not have their troubles to seek. Just being able to open up shop each day is a challenge for some.

So, is it time to use the tax system to put the brakes on their biggest threat – online retailers?

Anyone shopping in town and city centres can see for themselves how much quieter they are these days. The high street is facing challenging times with fewer shoppers and stores closing, and the impact is felt not just by retailers, but by other services and businesses that rely on them.

Figures from the British Retail Consortium show that like-for-like sales, which strip out the effect of store openings and closures, were down by 0.4% last month. For bricks and mortar shops, sales were down 2.6%.

The latest figures coincide with more than 800 jobs being axed after the owner of 34 Budgens stores, including two in Scotland, collapsed into administration.

So what is to be done?

Cleaning up filthy, broken, litter-strewn, graffiti-ridden streets would help. So would making it easier and cheaper to park. Local authorities talk a lot about introducing shopper-friendly environments, but there is too little action.

A more fundamental move would be to tackle the biggest enemy of the high street: online retailers. While bricks and mortar stores pay business rates – and squeal about even higher charges – online retailers pay virtually no rates and, of course, do not bear the cost of operating and maintaining buildings. Some – infamously – pay hardly any tax.

Taxing online sales would ease the burden on physical stores, bring greater equality between online and offline retail, and could be a huge earner for the Treasury. How much longer before the incumbent Chancellor sees online retail as a huge cash cow?

While shops close and high streets deteriorate, online retail is picking up speed. The BRC said 22.2% of non-food sales took place online in February and grew by 8% over the same month last year.

Shop going online

Online sign of the times

Helen Dickinson, chief executive of the BRC recently spoke of the “relentless downward trend in footfall” which picked up pace again in January as shopper numbers fell by 1.3% over the same period in the previous year, following a 0.2% decline in December.

Figures from the Centre for Retail Research show the UK online retail market has grown from 9.4% in 2010 to 16.8% last year. Sales in stores this year are expected to fall by 4.3%.

The BRC looked at the case for an online retail tax in 2013. Justin King, who was  chief executive of Sainsbury at the time, called on the Government to follow the US by introducing a “marketplace fairness tax” for online retailers.

The tax allows US states to force online retailers to collect revenue on the sale of online products or services in an attempt to level the tax playing field between the high street and online-only retailers.

UK online retailers, inevitably, hit back, claiming a tax would be bad for jobs growth in the sector and would have a negative impact on the taxes collected by those working in the sector. Companies such as Amazon, Asos and Ocado now employ thousands in distribution and back-office roles.

New companies have emerged to support online shopping, such as Edinburgh-based Mallzee, which have thrived as more consumers shop via mobile phone.

Online retailers also argue that they are good for consumers by keeping down the cost of goods and increasing choice.

These are valid arguments, but the current trends point increasingly towards fewer shops on the high street, especially in so-called “secondary towns”.

We have seen a number of retail chains trim back on their presence in these locations where footfall is falling below a sustainable level. Retail chains that once required 500 to 600 stores across the UK, are now balancing their books on half that number. Those such as JJB Sports, which were caught out by having too many stores and an under-provided online service, paid a heavy price.

Big cities, particularly those with high visitor number such as Edinburgh, will have a degree of protection. This regular additional footfall is also helping sustain rentals in key streets where demand for space has remained healthy. It should also help fill new units coming on stream.

Even so, there are gap sites and a steady erosion of choice. It is becoming increasingly difficult to buy some products on the high street.

On social media it is not difficult to find frustrated shoppers struggling to find items in stock and being told by shop assistants to go to their website.

It sums up the problem. When the shops themselves are driving shoppers online it suggests they’re running out of time.

 

 

 

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2 Comments to Would online sales taxes save our shops?

  1. Ken Houston says:

    An online sales tax is long overdue. The playing field used by the likes of Amazon and city/town centres is about as “level” as the famous Easter Road slope.

    Should online sales continue to rise at current levels then the inevitable consequence will be American-style “donut” towns with depressed commercial centres ringed by affluent suburbs.

    There is no such thing as a free lunch. The cheaper prices available on Amazon, etc. will eventually be paid for by the death of the High Street and a decrease in social inclusion

  2. The majority of the top ten online retail brands in the UK are established bricks and mortar retailers and so trying to conjure up an online-only tax is not the answer to the exorbitant cost of business rates faced by retailers or indeed other sectors facing profound structural changes.

    The last thing retailers need is yet more tax or effectively double taxation, at a time when they are moving online to meet their customers’ changing shopping habits. Public policy is whacking up the cost of employing people and the cost of maintaining an extensive store footprint, making investment in online operations more attractive as technology costs fall and digital capability improves.

    What is needed is fundamental reform of the business rates system, a move away from the current investment-sapping approach towards one which better reflects economic and trading conditions and which leads to a substantially lower tax burden. This transcends questions over the taxation of individual firms or of online versus physical or large versus small.

    Coupled with this Scotland’s high streets and shopping destinations certainly need more affordable and less restrictive parking and a clean and modern public realm, and Daily Business is to be commended for its campaigning on this.

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