by Joe Ventre, digital campaign manager
Black Friday in 2021 is a very different occasion from the high street mega sales we saw in years past. A run on the local Argos has been superseded by a mammoth internet shopping session, loading up our online carts with all manner of low-price gadgets and home comforts.
In the new digital age, the analogue shopping experience seems to be falling by the wayside. The question of how to handle declining high streets has vexed politicians for more than a decade now. We’ve all seen it in our own towns and cities. Who among us can honestly say we haven’t walked past a boarded up local shop, muttering about how it’s sad to see it go; only to promptly return home, stick the kettle on and start browsing Amazon.
The statistics show the extent to which the online marketplace is replacing bricks and mortar, with internet sales now accounting for over a quarter of all retail sales since April 2020.
In their hamfisted attempts to address the change, politicians have reached for the only thing they seem to know: new taxes.
Firstly, it was a digital services tax (DST); a tax on the revenues for search engines, social media services and online marketplaces. This was announced in the 2018 Budget, designed to “ensure large multinational businesses make a fair contribution to supporting vital public services.” As well as being bad for the British tech industry (and everything it already contributes), it was the wrong answer to the problem. As we wrote in a previous blog, corporation tax is hopelessly out of date - and a DST is nothing more than an attempt to paper over the cracks.
The same goes for talk of a new online sales tax (OST), which has been under consideration for some time. This would hit closer to home, as a levy directly applied to internet shopping. Our research suggests this would cost households around £150 a year, in conjunction with other taxes like an online deliveries tax and further complicating the tax system - and it still won’t save the high street. Another poor solution.
So what on earth is the answer?
There might be one politician trying seriously to find it. At one of our events at ThinkTent this year, Kevin Hollinrake MP suggested that the solution isn’t a new tax, but getting rid of an old one - abolishing business rates completely. According to Kevin:
“The best option would be to completely scrap business rates and apply a small increase in the sales tax that already exists in the shape of VAT. This would immediately level the playing field, would not create any additional bureaucracy and we would be able to completely dispense with the convoluted business rates system including revaluations, check, challenge, appeal, annual bills and debt collection.”
This might be the most interesting idea currently on the market, and it has many upsides.
Firstly, it completely abolishes one of the single biggest taxes on small firms. Despite some welcome cuts to the rates in the Autumn Budget and the pause during the covid pandemic, they remain a crushing burden on the high street. The business rates multiplier has increased by a staggering 10 per cent over the last ten years - even after a revaluation in 2017, which saw a rate reduction. The short term boost we could give bricks and mortar firms by abolishing them completely would be tremendous.
The proposal also settles the need for any further taxes on online sales. VAT applies across the board, both online and in store, (though with plenty of products which are exempt). Limiting any changes to existing taxes is a laudable principle, and one which goes a long way to avoiding further issues with our horrifically complicated tax system.
So without a doubt, the tax simplification arising would be welcome. In essence, it would level the playing field without starting a high-tax arms race. But what are the problems?
Well, we’re still talking about a VAT rise. With taxes at a 73 year high and taxpayers staring down the barrel of a cost of living crisis, a rise in the tax paid on purchases would be most unwelcome. Hollinrake also proposals changes to the levels of VAT registration:
“I also think that we should reduce the VAT threshold which is currently at £85,000 to the German level of £20,000 because the current level disincentives growth and incentivises tax evasion.”
The levels at which to set tax thresholds are a big enough debate on their own, but we can be sure of one thing - many micro businesses would be horrified to hear that they faced being dragged into registering for VAT, which was then set at an ever higher level to offset the abolition of business rates which they never paid.
Hollinrake’s idea is intriguing, but we’d ask: why should the smallest business fork up for business rates to be cut? Instead of seeking ways to make the measures revenue neutral, why not take the chance to cut the UK’s 73 year high tax burden and abolish business rates entirely with no shift in VAT.
Nevertheless, it’s a relief to see politicians finally recognising that punishing punters for shopping online is not the way to help physical retailers. New charges cannot save the high street, but a bold and radical approach to simplifying and cutting the existing tax burden just might.