Emily Carver is Head of Media at the Institute of Economic Affairs.
In recent months, my local high street has seen two notable casualties: an independent bookshop and a boutique toy shop. Both had been trading for over 50 years. For their owners, as for many small businesses across the country, the cost of stop-start-stop again lockdown became too much to bear. Faced with an uncertain future, government-mandated closure was the final nail in the coffin.
The full impact of the pandemic and social distancing on the high street is not yet known. For some businesses, the Government support available will be enough to keep them afloat. But, as any business owner will tell you, every month counts. Regardless of any government support scheme, the money many businesses are haemorrhaging – and the debt they are accruing – is no longer sustainable.
It is true that town centres across the country were already in a pretty sad state before the pandemic. In many parts of the country, once bustling and vibrant high streets have been replaced with boarded up shopfronts, abandoned pubs and dreary-looking charity shops. This year the high street has waved goodbye to Mothercare, TM Lewin, Jaeger, Debenhams and Beales, to name but a few.
But while the pandemic hastened the demise of these retailers, the deterioration of the high street is a decades-long trend. This is due in no small part to the rise of out-of-town superstores, prohibitively expensive in-town parking charges and, of course, the shift to online shopping.
Ten years ago, online shopping represented 7.9 per cent of total retail sales; this skyrocketed to 31.3 per cent in December, having reached a peak of 36.2 per cent during the November lockdown. It looks likely that this will have risen further last month; the latest figures from Barclaycard show that 57.9 per cent of all retail spending last month took place online.
Once lockdown is lifted, this will drop as a proportion of sales, as we saw during the summer months. But the pandemic has opened up online shopping to new demographics. Older age groups are driving this trend and they’re likely to continue to do so, well after social distancing is confined to the dustbin of history.
So, while brick-and-mortar shops faced ever-changing restrictions on their trading, Amazon saw its UK sales leap to almost £20 billion – 51 per cent up on last year. Founder Jeff Bezos has, reportedly, added more than $70 billion to his net worth over the course of the pandemic. Unsurprisingly, this has led to calls for such online retailers to cough up more money to the Treasury, and the public is broadly in support.
But as the Chancellor weighs up different ways to fill the black hole in the public finances, he should be wary of buying into the view that slapping taxes on online sales will do anything to help the high street. The Government speaks of levelling-up Britain, but this would be a clear-cut case of levelling down. In the same way that Portugal blocked remote lessons at private schools for fear they would gain an unfair advantage over state pupils, the belief that by hammering one sector of the economy you’ll help another is more reminiscent of socialist ideology than that of free market conservatism.
Retailers such as Tesco have called upon the Chancellor to hit online rivals with a sales tax. Predictably, the CEO uses the justification of a “level playing field” to call for innovative rivals to face greater barriers to doing business. Perhaps Tesco should consider lower taxes on all businesses, rather than higher taxes on their competitors?
There is, though, a case for reform. Our tax system was designed in an age when international tech companies such as Amazon and Google simply did not exist and well before online retailers were even a notable proportion of our economy. It is reasonable, therefore, that the Government may wish to rebalance this.
However, the Chancellor should resist the urge to slap a hastily devised online sales tax or an “excess profits tax” on digital businesses, as the Treasury is reportedly considering. While the public may support vague notions of taxing those seen to be “cashing in” on the crisis – ignoring the fact that they are responding to consumer demand – both ideas fail to stand up to scrutiny.
In practice, an online sales tax would likely amount to a two per cent levy on all goods bought online. Not only would its implementation be very costly and time-consuming – particularly for smaller businesses – it would likely only raise up to £2 billion a year, the cost of which may simply translate into higher prices for consumers, lower wages for employees and is unlikely to change consumer behaviour. An “excessive profits tax” would see companies charged not once, but twice on their profits – sending a signal to entrepreneurs that the UK government punishes success and innovation.
Tobias Ellwood argued in The Mail on Sunday that the “world would be a better place” without the likes of Amazon, but his views are firmly at odds with the public’s revealed preferences – even in 2018, nearly nine in ten Brits used Amazon. While Ellwood raised some fair questions over big tech censorship, our representatives in parliament would do well to remember the enormous benefits these companies offer.
Clearly, we enjoy shopping online, and this isn’t a trend that will reverse any time soon. If the Government is serious about helping the high street, ministers should focus their attention on making it easier for retailers to make money, not punishing those which have excelled. It has been remarkable how many local businesses have adapted to offer an online service during the pandemic – it would be a shame if such innovation were to be discouraged by a government who purports to be on the side of business.
One positive change would be to relieve the high street of some of its most burdensome taxes and regulations. The House of Commons’ own Treasury Committee has pointed out that business rates provide one of the highest property tax takes in the OECD, placing a far greater burden on those that need a physical presence to trade, regardless of their profitability or cash flow. If the Government wants the high street to survive, the Chancellor would be well-advised to extend the “business rates holiday” or scrap business rates altogether. This would, at least, give high street retailers some breathing space to recover, once they are able to reopen.
For many people, high streets and town centres are more than just a place to shop. They add to quality of life, provide an opportunity to socialise and bring a sense of local pride and identity. It would be regrettable if the Great British high street were to become a thing of the past.
But in a bid to preserve our town centres, it would be folly to target one part of the economy that has thrived during the pandemic. Instead of levelling down, we should focus on making it cheaper and easier for high street retailers to flourish.