With UK ecommerce leading Europe in terms of growth – and much of that coming via Amazon and at the expense of the High Street – plans by the UK government to try and revive the self-same High Street by taxing online retailers is perplexing.
According to the European B2C Ecommerce Report 2018, the UK leads the way in European ecommerce, growing to €178 billion spent in 2017 – a third of it on Amazon.
This is against a backdrop of overall European ecommerce, which grew by 11% to €534 billion in 2017, and is expected to grow still faster this year to hit €602 billion by year end.
On the ecommerce front, UK retail is doing almost as well as the England squad.
But the parlous state of High Street sales can’t be ignored. Once proud chains are closing left, right and centre, and many independent stores simply can’t compete. Clearly, action needs to be taken and it should fall to government to some extent to help make this work.
However, the plans outlined late last week by Chancellor Phillip Hammond stating that “Progress is being made with a way to tax digital business” should strike fear into etailer’s hearts.
Hammond was writing to MP Nicky Morgan at the end of June in her capacity as chair of the treasury committee, in answer to her letter expressing the committee’s concerns with the financial burden of business rates and asking whether he believes that business rates are still fit for purpose.
While Hammond sees business rates based on property as an effective way to tax real-world retailers, he is also looking at how to tax the digital economy. In a statement, Hammond said: “I have been clear that we need to find a better way of taxing the digital economy, and we are making progress on this issue. At Autumn Budget 2017 we published a position paper on corporate tax and the digital economy, with a further update at Spring Statement. Those set out the government’s view that international corporate tax principles need updating for the digital age to ensure they reflect the new ways businesses create value. It is right we make further progress on this issue before considering the implications for the wider tax system, including business rates, so that all businesses make a fair contribution to the public finances.”
However, this has caused the inevitable headlines that an ‘Amazon Tax’ will be used to subsidise the High Street and that is bad for business – all business.
Ivan Mazour, chief executive of technology firm Ometria, puts it really well: “After all its talk of bolstering the UK’s digital economy, the government’s proposed ’digital tax’ on online retail is a perplexing one, certainly. Punishing forward-thinking retailers for offering customers convenient ways of shopping in an increasingly digital world flies in the face of innovation – and only serves to prop up a status quo in bricks and mortar retail that isn’t resonating with customers like it used to, if recent cuts and closures are anything to go by.”
Mazour is bang on. Instead of dragging UK online retail back into the dark ages, the onus should be on the high street to match the innovation we’ve witnessed online. In the same way that successful online retailers are putting amazing customer experiences at the centre of everything they do, the high street must re-think its proposition to shoppers – innovative retailers like Made.com and Dyson who use retail space to offer curated brand experiences understand this and are thriving.
As I have said before, the problem with UK High Street retail isn’t that digital has some unfair advantage, it is that the High Street retail experience is awful. Online – especially using marketplaces – it is easy to find what you want, at a good price and to get it delivered within, in some cases, less than 24 hours. Go to a shop and you get poor service, queues, lack of stock, expensive car-parking, crowds and, for me, it is a sub-standard experience that I avoid as much as I can. I get my groceries delivered, I pretty much buy everything online and, if I do go to a shop, its usually a convenience store when I stop for petrol and fancy bag a minstrels.
I can’t see any amount of ‘digital tax’ stopping me doing this. I don’t go online for bargains – though many do – I go for convenience and now that that is my modus operandi I can’t see me changing.
What retailers need to do is look closely at why they are failing: not how much business online is taking from them, but why that is happening. And then they need to fix it. Sure, business rates are too high and that does need to be addressed, but trying to tax online into submission to let the High Street carry on as is is a myopic approach and once again show just how out of touch with real life politicians of any stripe are.