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UK’s online tax plan risks killing retail patient

Reading Time: 2 minutes

by Aimee Donnellan via REUTERS BREAKINGVIEWS

 

Rishi Sunak should remember that bad cures sometimes worsen diseases. The UK chancellor is eyeing a 2 billion pound tax on internet sales. But the government, like landlords, may have to sacrifice some tax income to keep high streets alive.

British retailers have many challenges. Competition from the 200 billion pound online retail market is pretty high on the list, because it reduces the revenue potential of bricks-and-mortar retail locations. That makes fixed expenses such as rents and rates, taxes based on property values, particularly burdensome. Well-established brands like Oasis, Warehouse and Laura Ashley have all fallen into administration.

The idea of an online sales tax was first floated last year, in response to public anger over internet giant Amazon.com’s puny tax bills. On Monday, the Times newspaper reported that the government was considering a special tax on online transactions. Last week, the government also said it would review business rates.

Rate relief is more urgent. Business rates are typically set at around half of what the government assumes the premises can collect in rental income. However, the government has ignored the deteriorating economics of high streets and shopping centres. Rates have risen while rents have come down.

Retailers’ business rates provided the Treasury with about 8 billion pounds last year, according to the British Retail Consortium. It is obviously tempting to try to make online retailers pay more, rather than to give traditional rivals a break.

The problem with that thinking is that most big merchants are increasingly trying to sell both online and in-shop. For example, Zara’s owner Inditex is shuttering smaller stores with the idea of creating landmark showrooms for its stock that be bought via the internet.

The Covid-19 lockdown has clearly given retailers the upper hand over landlords like Unibail-Rodamco-Westfield, Hammerson and British Land. Even profitable chains such as Primark, owned by Associated British Foods , have gone on rent strike. Looking ahead, more lease payments are likely to be tied to revenue.

Governments are harder to push around than landlords. But if politicians think strong shopping areas are good for the nation, they should not squeeze retailers too hard.

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