Will an ‘Amazon tax’ cure retail’s ails?

In the days following the sale of House of Fraser to Mike Ashley’s Sports Direct group after the department store fell into administration, chancellor Philip Hammond has stepped up the call for online retailers to face a tax on their revenues. Earlier this week, Hammond indicated that he planned to introduce a new retail levy on online businesses, in line with changing customer attitudes. As shoppers continue to migrate away from the UK high street towards online, physical stores have been bearing the brunt of competing against online rivals that do not need to pay the same overheads. Although Hammond did not go into detail on what potential tax measures could involve, it is an effort that has largely gained backing from the industry. Lawrence Hutchings, chief executive of Capital & Regional, says he is “broadly supportive” of Hammond’s objective, adding that it is “critical” to redress the balance between online and physical retailers. “There shouldn’t be a differential tax regime,” he affirms. “We think the playing field between physical retailers and pureplay online retailers needs to be levelled – there’s no question.” And new legislation in the US seems to be paving the way for further discussions on the matter. The Supreme Court ruled in June that state governments can compel online retailers to collect sales tax from their customers. “Some US states have brought in legislation to create a level playing field to ensure online retailers are taxed for a sale they make within that state, no matter where that online retailer may be based. So there is merit in this discussion,” says Hutchings. Lifting the burden on bricks-and-mortar Lobby group New West End Company, which represents more than 600 retailers, hoteliers and property owners in London’s West End, estimates that a 1% tax on online businesses’ revenues could provide more than £5bn of rates relief for the high street. This in turn could reduce rates for high street firms by an average of 17.5%, without extra cost to the Treasury. According to the organisation’s research, online businesses currently pay one-tenth of the business rates paid by high street businesses. Colliers unveils manifesto for business rates reform Its findings were submitted in June as written evidence to the House of Commons’ Housing, Communities and Local Government Select Committee high streets inquiry. Jace Tyrrell, CEO of New West End Company, says: “We are pleased with the direction the chancellor is going. In the short to medium term it would be a really good solution, if a partial one; we hope that by the next revaluation in three years’ time, there will be a more fundamental reform of business rates.” Strikingly, Amazon’s UK corporation tax bill dropped to just £4.6m in the year to 31 December 2017, from £7.4m in the previous year, according to its latest accounts filed by the company’s UK warehouse and logistics operation. Its turnover for the period was close to £2bn. On the other end of the scale, House of Fraser’s business rates bill across its 59 stores tallied £30.2m last year, according to property adviser Altus Group, on total sales of £787.8m. Can online businesses take the strain? The idea of a levy faces scepticism from the British Retail Consortium, which warns that a new online or sales tax is “not the answer” if applied to retailers with both a significant online and retail presence. A spokesperson for the BRC says: “For every £5 spent on retail, £1 is spent online and more than half of that is with retailers that also have physical stores and outlets, so both retailers and consumers would be worse off. It is short-sighted to consider different forms of business taxation in isolation from one another or retail in isolation to other industries.” Others may also argue that by bringing in a levy, the government would be penalising online companies and discouraging investment in a rapid growth area. However, the general sentiment is that there would be a limited impact on warehouse-centric businesses. Andrew Jones, CEO of LondonMetric, notes: “The relief it would give to some high streets would outweigh the extra burden it will put on logistics occupiers. “Rents and rates in logistics will rise, but I don’t think either cost will be a key determining factor on demand. I appreciate that no occupier wants to pay more but the bigger issues around logistics demand are transport and labour costs.” CVAs bring opportunities to re-establish local pride However, like Tyrell, Jones is keen to see movement towards meaningful plans to reform business rates, adding that the inflexibility of the current system “completely ignores the channel shift or the polarisation of shopping patterns that has taken place over the last five years or so”. “The principle of the current ratings system, linking rates payable to rental values, was sound when it was set up. However I don’t think it ever envisaged a scenario where rents might fall materially and so the existing system has been exposed as proving far too inflexible,” says Jones. “There are now numerous locations where retailers are now paying more in rates than they are in rent, and that was never the intention, and nor is it a situation that will encourage much needed investment into town centres.” Keeping up with the times Fundamentally, industry figures agreed that the changing nature of retail means that sales tax policies must be updated so that all retailers can compete under the same rules. Mark Robinson, property director and co-founder of Ellandi, said: “Retail is the way a consumer acquires a good; this might be by going to local shops or getting on the internet. Customers are becoming channel-blind. It is all retail, so it all needs to be taxed in the same way.” For Robinson, a new tax is “the most obvious single lever the government could pull to make a difference at the moment”, but the issue alone belies the extent of the sector’s troubles. “My concern is there is so much broken with our retail and town centre model at the moment that there is not one silver bullet,” he says. “At the moment for retail there is a perfect storm of structural change, cyclical challenges, Brexit challenges and everything else lined up against it. We need to embrace any change that we can lobby the government to facilitate as quickly as possible.” While the prospect of a new tax on online businesses is largely viewed as a necessary step to protect the UK’s ailing high street, it is a smaller piece of the puzzle. The consensus is that as long as the current business rates system continues to overshadow physical retailers, bricks-and-mortar players will struggle to survive against their online rivals. To send feedback, e-mail pui-guan.man@egi.co.uk or tweet @PuiGuanM or @estatesgazette