Amazon did not kill the UK’s chain stores
Chancellor of the exchequer Philip Hammond’s idea about an ‘Amazon tax’ to help retailers is a bad idea, writes Andrea Felsted
The carnage on the British high street from the likes of House of Fraser and Homebase naturally leads to calls for blood from internet-retailing behemoth Amazon.com. Enter chancellor of the exchequer Philip Hammond, who last week said he was strongly considering an "Amazon tax" to help retailers. Conservative Scottish legislator Ruth Davidson lent her support this week.
It’s a bad idea. For a start, let’s just get one thing straight. Amazon did not kill the British high street.
The UK store chains that have collapsed this year did so because they didn’t have the right products at the right prices, invest enough in their businesses, or stay up to date with consumer trends. Associated British Foods’ Primark faces exactly the same pressures as everyone else, and doesn’t even sell via the internet. But it has prospered.
As things stand, retailers pay a disproportionate share of business rates, effectively a tax on property. While store chains account for about 5% of the economy, they pay nearly a quarter of this tax, according to the British Retail Consortium, a lobby group for store chains.
Hammond’s idea, which is short on details, is superficially appealing. After all, Amazon’s UK tax bill fell about 40% last year, and it paid just £4.6m ($5.6m) on £2bn of sales. Asos, a British online-only clothing retailer with a similar level of revenue, paid £15.9m.
Complaints about how such a big company as Amazon can pay such a low amount of tax in the UK have been around for a while. This focus on the high street is a different issue. What’s more, an internet shopping tax could well end up hurting the very bricks-and-mortar retailers the government wants to help.
More than 17% of sales were made online in 2017, according to the British Retail Consortium. Over half of those were with retailers that also have shops. So companies such as Next, which has sizable online and offline businesses, face a double tax whammy.
Consumers are in a fragile state. Anaemic wage growth means their purchasing power is patchy. Retailers would likely pass along any increase in taxes, and that would probably just cause shoppers to draw in their purse strings.
Many orders made via the internet are actually collected in stores. Any pressure on this business could create a headwind for retailers who depend on click and collect. The extra items that customers buy when they arrive at a shop to pick up their purchases is useful, and let’s not forget that cup of cappuccino they might buy at a Costa Coffee next door.
A tax on deliveries could sidestep damage to click and collect, and be better focused on online retailers. But in trying to hurt Amazon, this could wind up dragging down the likes of ASOS and Boohoo,com fast-growing British success stories in one of the rare bright spots of retail.
A reform of business rates would be the best approach to addressing the disparity between online and high street retailers.
There has been some tinkering around the edges, with the government raising the frequency of the property values reviews that determine the levies to every three years from every five.
Annual valuations would be a better idea. The reduction in retail property values sparked by the recent wave of failures won’t be reflected in rates for several more years.
Alternatively, the government could raise business rates for offices and warehouses and cut them for shops. That would address the disparity between shopfront-heavy retailers and online-only businesses, which rely on distribution centres to serve their customers.
Retailers are right to fear Amazon, but it’s an easy scapegoat. A revenge tax would only backfire. And that is the last thing that the beleaguered British high street needs.
• Felsted is a Bloomberg Opinion columnist covering the consumer and retail industries. This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.