High Streets Initiative · 29 January 2018

Fairer taxation of digital economy crucial to high street survival, MPs warn

The out-of-town physical presence of ASOS and Amazon landed favourable business rates revaluation

The government must help independent shopkeepers remain competitive by reforming the way online firms such as Amazon and ASOS are taxed, according to a committee of MPs.

In a report sent to chancellor Philip Hammond, the Treasury select committee warned that last year’s business rates revaluation had “[damaged] the competitiveness of shops on the high street”, pressing Hammond to address the existing advantage given to retailers in out-of-town business parks and those based online.

MPs have begun to echo concerns already raised by high street bodies – that government has failed to find an answer to the inherent advantage held by online businesses without a high street presence over Britain’s bricks and mortar retailers braced for a £280m business rates hike.

According to figures released at April 2017’s business rates revaluation, by real estate advisory firm Altus Group, the average small high street shop would take on an extra £3,663 in property taxes by 2022.

Read more: High street groups demand action ahead of “unsustainable” business rates increase

A “tsunami” of shop closures

The property tax burden led to the demolition or conversion of six shops every day for the duration of the previous business rates regime.

Standing at 430,360 in April 2010, the headcount of shops dropped 3.68 per cent by 2017, with 15,856 disappearing.

However, while retailers struggle to absorb the increase, figures pointed to an advantage for online businesses with large, out-of-town warehouses. Amazon, for example, is set to benefit from a £148,000 reduction in business rates liabilities across its nine distribution centres in England and Wales.

Meanwhile, businesses such as ASOS, JD Sports and Sports Direct have also been able to base online operations outside of the high street.

Commenting on the “difficult questions” facing policy makers, Alex Probyn, Altus Group president of business rates, said: “Taxation of the digital economy is already on the political agenda and it needs to be addressed this year, but the government shouldn’t distort the business rates system. That’s not the right mechanism for rebalancing bricks and clicks. The solution is bound to be a difficult and challenging one.”

Probyn suggested that a more progressive approach to taxing online giants could fund relief measures for struggling high street businesses.

He added “Some retailers will have to absorb very large increases in their bills, which could spiral by a further 32 per cent plus three per cent inflation in April. Those bills could be more affordable if the playing field with their online competitors was levelled. Extra revenue from taxation of online retailers could be ring-fenced and used to provide additional relief for traditional bricks and mortar retailers.”

Competing with the growing strength of ecommerce has become a key challenge of high street retailers, and the Office for National Statistics (ONS) recently reported that online sales accounted for a record 18 per cent of all retail sales in December 2017.

The challenges facing UK high streets have been reflected in the struggles facing a handful of major businesses.

Debenhams, Mothercare, Moss Bros, Card Factory and Carpetright have all issued profit warnings, while Marks & Spencer, Next and House of Fraser have reported declining in-store sales.

Articulating the challenges, Argos chief executive, John Rogers, said: “It is no surprise the profit warnings tended to be from those companies that predominantly have a high street presence, because they are paying a cost to their business that’s not borne by most of their online competition.”

Our Bricks & Clicks video series is helping retailers strike a balance between growing a brand online and establishing a physical presence

This article is part of a wider campaign called the High Streets Initiative, a new section of Business Advice championing independent and small retailers by identifying the issues that put Britain’s high streets under pressure. Visit our High Streets Initiative section to find out more.

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ABOUT THE EXPERT

Simon Caldwell is deputy editor at Business Advice. He has a BA in politics and communications from the University of Liverpool, and has previously worked as a content editor in local government and the ecommerce industry.

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