Question of the Fortnight
Would an Amazon tax save the high street?
Homebase is the latest casualty in the rapid decline of the UK’S high street. In mid-august, the DIY retailer said it would close 42 stores, putting 1,500 jobs at risk. It joins a list of famous names who have axed stores, or gone bankrupt, in 2018: Carpetright, House of Fraser, Maplin, Marks & Spencer, Mothercare, Poundworld and Toys R Us.
Meanwhile, in June Amazon reported record quarterly profits of $2.53bn (£1.9bn) worldwide, 12 times more than it made during the same period last year. A month later its founder Jeff Bezos became the world’s richest man, worth $150bn (£118bn).
And yet in August Amazon’s UK accounts show it paid just £4.6m corporation tax in 2017, down from £7.4m in 2016, despite pre-tax profits rocketing from £24.3m to £72.3m. Critics of the online giant say it’s too dominant, and needs to pay more.
To some, Amazon’s success has been bolstered by its complicated cross-border tax arrangements that let it minimise how much it pays. In 2017, it made €21.6bn profit (£19.2bn) across Europe, but paid just €16.5m (£14.6m) by channelling sales through Luxembourg.
It also pays a fraction of the business rates ‘bricks and mortar’ stores pay. For example, House of Fraser’s 59 outlets paid £30m in business rates last year, on sales of £787m. By contrast, Amazon had UK sales of £9bn, but paid only £33m in rates on its warehouses. Amazon says it pays all the tax it’s required to “in the UK and every country where we operate”.
As the unrest intensifies, with newspapers like the Daily Mail running ‘save our high street’ campaigns, Chancellor Philip Hammond says he wants the high street to stay “resilient”, and for taxation to be fair between “traditional” businesses and those that are mostly online.
Changing international tax law would require updating treaties, though Mr Hammond hinted that the UK could go it alone by introducing “temporary tax measures to rebalance the playing field”. He has previously suggested that it would be fairer to tax online companies on their revenue (billions in Amazon’s case), rather than on smaller profits.
But some say this would force the company to raise prices, penalising the ordinary shopper. John O’connell, CEO of the Taxpayers’ Alliance, said: “Why should people buying online have to pay both VAT and a special online tax?”
Others point out that an online tax wouldn’t just hit
Amazon, but smaller online retailers too, some of which also have high-street stores.
There’s also some doubt as to whether a tax would draw people back to the high street. Online shopping is phenomenally popular in the UK - we spend more as a percentage than any other developed country. Retail experts say shoppers will stick with Amazon even if prices rise unless stores become more than just places to buy; they must also offer exciting experiences that form part of a day out.
Not every high-street failure can be blamed on the rise of online shopping. Retailers that fail to keep up with the changing behaviour of shoppers have always struggled. And it’s worth remembering that Amazon and Apple have spent tens of millions in the past few years opening shops, indicating there’s still plenty of potential in physical stores.
True, their rivals haven’t got spare billions to spend, but they can do more to make the high street an attractive destination once again. Their future depends on it.
Amazon gets richer, while Carpetright, Homebase, House of Fraser, Maplin, Mothercare, Poundworld, Toys R Us have all closed stores