Hammond eyes ‘Amazon tax’ as House of Fraser is rescued
Sports Direct billionaire tells the City he wants chain to become ‘Harrods of the high street’
PHILIP HAMMOND has raised the prospect of an “Amazon tax” for online retailers amid fears that high street shops are being put out of business, as House of Fraser was rescued in a lastditch deal yesterday.
Mr Hammond spoke just hours after House of Fraser called in administrators. The department store was bought up by Mike Ashley, the owner of Sports Direct, in a £90million deal.
Mr Ashley said he would keep open as many of the 59 stores, with their 16,000 staff, as possible.
Tech giants can legally lower their tax bills by channelling money abroad, meaning they can declare tiny profits in the UK despite huge revenues and thus pay nominal taxes. Currently most corporations in the UK are required to pay 19 per cent of their profits as corporate tax. Last year, Amazon UK’S corporation tax bill was £4.6million, while its pre-tax profits nearly tripled in a year to just over £72million, accounts filed with Companies House showed this month. This is equivalent to just over 6 per cent. Share payouts made to staff reduced the tax bill. Meanwhile total turnover reached nearly £2billion.
The firm is also reportedly facing being banned by the Advertising Standards Authority of claiming it can guarantee next-day delivery for Prime customers following a probe.
Mr Hammond said: “We want to ensure the high street remains resilient and that taxation is fair between [companies] doing business the traditional way and those doing business online.”
“That requires us to renegotiate international tax treaties, because many of the big online businesses are international companies. If we can’t get international engagement to do this, we may have to look at temporary tax measures to rebalance the playing field.”
DISCOUNT tycoon Mike Ashley has pledged to transform House of Fraser into the “Harrods of the high street” after striking a £90m deal to buy the chain out of administration.
The Sports Direct billionaire said he would keep “as many stores open as possible”, but failed to outline how the pre-packaged deal with insolvency specialists at EY would affect the retailer’s 59 shops and 16,000 staff.
EY was appointed administrator yesterday morning after attempts to secure a solvent sale of the department store chain failed.
It quickly sealed an agreement with Mr Ashley, who has bought House of Fraser’s brand, assets and stock, but will not take control of the company’s pension scheme. The Daily Telegraph understands that creditors will face significant losses on House of Fraser’s £350m debts through the move.
In a stock market announcement, Mr Ashley described the deal as a “massive step forward” for Sports Direct.
He said: “We will do our best to keep as many stores open as possible. It is vital that we restore the right level of ongoing relationships with the luxury brands.
“Our deal was conservative, consistent and simple. My ambition is to transform House of Fraser into the Harrods of the high street.”
Mr Ashley already owned 11pc of House of Fraser and has longed to seize control after narrowly missing out when China’s Sanpower secured a £500m takeover four years ago.
He has also built up stakes in retailers such as Game Digital and French Connection. With his 29pc stake in rival retailer Debenhams, the takeover of House of Fraser will fuel speculation that he could seek to engineer a merger of the two high street stalwarts.
Mr Ashley is expected to turn some House of Fraser stores into Sports Direct outlets and rebrand others as Flannels, his existing chain of upmarket fashion stores.
House of Fraser, a 169-year-old founding member of the FTSE 100 index, was left scrambling for investment after Hong Kong-listed Hamleys owner C.banner pulled out of plans to hand it a £70m lifeline.
At least four suitors – including Mr Ashley, the billionaire owner of the Edinburgh Woollen Mill, Philip Day, and two turnaround groups, Alteri and Endless – had submitted bids for the company on Thursday.
The stricken chain needed to pull in fresh funding by Aug 20 or risk collapse through a failure to pay its bills.
It is understood that the House of Fraser board wanted a solvent sale of the business, but PWC, who was advising the chain’s bondholders, preferred administration.
Alan Hudson, EY’S joint administrator, said the move “preserves as many of the jobs of House of Fraser employees as possible”. The retailer employs 5,900 staff directly, while a further 10,100 people work in its concessions.
As part of the deal, House of Fraser’s existing trustees – Dalriada – will take control of the pension fund.
While the Pension Protection Fund (PPF) is set to assess the 5,000-member scheme, it has a funding surplus that means it is unlikely to fall into the pension lifeboat.
The scheme, which includes the House of Fraser and Beatties & Jenners fund, was nearly £100m in the black at the end of March, based on assets of £705.1m and liabilities of £608.5m.
It is likely that the trustees will hand control to an insurer, which would provide regular payments to members.
Other creditors face more uncertainty. House of Fraser had £125m in bond debt and had borrowed around £250m from banks including HSBC and the Industrial and Commercial Bank of China.
Sofie Willmott, Globaldata’s senior retail analyst, said the future success of House of Fraser will depend on significant investment from Sports Direct.
“To give House of Fraser the best chance of survival, Sports Direct and its owner Mike Ashley must make drastic changes to both its product proposition and store environment to entice shoppers back,” she added.
Brutal trading conditions on the high street have forced a slew of retailers to restructure their businesses this year.
Maplin, Toys R Us and Poundworld have already collapsed, while Mothercare, Carpetright and
New Look are restructuring to close stores.