The 2018 Budget was announced at the end of October, and whilst much of the attention was on Brexit, there was equal interest concerning the retail sector. A rapidly declining high street is a growing concern across the country and in the Budget Chancellor Philip Hammond sought to quell some of the sector’s fears for future business. There were a range of measures outlined to help bricks and mortar retailers over the coming periods, such as reducing business rates for small stores and the relaxing of town planning rules to help fill empty lots.
Debate suggests these measures only delay the inevitable, and more radical changes are needed to ensure the high street’s survival. However, among the announcements was a surprising addition, as the Chancellor outlined his plan for a future digital services tax. Many other governments have talked about the need for such regulations, however this was a rare, formal arrangement for implementation. The plan has motivated some in the retail sector, with prominent business figure Mike Ashley recently supporting the tax. Mr Ashley said that regulations such as a digital tax would give retailers an incentive to keep stores open, but can this one measure save the declining high street?
What is the UK Digital Tax?
The so-called Digital Services Tax outlined by the UK Chancellor in the 2018 Budget is a levy on the actions by social media platforms, online marketplaces and search engines. Simply put, the UK intends to charge major online companies 2% tax on all sales generated in the UK. The Chancellor stressed that this would only apply to companies that earn at least £500 million in global revenue, to protect start-up technology firms. The Treasury expects this new tax to raise around £275 million in its first year.
The announcement of Britain’s plans sped-up the global effort to control the taxes paid by the world’s biggest digital companies. Amazon, in particular, has been widely criticised for its evasive policies involving the funnelling of profits into low-taxation countries. National, traditional retailers, such as Mike Ashley’s Sports Direct, have long claimed that this provides digital companies with an unfair advantage in domestic markets.
However, Hammond’s plans for a UK digital tax have been met with criticism from many sectors. It is likely that this tax would predominantly affect major digital firms from the United States, such as Facebook and Google, and the USA was quick to raise its concerns. Many figures in US politics believe such a tax will create an unfair playing field, the very issue the tax was designed to resolve.
A consistent issue surrounding global taxation is that it is not something that can be solved at a national level. Whilst this tax is a reasonable attempt at tackling the problem, Chancellor Philip Hammond has himself called on other countries to follow suit. The European Union have recently tried to create a similar tax of their own, but that has been delayed by smaller EU nations who believe that this is a larger, global issue. The OECD, a group of the world’s wealthiest countries, found similar concerns.
Deeper High Street Issues
Another argument suggests that the Budget Digital Services Tax does not go far enough. The Treasury claim that the tax will raise around £400 million in its third year. However, that figure is a fraction of the money earned by the likes of Amazon, who regularly make more than $100 billion in annual revenue.
Regardless of the money generated, or the levelling of competition, the problems currently being faced by the British high street are more deep-rooted and cannot be solved by a single measure. The British Property Federation has called for fundamental business rates reform, whilst Revo – representing landlords – says that the tax system needs to change.
Ever since the evolution of e-commerce, traditional retail has struggled to adapt. The transformation of traditional high street shopping into an experience-based occasion is likely necessary for the majority of bricks and mortar stores to survive, regardless of future digital taxations. This change will require many major businesses to evaluate all of their operations to prepare for a long-term transformation. This is where ERA can help.
At ERA, we have been assisting major national and international businesses to reduce retail running costs for many years. Our experienced team of specialists have years of procurement experience in their respective fields, helping retail businesses streamline their supply chains for the future. Our teams work in a range of cost areas, such as payments, fleet and utilities, so if you are interested in refining your procurement strategies, why not get in contact today and see what we could do for your business?