Covid-19 may, for now, be in retreat, but Britain’s high streets are still under threat. The pandemic accelerated fundamental shifts in the retail sector that cannot be unwound. The proportion of UK retail sales conducted online rose seven-fold between 2006 and March 2020. As coronavirus took hold and people found themselves beholden to the virtual marketplace, the shift accelerated. Now that the “new normal” is beginning, even those committed to “shopping local” may find it hard to stop making use of newfound conveniences provided by ecommerce; foot traffic on high streets is still down from pre-pandemic levels.
While innovation in retail should be welcomed, the decline of Britain’s high streets should not. They serve as the heartbeat of cities, towns and villages, providing a connection between a community’s past and present in ways that are not replicable in any other space — virtual or physical.
The government’s commitment to finding ways to support town centres is therefore welcome. Its latest foray is in the form of a consultation paper on a potential online sales tax. The money raised would be used to fund a reduction in business rates — the property-related taxes that fund local services — for bricks-and-mortar retailers, which tend to pay much higher rates for their high street property portfolios than purely online counterparts do for their distribution centres. While this may seem like a good idea, there are a number of complications.
A reduction in business rates is certainly overdue. Temporary, Covid-related, relief will expire in April 2023 and changes announced so far do not go far enough. Reducing the gap between revaluations of properties from five to three years should ensure that businesses are taxed on more accurate estimates of commercial rents. However, the legal requirement that each revaluation cannot lose the government any money overall may limit the relief this brings.
Creating space for lower retail tax bills is important but doing so through an online sales tax is not straightforward. The government says it would aim to minimise any difficulties for both consumers and business. The Treasury will know that this is not an easy task.
If it goes ahead, the tax is likely to be levied on the “online sale of goods to consumers”. This would necessarily make things tricky for businesses. Identifying when a sale is made “online” may not always be simple — especially for retailers that interact with customers over the web and in person. The dividing line between purchases for business or pleasure will also be hard to delineate without retailers scrutinising the profile of their customers in detail. Even if all these difficulties can be ironed out, the value of any new tax is likely to be passed on to consumers, making shopping more costly.
If the government does proceed, it will be necessary to protect smaller bricks-and-mortar retailers who are attempting to establish an online presence. An allowance, which would permit a certain amount of online sales to be made before any tax is levied, would do something to help in this respect.
According to the Treasury, an online sales tax could send roughly £1bn a year to bricks-and-mortar retailers via reduced rates. While any such assistance would be appreciated by struggling high streets, there may be more effective and efficient ways of providing support. It would be better to consult now on tax reform that can work to fund reduced business rates for high street retail and other government priorities, without undue complexity and cost.