Is 'digital tax' the silver bullet to save high streets like Ipswich?

Paul Clement,

Paul Clement, chief executive of Ipswich Central - Credit: Ipswich Central

Some industry bodies and high street retailers are clamouring to persuade the government to introduce a digital tax to rebalance costs between on-line and bricks-and-mortar providers.

Whilst the notion of taxing rich on-line retailers more is popular, I am yet to be convinced that, alone, it will restore vitality to town and city centres such as ours in Ipswich.

Like most town and city centres, particularly as we approach the prime minister’s announcement on his ‘road map’ to lifting current restrictions, Suffolk’s county town faces a future with large retail vacancies following the acquisition of Debenhams and Arcadia by on-line brands.

It increasingly looks like the proposed March budget will, instead, be more of a financial statement from the chancellor in which he is likely to temporarily extend business rates exemptions, alongside a continuation of other financial support mechanisms, until the economy is reopened after Covid-19.

Such measures would be very good news but would likely mean that any digital tax would not be introduced until 2022 at the earliest.

Meanwhile, the impact of the pandemic on high streets requires a much more immediate focus.

There is no doubt that, particularly as a result of the lockdowns, on-line shopping has gained momentum.

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According to the British Retail Consortium and accountants KPMG, it currently accounts for between 33% and 45% of all transactions.

However, the Office of National Statistics has revealed that, even in 2020 when shops were shut for many weeks, sales in physical shops only fell by about 10% and was still worth £286bn.

So, an inevitable drift to exclusive internet shopping predicted by the doom and gloom merchants seems very unlikely, particularly as shops start to reopen.

The exact methodology for collecting a digital tax remains unclear. For example, rather like VAT, it could be charged on each transaction or, like corporation tax, on company profits.

Either way, if the purpose of a digital tax is to tempt people back to town centres, I can’t see it achieving this.

What will on-line businesses such as Amazon, Boohoo or ASOS do when faced with paying more tax?

They might squeeze suppliers – often either independent businesses in the UK or, as we have found, manufacturers in poorer countries – or pass on the extra costs to consumers. Probably, they will do a mixture of both.

Some might elect to just absorb the extra cost but, if they do so, they will likely expand their product ranges to open up new revenue lines - thereby risking even more transactions away from bricks-and-mortar providers.

Whatever they choose, it won’t be to give up and tell us to shop locally.

What concerns me is that a digital tax could actually have a negative effect on urban centres like Ipswich.

For example, many of our high street businesses have a complementary on-line offering.

If their already battered profits are to be further reduced by having to pay more tax, one option could be for them to reduce cost by closing even more stores?

Also, lest we forget, one priority for towns like Ipswich will be to further differentiate our local offer thorough supporting more independent businesses.

They will need a complementary on-line presence to survive but will not have either the margins or the confidence to set up with higher taxes on the horizon.

Finally, I recognise the much more cautionary note from the British Retail Consortium that the most urgent reform is of our antiquated business rates system and the introduction of a seemingly popular digital tax might be used to kick this problematic political ‘can’ yet further ‘down the road’.

So, whilst the concept of a digital tax is seen by some as a ‘knight in shining armour’ poised to save high street decline, I have fears that it might not prove as such.

The much more urgent priority is to support the businesses that we have, to be bold in rethinking the meaning of our places and to have a strong, compelling and deliverable vision for the future.

It is that which will win customers back and it is local leadership, rather than any changes to tax systems, that will deliver it.

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