George Bull

Written by: George Bull

George Bull

Senior Tax Partner

Tax changes alone won't save the UK high street

Hot on the heels of the business rates review the Chancellor of the Exchequer is believed to be looking at a package of other measures which are intended to help drive consumers back to the high street. These new measures would apply fiscal pressure to shift consumers away from online spending which continues to dominate retail sales (31.8 per cent of total sales for June) and back to stores by introducing a levy of around 2 per cent on goods sold online which would raise around £2bn a year. The package will also include a mandatory charge for consumer deliveries, which would be presented as a means of cutting congestion and air pollution.

Consumer surveys show that we are a polarised nation. It seems that half the nation is ready to resume work as normal, while the other half wishes to remain in the lockdown cocoon of safety. This is all happening at a time when many high streets have become run down with over-consolidation of brands. Faced with this, consumers have become bored. It is not sufficient to save the high street in its current form. Instead, a new wave of independent stores is required which could offer the Instagram age the unique goods and store experience which it craves. Diversification of the high street is just as important as fiscal measures. But without changes to the economics of opening or running a high street store, the high street risks becoming progressively less attractive. Could the Chancellor’s plans succeed in getting customers back into local shops?

While the £2bn yield of the online sales tax would no doubt be attractive to the Treasury, it risks dampening the appetite for tech and eCommerce start-ups and innovation in the UK where we already have a host of young leading online brands. Curbing entrepreneurialism and the development of new business models in the UK would be a high price to pay.

The second impact of the online sales tax is more immediate. In the current climate, if this levy was passed onto the consumer, there would almost certainly be a negative impact with consumers simply spending less. Charging additional taxes on online sales will not be sufficient to drive consumers back to the high street.

The delivery charge may be more compelling. As free delivery is becoming more common and is now often expected by consumers, a mandatory delivery charge might be more persuasive than additional taxes. Brands could also use the charge as a way to bolster their green credentials. However, the messaging is difficult. The delivery charge may result in more people driving into town centres, particularly outside of London where public transport infrastructure is less extensive, thus creating more pollution and therefore reversing the positive environmental purpose of the tax. Regional and local rows would inevitably break out. The delivery charge could quickly be seen as a postcode lottery.

While Mr Sunak’s desire to help the struggling high street is laudable, tax changes are notoriously ineffective at correcting market imbalances created by commercial pressures. Large-scale tax changes such as the business rates review, and the imposition of an online sales tax also take far more time to implement than the Chancellor has at his disposal.

If traders must wait one, two or three years for tax changes to adjust consumer behaviour and come to their aid, very little of the high street will remain. A quick fix is needed now.

What form might that quick fix take? The Chancellor launched the 'Eat Out To Help Out' to encourage diners back to restaurants. Perhaps he should also offer discount vouchers to customers at qualifying high street shops. Alcohol and tobacco would be excluded, along with foodstuffs not passing the Prime Minister’s healthy eating test, but such a scheme would make an immediate difference.

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