Economics

The high street needs to change – an online sales tax is not the answer

BY Ben Kelly | tweet thescepticisle   /  29 July 2020

We didn’t tax compact discs to save vinyl, nor did we tax iPods to save the compact disc, and we are not taxing streaming services to save the iPod. Why? Because consumer habits change and sometimes the change is permanent, meaning the old ways become niche or obsolete. It then becomes futile to try and conserve something that is no longer in demand. The same logic applies to the current design of the beloved high street, and of good old-fashioned bricks and mortar retail in general.

Nonetheless, the Conservative Party believes it can “level the playing field” to save the high street while also boosting tax revenue (I suspect that’s what it’s really about). The Chancellor, Rishi Sunak, is considering a new tax on goods sold online amid “mounting concern about the collapse of the high street” as Britain emerges from the coronavirus crisis. The online sales tax is intended to raise revenue and “help bricks-and-mortar retailers to compete”.

The times are changing and there is no stopping it even if it were desirable to do so, which it isn’t. We over romanticise the high street and demonise online retailers for no good reason.

What is a high street? It’s a street lined with shops that are often over-priced, many of them are part of large chains with no connection to the local community. Many high streets have duplicate shops. Chain clothes shops, chain phone shops, chain betting shops, chain card shops, chain jewellers, chain pharmacies. It really isn’t that romantic.

A high street full of branches of shops that are the same in nearby towns and cities does not create sense of community. The high street was once closer to the romantic vision of local small businesses of the community serving the community, but then it changed. Now it will change again.

It’s not something worth mourning and it certainly isn’t worth trying to stop it. The Conservative Party is holding up its hands in a futile and pathetic attempt to hold back the tide. Instead it should be thinking outside the box and being proactive about considering how the high street can adapt, and what the government can do to facilitate that and encourage innovation.

The high street is in crisis because consumers increasingly prefer to shop online where products are cheaper and are delivered rapidly to their doorstep. There is no changing this reality. It’s a trend and it’s only going one way. I understand the lamentations for the high street – I myself have felt that wistful nostalgia, but then I still continued to buy most things online just like everyone else who pretends to fret about it.

An online sales tax is based on specious reasoning that accepts the dubious notion that online retailers have an unfair advantage and the playing field must be levelled.  In a call for evidence published last week, the Treasury highlighted concerns that business rates were effectively penalising the high street because online rivals did not need to rent “high-value” properties.

It’s true that business rates are penalising high streets and therefore should be reformed or replaced, but it doesn’t follow that online retailers with very different business models should face the same tax burden or be clobbered with new regulations. Taxing innovative businesses that provide in-demand services to consumers will just cost the consumer and stifle innovation.

Online retailers deliver their services in a different way. They have user friendly online interfaces, a huge choice of products, cheaper prices, rapid delivery to your doorstep and online customer support; this is effectively all part of one service. They don’t need a high cost physical presence in the inner city or town centres.

This business model has given consumers access to a wider range of products, cheaper than on the high street, and they get them delivered so they don’t have to spend an afternoon shopping. Which, shock and horror, many people don’t want to do. A time-consuming shopping experience isn’t some sacred ritual – many people would prefer to spend their time doing other things. Hence, they buy things online. Why punish them for this? Why try and clamp down on a wonder of modern life rather than celebrate it?

The government must be more forward thinking. To help the high street it must facilitate its evolution. It’s right to consider revising tax and regulations imposed on high street retailers as they struggle to compete with new business models. Replacing business rates with a land value tax and liberalising planning laws to encourage investment and use of commercial properties would help.

The government should also seek to facilitate the conversion of closed down commercial spaces on the high street into flats and houses. Ensuring this results in decent quality residential spaces is obviously more complicated than it sounds, but it should not be beyond the ability of government to implement. This would transform high streets into populated living spaces.

The new residential areas would lead to renewed demand for businesses to serve the needs of residents. Imagine today’s high street, but with part of it converted into housing. Imagine the new cafes, bars and shops serving the new community alongside traditional marketplaces. With fewer cars driving into city and town centres these areas could be pedestrianised too. Now that would be a real community hub.

People’s habits and behaviours change, and technology often speeds this process up. Businesses in the marketplace constantly look to innovate and create new business models to meet the changing economic conditions. This should be nurtured and encouraged, not stifled or clamped down on.

The Conservatives must not get stuck in the past, especially when rapid disruptive change is coming and a new industrial revolution is on the way. If they can’t think creatively about the future of retail, how will they deal with a rise in remote working? Tax home workers to save office blocks and business parks?

On the horizon we can see the age of automation coming. Clinging on to the old ways is not always the answer and in doing so the Conservative Party will have no idea how to adapt to the future.


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