Could an ‘Amazon Tax’ on business rates save the high street?

Amazon are once again the enfant terrible of retail after they were recently forced to reveal they paid just 0.7% in business rates (£63.4m) following sales of £8.8bn in 2018.

Put into context, Debenhams paid 3%, Cineworld 6% and New Look 6.5% of their respective total income in rates.

The numbers were included in a parliamentary select committee report last month with MPs calling for an overhauled business rates system that will ‘level the playing field’ for struggling high street retailers who compete with Amazon.

But have they fundamentally misunderstood how the high street has changed, and would it be fair?

Crinkly tin sheds

An Amazon Fulfilment Centre, Dunfermline.

There are 18 Amazon ‘Fulfilment Centres’ in the UK. Vast modern arenas of capitalism that prepare for shipment everything from paperclips to PS4s.

Constructed next to motorways far away from traditional high streets, their location gives them a distinct advantage over traditional bricks and mortar retailers, according to Nigel Wilcock from the Institute of Economic Development, who says a ‘fair’ taxation system for internet retailers is ‘very valid’.

‘We need a reform of the business rates system,’ he says.

‘At the moment it’s based on the value of the building and crinkly tin sheds will never be as expensive as the equivalent space on the high street.’

According to Wilcock, it would be ‘relatively straight forward’ to make adjustments to the business rate model and raise corporation tax (Amazon paid £4.5m last year). However, it would require a massive change in government philosophy.

The Conservatives have promised to lower corporation tax to 17% by 2020 to entice firms to set up shop in the UK but with Brexit giving the jitters to just about every large multinational, any change in tax policy is unlikely.

Instead, Chancellor Philip Hammond announced in his Autumn Budget that over the next two financial years retail premises with a rateable value of £51,000 or less could be awarded a discount in business rates from April this year.

Last month Bath and North Somerset Council invited up to 800 retailers to apply for discounts with other councils following as they look to revive ailing high streets which saw footfall decline for a 13th straight month in December.

Wilcock, however, feels this approach is flawed.

‘Business rate breaks to SME retailers is the wrong way to look at things,’ he says.

‘We’re not getting on this bandwagon that retailers shouldn’t pay such high business rates because it’s the only way councils are getting funded.’

‘We’ve already got a public sector that doesn’t function, even though the UK is at full employment, we’re not generating enough tax for services that society demands.’

Gaming the system

A Fair Tax Mark billboard in London.

The myth goes that Amazon founder Jeff Bezos started out by selling books from his garage in Seattle, but the richest person in the world’s underdog days are well behind him now.

Following the publication of their business rates, The Bookseller’s Association accused Amazon of ‘gaming the system’, branding the business rates ‘systemically ruinous for traditional retailers’.

New Start contacted Amazon, who’s spokesperson declined to speak on the record but said they don’t recognise the premise that Amazon has an unfair advantage over high street retailers.

Instead, they highlighted a blog the company published in January which said: ‘Online sales are still less than a fifth of total retail sales in the UK, and Amazon is a small percentage of that – perhaps a lot less than some people realise.

‘We’ll continue working hard to earn customers’ trust and, if we’re successful and British customers choose to shop with us, we’ll continue to invest and create jobs in the UK to meet that demand. And, of course, we’ll continue to pay all the taxes owed in every community that we call home.’

It’s a fair point. Amazon doesn’t set the business rates and there was some acceptance in their blog post that it ‘hasn’t always been clear’ how much tax they have paid.

But their opaque tax structure, which has seen them declare UK profits in an ’empty shell’ company in Luxembourg is one reason why Paul Monaghan set up the Fair Tax Mark in 2014. He believes there should be complete transparency on what tax is paid by companies and why.

The Fair Tax Mark is an accreditation scheme that encourages businesses and organisations to pay the ‘right’ amount of corporation tax. There are 50 businesses now certified including high street retailers, and Amazon competitors, such as Lush, Richer Sounds and the Co-Op.

‘We thought everybody knows who the bad guys are and who are shifting the profits out to tax havens but nobody knows who the good guys were because there was no standard,’ says Monaghan.

But the tide could finally be turning and in 2017, Amazon was forced by the EU to pay Luxembourg €250m in back taxes, following a clampdown on ‘illegal tax advances’ by internet companies.

But with the UK soon to be outside of the EU and corporation tax falling, Monaghan is worried that a race to the bottom will mean the UK becomes a Singapore-style tax haven.

‘Any retailer competing with Amazon is at an incredible disadvantage because of the corporation tax and business rates situation,’ he says.

‘You should reverse the corporation tax cuts and look at business rates to help the high street.’

‘Anyone who knows retail knows how little margins there are to be made. It isn’t fair and it needs to be rectified.’

Amazon’s tentacles are now moving into other markets and in August they sealed a £600m deal with the Yorkshire Purchasing Organisation to supply over a dozen local authorities with cheap goods and services over five years.

With Amazon blamed for killing high street retailers and putting a dent in council business rates revenue, it’s left cash-strapped local authorities between the devil and the deep blue sea.

Not your average shopkeeper

An Amazon Locker in Hackney, which they pay business rates on.

In spite of Amazon’s claims that they represent ‘only’ 5% of the total retail market in the UK, it’s left many to wonder if they feel they are too big to be taxed like traditional retailers.

‘Their market capitalisation is greater than entire GDP of the UK,’ says Monaghan.

‘They believe they are operating outside of government.’

On Amazon’s corporate website, they boast of building programmes that make ‘lasting impacts on communities’ with projects involving homelessness, climate change and skills classes for children.

It reads more like a political manifesto for a World Party rather than words from your average shopkeeper.

Retail expert Nelson Blackey from Nottingham Trent University says until governments understand the international nature of online companies, then they are doomed to lose any battle.

‘It’s a cross-border issue,’ he says.

‘In the EU, a 3% revenue tax (rather than on profits) for large tech companies has been proposed but not yet implemented.’

‘This needs addressing but it’s not something the UK government can really do in isolation.’

However, Blackey agrees that the current UK business rates system is no longer ‘fit for purpose’ but says this would be the case even if online retail didn’t exist.

He says the relatively low amount of business rates paid by Amazon compared to high street chains simply reflects the completely different property portfolios required by online retailers.

It’s a point that echos Amazon’s own statement which says: ‘Many of our facilities are very large—a million square feet or more with thousands of employees—and need to be located outside city centres, with major transportation links that enable us to meet the needs of customers and sellers.’

Blackley believes that hitting Amazon with higher business rates could disincentive them to continue investing and innovating in the UK – which would ultimately lead to consumers paying the price.

‘Why should online retailers face additional taxation because they pursue a more efficient and, based on the increasing numbers of online shoppers, a more attractive business model than traditional retailers, many of whom are inefficient, inactive, uninspiring and anti-innovation?’

Buoyed

0.7% of a company’s income in business rates is still more than a council will get from an empty shop, and many local authorities have been buoyed from the contributions that a Fulfilment Centre has had to their area.

New Start met Bolton Council’s chief executive Tony Oakman in January, who claimed the introduction of Amazon to Bolton has boosted the council’s coffers significantly, as well as ‘reducing in one go’ the town’s unemployment rate.

‘If we hadn’t encouraged that, we would have had to cut council services by £14m and that’s £14m we don’t have,’ he said.

So perhaps ‘levelling the playing field’ is an antiquated way of looking at the business rates conundrum. The high street has changed forever and until government understands where it’s heading to next, then it will always be playing catch up with Amazon who are successfully meeting the needs of the 21st-century consumer, where high streets are not.