Letters: 'Radical re-think to save our high streets'

Now is the perfect time for a radical re-think of our country’s taxation mechanisms, to negate the combined threat of e-commerce, technology and the pandemic, to the future of UK high streets and retail parks.

This government was elected on a mandate that included not raising VAT, but that does not prohibit them from overhauling an archaic system.

Amazon whose sales last year in the UK alone eclipsed £13.5bn, claim to run a ‘low margin business’, yet in the same press release they state to have invested ‘more than £23bn’ in the UK since 2010! By comparison, physical retail is in free fall, in the last few months alone, we have seen huge legacy brands failing, to then be purchased and taken exclusively online.

New business rules demand new ways of looking at taxation. The government will not drive tax revenue from bigger businesses via corporation tax increases, but they will punish smaller businesses who have set their business up in a traditional manner. Larger corporations will side step [corporation tax] via complexed company structures.

In the UK coffee sector alone, since 2010, without fail our business has paid more corporation tax than Caffe Nero, as my understanding is they don’t pay any. Caffe Nero also effectively owns or has majority stakes in both Harris & Hoole and Coffee#1, I would be fascinated to understand their corporation tax arrangements.

Historically, Starbucks have also obviously been frequently challenged on their corporation tax contribution in the UK.

With unprecedented national debt levels, racked up at record rates, it is time for a different approach, one that addresses the playing field we are now all on.

Focus on the tax that could balance the scales of traditional retail versus e-commerce, namely Value Added Tax.

Why can we not see a variable VAT rate, driven by how and where the product is sold. The VAT treatment is lower and rewards businesses that are selling goods from physical locations on the high street or in retail parks and burdened with all the associated fixed costs.

Then obviously a higher rate treatment for those companies that sell products online, the caveat being if those companies set up physical sites in town centre or retail park locations goods sold from those would receive the lower VAT treatment.

I think the disparity within this variable mechanism should be equally radical, in order to create the shift back to physical retail that is needed. It could be 30% VAT on an online sale and only 5% on a physical sale.

Ignoring the complexity of which goods are VAT rated and which are zero rated (this also needs simplifying), based on Amazon’s 2020 sales alone of £13.73bn, a shift in the VAT treatment could net the treasury an additional £1.3bn annually in VAT revenue alone, vs the £293 million Amazon paid in corporation tax last year.

Looking to the future and the next phase of retail development in the UK, the Amazon Fresh stores are surely just the beginning of a new retail experience. Amazon Fresh negates the need to ‘pay’, perhaps future retail clothing experience is a store with no physical stock!

A variable VAT rate could fast track online retailers into physical site models, with smaller footprints and leveraging their vast storage and distribution networks, they could redefine how we shop for products such as clothing, drawing the consumer back to the high street and creating much needed additional footfall.

The UK could be at the forefront of this shift. It would be great to reverse the trend of brands being taken online and instead seeing them thriving in physical sites with preferential VAT treatment, even becoming the online retailers’ preferred point of sale, because the transaction is more profitable for them.

If retail is allowed to follow its current path of continued decline, inevitably it is intrinsically linked to the success (or otherwise) of many hospitality businesses in the UK.

An opportunity exists to reverse that trend, but a traditional approach will only garner the same results, it will drive more retail businesses into administration, from where those seen as legacy brands will be brought and placed exclusively online. The ramifications for our sector and all the associated supply chain and manufacturing businesses, are very clear.

Matt Fountain

Managing director, Bewiched coffee shops