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BUDGET 2018 ‘Tech giants’, from online marketplaces to search engines, set to be taxed on UK revenues

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The Chancellor has unveiled a UK digital services tax in today’s budget, to target technology “giants”, from Facebook to Google and eBay. The new tax will affect search engines, social media platforms and online marketplaces  that generate at least £500m a year in revenue. The tax of 2% will be levied on money that the businesses make from UK users, is expected to raise £400m a year by 2022/3. eBay and Amazon look set to be affected by the tax in that they operate as online marketplaces, but online retailers of all sizes look to have escaped from the online sales tax that had been expected in some quarters. The new tax, said Chancellor Philip Hammond, “will be carefully designed to ensure it is established tech giants – rather than our tech start-ups – that shoulder the burden.” Online retailers also look to have escaped the tax, which some had thought would come in the form of a digital sales tax. 

Hammond said that the measure is being introduced in the absence of a global agreement, on which progress has been “painfully slow”. But should one be introduced he may abandon this plan. 

Measures for the high street

Hammond went on to say that technological change would bring challenges and opportunities – with the UK’s high streets confronting the challenge brought by the fast growth of online shopping. He is to consult on how modernisation of planning rules could help as the high street transforms. Since 2016, he said, he has introduced business rates relief worth £12bn. Now smaller businesses are set to benefit by a cut of a third for retail businesses with a rateable value of less than £51,000. The, he said, would last for two years from April 2019 and benefit up to 90% of retail properties. There will also be a readjustment at the next revaluation in 2021.

A £675m Future High Streets Fund, announced today, is designed to support a sustainable transformation of high streets, alongside planning reform, a high streets task force and funding for community assets, such as the restoration of historic buildings on high streets.

Industry reaction

Helen Dickinson, chief executive of the British Retail Consortium, said: “The Government has missed a much-needed opportunity to help the retail industry. While we welcome measures to assist smaller retailers, the majority of the UK’s 3.1 million retail workers are employed in businesses that will not benefit from today’s business rates announcement.

“If the Government is to truly back business, it must engage in more extensive business rates reform to help all retailers and their employees through this period of transformation.

“While we welcome the temporary support being given to small businesses, these measures alone are not sufficient to enable a successful reinvention of our high streets. Retailers are currently in the midst of a perfect storm of factors – technology changing how people shop, rising public policy costs and softening demand. Rather than tinkering around the edges, struggling high streets require wholesale reform of business rates in order to thrive. The issue remains that the business rates burden is simply too high.”

She said the BRC awaited details of the Future High Streets Fund – and how funding will become available – with interest.

Adam Walford, partner at Howard Kennedy LLP, said of the plan for a Future High Street Fund, “Empty shops on high streets benefit nobody but we should be careful what we wish for as we look for a short-term fix. The £675m for a Future High Street Fund for councils to come up with a plan for their high streets and the consultation on the Use Classes Order appears to be excellent news but will need to be carefully considered. Having thriving high streets which serve the community is what matters. If the changes that come from this consultation lead to retail spaces becoming flats and houses, there will be no going back. What we can’t risk is a slow and steady erosion of our high streets. If it goes too far, we may come to realise that the solution found for one problem caused more damage than it was worth, but by then it will be too late.”

Andy Melia, head of place and impact at Business in the Community, said: “Today’s announcement by the Chancellor will come as a relief to the UK’s high streets, as well as the communities based around them. Modernising planning can support a shift in revitalising town centres across the UK, benefitting individuals, business and society as a whole and helping local communities to grow and thrive. The cut in business rates for firms with a rateable value below £50,000 will also be welcome news to Britain’s 5.7 million small businesses, who are the backbone of communities around the country.”

Kevin Murray, managing director at Greenlight Commerce, said: “It is great to see the Government taking an interest in the high street and looking at ways to ensure it survives. With a number of high-profile casualties recently, it is clear something needs to be done.” 

Laurentiu Ghenciu, VP EMEA of online payment processor 2Checkout, said that while the spending plan intended to help brick and mortar stave off threats from the likes of Amazon, it still raised the question of how smaller retailers would cope in the future. 

“Retailers must think of and plan for digital transformation if they are to stay competitive, and learning from online businesses, especially those who sell internationally and put their eggs into more than one basket is a good way to start,” he said.

Jeremy Gilman, SVP Strategy at DMI, said: “The combination of a £1.5bn investment in the high street and a 2% tax on large digital firms, in my opinion, is one of the most aggressive efforts to ‘level the playing field’ between online and offline retail in recent times. UK retailers should be viewing these actions as somewhat of a gift. Not only is the Government paying to redevelop the high street in a mould of modern live-work-play experience centres, but it is also adding a new tax to some of the high street’s biggest threats in retail; Google, Amazon, Facebook. 
“With that said, UK retailers should leverage this opportunity to double down on their investments in connected commerce, delivering seamless online-offline experiences that meet customers wherever they are and deliver on the changing needs of today’s consumers. This will require hyper localised marketing, store hours and experiences, customer engagement, merchandising and inventory management and fulfilment – more than likely all converging on consumer mobile devices. Digital will be at the core of the future of the high street – the question is whether today’s retailers will get out ahead of it or be replaced by others that do.”

Image: Fotolia

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