An online sales tax will further blight the high street

The writer is a partner at Sequoia Capital

Deep in the shadowy reaches of the Conservative party, there must be a faction that pines for the days when people could stroll down the high street and join a queue outside a cinema, wait for a bank teller to beckon them forward, shop for dress patterns in Woolworths or don a pair of headphones in a record shop to listen to the B-side of a new 45 by their favourite artist.

Nostalgia, the sight of boarded-up shop fronts and aggressive lobbying by retailers and supermarket chains are the reasons the UK government is considering levying a new online sales tax — for which it is has solicited comments by May 20.

Downing Street is seeking to strengthen skills for the digital era, stimulate the creation of new technology companies and make it easier for businesses to deal with Brexit repercussions. An online sales tax would have the opposite effect.

Today, like it or not, every business is a digital business — including those on the high street. Hairdressers, coffee and ice-cream shops, butchers, fishmongers, greengrocers and chemists process payments for their non-digital services electronically.

Football clubs sell tickets and shirts online; films and music are streamed across the world; architects, advertising agencies and investment banks send business proposals in PDFs; lawyers solicit signatures electronically; yoga instructors lead classes on Zoom. Thousands of small businesses in the UK — potters, cheese producers, weavers, artists — sell their wares on Shopify or Amazon Marketplace while drumming up demand on Instagram, TikTok and Facebook, and answering customers’ questions on WhatsApp.

It’s easy to sympathise with the plight of the family-owned shop, located in the same spot on the local thoroughfare for decades, and now squeezed by the forces of progress. But it is also easy to forget that this is only the latest disruption of neighbourhood retailing. A century ago, critics were horrified when the British equivalent of “five and dime” stores, where customers could browse freely, replaced tiny shops with goods kept under lock and key behind counters. The rise of department stores, stocking everything from handbags to hammers, also brought problems for small shopkeepers. Big box retailers and the deep discounters that popped up on city outskirts spelt doom for hardware shops and corner grocers, and almost 30 years ago the jig was up for booksellers when a small company in Seattle fired up its website.

An online sales tax would amount to little more than a subsidy to landlords and shops trapped in long, uneconomic leases. And online retailers, however defined, will almost certainly pass on any tax rise to consumers.

San Francisco, my hometown, offers a sobering example of the consequences of levying taxes on digital businesses. The city’s tax policies are piled on top of issues that bedevil California — high housing costs, long commuting times, reams of new regulations — and have caused Oracle, Hewlett-Packard and Palantir, among others, to relocate their headquarters to friendlier climes.

In 2018, San Francisco voters approved an initiative sponsored by advocates for the homeless to slap a special tax on any business with over $50mn in revenue, with the proceeds earmarked for homelessness. An additional “administrative tax” was imposed on any San Francisco-based company — many of them thriving technology businesses — with more than 1,000 employees, irrespective of where they lived.

The result: some of San Francisco’s most vibrant employers, including Airbnb, Block, PayPal and Stripe, headed for the exit. Twitter’s potential new owner, Elon Musk, will almost certainly have no time for operating a business within a political atmosphere that seems to demonise success or progress. Some chief executives attribute their decision to abandon the city to changing work patterns brought about by the pandemic. But the roots of the flight can be traced to the 2018 tax change. Meanwhile, the homelessness problem, for all the increase in spending, has got worse.

Instead of trying to reverse history, the Conservatives may be better advised to reimagine the role of Britain’s high streets. They need look no further than Tottenham, north London, where riots erupted in 2011, to see what the future could hold. There, within the orbit of the breathtaking new football stadium, the high street is gradually finding a new purpose. An architectural firm, recording studios and a fashion training institute occupy — or will soon do so — premises that once housed shops.

Embracing tomorrow, rather than pining for yesteryear, may be a better compass setting for both the high street and for tax policy.

Source: Financial Times