On last week’s call, our focus was on ‘non-essential’ retail, the roadmap to reopening and required support measures from Government. Today, we moved the conversation on a little further to when we are out of lockdown, to look at issues around the consumer-led economic recovery from the pandemic and where the Chancellor should be focussing when it comes to tax increases to cover the cost of Covid.

As a reminder, England remains in lockdown until 8 March, with a routemap out of restrictions due to be published the W/C 22 February: Scotland will remain in lockdown until the end of February at the least; in Northern Ireland, restrictions are due to expire on 5 March, while Wales won’t leave lockdown until 11 March at the earliest.

We have already written to the new BEIS Secretary Kwasi Kwarteng to outline what retail needs to see in the English routemap out of lockdown. We also know that the Chancellor’s Budget on 3 March will primarily include short-term, Covid-related measures. Our three priorities are a continuation of business rates relief for retailers who have been significantly adversely impacted by the pandemic: the extent to which EU state aid limits apply to Government financial support; and an extension to the debt enforcement moratorium.

Discussion on recovery

Looking ahead to when we are out of lockdown, I set out two questions for members to discuss.

  1. Beyond all of retail (and the wider economy) being open for business, what do you think the most important things are to enable a consumer-led recovery?
  2. The Chancellor has continually reiterated that there will be a point where tax rises are inevitable: where do you think he should focus?

Members were in agreement that the UK’s economic recovery from the pandemic will be driven by consumers, and the Chancellor should not hinder or stifle spending. More than this, the recovery will require an economy-wide effort. It has been widely reported that people have saved more than usual in the past year, due to economic uncertainty and the inability to spend on some goods and services such as holidays. There is a job for the Government to do in instilling public confidence in the economy, and doing so as early as possible – this should help to encourage spending. One member noted that several countries have set up consumer stimulus schemes – in Northern Ireland for example, households are due to receive a voucher to spend on the high street in the next financial year. The Chancellor could consider something similar in England and Wales, although the Treasury may feel that the public savings amassed during lockdown negates the need to issue vouchers or cheques.

Continuing to engage with the Government on their testing strategy – where funding will come from post-April 2021, what future capacity will look like, who is responsible for disposing of waste material, etc. – will be important, as testing is likely to remain a part of day-to-day life for some months yet.

Members also felt that maintaining low interest rates by keeping tabs on inflations and keeping unemployment levels as low as possible would be vital in facilitating a consumer-led recovery. The Chancellor should focus on these fundamentals as consumer spending would likely fall if either rose. On unemployment, some members made the point that the Government should focus on reskilling and retraining for new jobs and careers, not necessarily on preserving jobs. Given that the pandemic has made some jobs across many industries obsolete, Government should do all they can to support businesses which are developing colleagues for new roles, potentially outside of retail.

There was a lot of discussion on whether the current tax system is fit for business in the 21st century, and agreement that the system is too complicated and not focussed enough on taxing value generation. To that end, if there are to be tax rises, Corporation Tax would present a logical and fair place to look. It was suggested that the Government takes the opportunity to look at the tax system holistically to understand how it doesn’t work for many businesses, not just retailers. Indeed, when it comes to reforming the tax system – or introducing new taxes – there must be understanding from Government of the benefits the industry brings to the UK. For example, as the country’s largest private sector employer, retail’s National Insurance contributions are considerable: but could the Government recognise the employment opportunities presented by the industry (in particular for those who have fewer qualifications) if changes to employment taxes were to be considered. It should also recognise that employment is also not been taxed appropriately in the modern economy.

The Government should stick to the core principles of tax, one of which is that those who can afford to pay taxes, should. Closing loopholes which allow for the offshoring of profits should be high up the Chancellor’s agenda when it comes to raising additional revenue. But the system must also be flexible, and adaptive to the changing consumer.

It was also suggested that the tax system should be simplified, i.e. by bringing more taxes together. Business rates and the mooted online sales tax both received plenty of attention from members. Various people commented that they did not support an online sales tax. No one said they did. Some did comment that revenue was the best proxy to value creation if profits were not.

I said that the ‘online sales tax versus business rates’ debate is too often thought of within the retail context, but it should be examined from an economy-wide perspective, as it is not just retailers who pay rates. The rates questions should not be conflated with broader discussions around the UK's tax system and possible reforms to it. 

Members agreed that a reflection of the underlying market rents and hence rates  would resolve many issues with the rates system.

It was also noted that while the Apprenticeship Levy was a good idea, the execution has been flawed, and that retailers would be better-served if they could use Levy contributions to fund training for their own staff.

I set out the BRC’s narrative on rates for members. The business rates system is broken and does not reflect current market values quickly enough. Fixing the system is facilitative to supporting high streets and town centres and helping them to rebuild from the pandemic. The high street of the future will have a wider mix of businesses – in which retail will remain a key element – but also leisure, hospitality and even residential uses. Failing to reform the system to lessen the burden on retailers will lead to too many store closures and too many job losses.

I then outlined a build on our current position on an online sales tax, which is that we oppose any new taxes which would increase the tax burden on an already overtaxed industry.

Based on the comments, a possible narrative on filling the Treasury's gap created by a rates reduction or facing into the need to increase taxes to fund the pandemic could include that new taxes was not the way to achieve this: that the answer to this was an economy-wide, not just a retail, problem.

There is already a very close relationship between physical and digital retailing, and the Government should not try and reverse this tide by arbitrarily taxing different channels used by retailers to engage with their customers. As a result, any form of online sales tax would be a tax on both consumers and innovation. Moreover, the retail industry is already overtaxed and applying a new, net tax burden upon retail businesses and consumers will be to the detriment of both. The Government should recognise that funding the response to the pandemic is an economy-wide responsibility and should not be down to retailers alone.

I will pull together a position paper following our discussion, and will share with you for your feedback.

AOB

  • Thanks to everyone who signed the retail crime letter which was sent to the Prime Minister last week. Around 65 companies signed and it was great to see the breadth of membership represented.
  • I’ll be sending out a short CEO survey in the coming weeks. Our three-year plan comes to a close this year, and we’re looking ahead to the next. The survey will help us to understand what the BRC should be focussing on, so please do take a few minutes to feedback.