A missing piece of the low productivity jigsaw?
As politicians, economists, commentators and journalists continue to scratch their heads and wonder how they can begin to understand let alone fix the UK’s low productivity conundrum, one thing seems clear from the street.
We have several cafe sites in four different counties in South East England. None of them are in London. In each area that we trade, we build an informal dialogue with our closest commercial neighbours. We often swap notes on footfall, how sales are faring compared to last year, are more people coming in but spending less money and so on.
One thing has become very clear this year, more than ever before. More and more UK taxable revenue is being lost. Amazon scooped up a record 50% of all Black Friday sales in the UK last week. Multi-nationals on our high street - Caffe Nero, Starbucks, Nike, Apple – will all have done well last week too, benefitting from extra sales on-line and extra footfall on the high street. Yet, they all divert their UK revenue through subsidiary companies in other countries to pay paltry amounts of tax relative to their sales. We’ve known this for some time so why does it matter? It matters because it has an on-going detrimental effect on productivity in the UK retail sector. And it is two-fold. It affects on-line retailers as well as bricks and mortar high street businesses who are UK registered businesses.
How so? Because a disproportionate tax burden falls more heavily on UK registered retail businesses who are now getting less and less of the pie. These businesses have to continue to cover the tax gap that the multi-nationals do not. And this is not just about the Amazons of this world offering a better service. It is not a level playing field. These companies can invest more in marketing, training, better prices, improved technology, higher wages and newer equipment because they have more income available to them than their UK-based counterpart. Why? Because they pay significantly less tax.
If these companies were made to be pay full tax on their UK sales (as their UK counterparts are required to), this would lessen the tax burden on UK retail businesses, freeing up much needed capital to grow, buy new equipment, invest in training and pay rises –something that the UK government desperately needs to see. At the very least, if the problem was addressed, it would level the playing field, forcing the multi-nationals to review their growth which is currently heavily subsidised by UK taxpayers and at the cost of UK business.
The government must find the determination and guts to take a longer term view and regulate. It will improve productivity for both high street and on-line retail businesses, a sector renowned for low wages and zero hours contracts. There is a reason why they have this stigma and not all of it is to do with Philip Green or Mike Ashley. These businesses, from John Lewis, Pret a Manger and Marks & Spencer through to small family butchers, local jewellery and fashion shops, carry a disproportionate amount of the tax burden. Of course, the multi-nationals will threaten to cut investment and jobs if they are forced into paying tax on their UK sales. And they do pay business rates and income tax. But so does everyone else. So why allow this to happen when it is stopping UK retail businesses improving their productivity? The European Commission is already showing much more gusto in this area than the UK.
And I thought tax avoidance were meant to be dirty words in the UK?