I might love Amazon but is it good for me? At the click of a button from our sofa, goods can be delivered free of charge (using prime) at the most competitive price. We love Amazon so much in the UK that the UK is Amazon’s third largest market behind the US and China. Amazon dominates in the UK and has 30% of the UK commerce market.
However, it has long been argued that Amazon does not pay its fair share of tax in the UK and has other practices in terms of employment that fall short of best practice. In the long term Amazon might not be best for the health of the UK.
The UK, with its free markets policy and concept of light regulation has seen Amazon thrive, but other countries have not been so welcoming.
Rebel Economics first published on Amazon and the need for a digital sales tax in January 2019, in the post ‘Can Amazon Thrive in Denmark’.
The post explored the likelihood of Amazon achieving the success in the Danish market that it has had in other European markets. It is worth re-reading the post just to see how nearly two years ago the issue of unfair taxation was hurting the UK high street.
The UK was in a crisis in 2018 with the Centre for Retail Research saying that 2018 was the worst year for shops since 2008 with over 56,000 retail jobs lost. High street stores were struggling to compete with the lower pricing of online retailers.
UK high street retailers long argued that there needed to be a change in the tax laws to make a level playing field between the high street and online retailers. They had called for an ‘online’ sales tax to address the unfairness. High Street retailers have paid higher taxes due to the business rates (tax), as well as being UK domiciled and paying the full UK corporation tax.
Since then the high street has had to cope with the continued unfair playing field of the under taxed multinational online competition as well as a pandemic lockdown in which online retailers have been able to gain further market share.
The online retailers have benefited from paying significantly lower taxes, resulting in higher profits and more money to invest in infrastructure and gain even more of a competitive advantage over the high street. Now Amazon has rapidly grown to be the market leader in the UK
In April, the UK launched a 2% tax on digital sales, amid concerns that the multinational firms were re-routing their profits through low tax jurisdictions. Defending this plan, Rishi Sunak said in June ‘the coronavirus has made the tech giants even more powerful and profitable. The pandemic has accelerated a fundamental transformation in consumption habits and increased use of digital services’.
Sunak has said that these firms need to pay their fair share of tax. However, the genie was out of the bottle many years before and this looks to be too little too late by the UK government to save the high street.
The UK retail sector has been struggling for many years as Amazon reaped the benefits of low taxation to gain market share in the UK. Interestingly not all European markets allowed this to happen. Denmark did not allow this to happen and now are not facing the retail crisis that the UK is seeing.
Regulation plays an important part in any country and when it is enforced in countries such as Denmark then living standards are higher. The regulation in the UK has been weak in the financial sector and the retail sector, with the UK preferring to adopt a relaxed ‘free markets’ approach.
In the financial crisis, it was Northern Rock, a rookie building society that became the market leader in the UK ‘new mortgage loans’ market. Poor regulation allowed Northern Rock to offer long term mortgages at very cheap rates based on the risky concept of financing through short term interest rates rather than the convention of financing on more expensive long term interest rates. Customers flocked to Northern Rock driven by the cheap price of their mortgages.
The concept of free markets and light hand regulation devastated the UK mortgage market. Responsible lenders saw that they would not have any new clients unless they too competed at this new lower price, hence a financial crisis.
Now, the retail sector is facing its crisis, with customers flocking to Amazon. A digital tax of 2% on all sales, will hardly help the high street at this stage. Amazon is the dominant market leader now, with a decimated high street that can not offer sufficient competition. The big danger is when a retailer becomes so dominant they no longer have to be the cheapest on price to gain the sale and can become the price maker.
The UK chancellor has been looking at his budget and wondering where the UK retail taxation has gone to? The high street has not got the profits to pay their taxes and the online retailer is choosing to pay tax in another domicile. A digital sales tax will improve the Chancellor’s financial position but will do little to help the UK high street crisis.
Rebel Economics 
Interesting and thought provoking as always.
One could turn this 180 degrees and argue the opposite point. The high street is an expensive means of marketing and distribution of goods and ‘saving it’ would be too costly for the consumer. Some of it will survive and thrive by adding true value in services that we can’t otherwise obtain, but saving it by taxing its more efficient online rivals would be essentially bad for consumers.
Online marketing and distribution has shifted more of the profits from making and selling goods, from the high street, to the makers of those goods, and I see that as a good thing. We need more competition to reduce marketing and distribution costs further, but not by taxing online retailers to save the high street. I would rather see more competitors to Amazon in the form of alternative online retailers.
If Sunak is starting to tax online retail, he is not doing it to save the High Street, but rather to replace lost tax revenues from the inevitable demise of those bits of the High Street that cannot (and I think should not) survive in their current form.
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