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A politician’s wrong answer

Britain’s hard pressed High Street retailers will find cold comfort in Chancellor Philip Hammond’s proposal to address the disparity with online retailers.  This is because Hammond has offered the typical politician’s response – increased taxes – to a problem that has a very different cause to the one Hammond presupposes.  As Phillip Inman and Larry Elliott report for the Guardian:

“Speaking at the Tory conference in Birmingham, Hammond said the time was approaching when the government would need to tax internet companies such as Amazon and Google, saying: ‘The global internet giants must contribute fairly to funding our public services.’”

This is akin to telling a starving man that you are going to level the playing field by taking the food off someone else’s table… in the end, the starving man is still going to die of malnutrition.

The shift from High Street to online retail spending patterns is not – as Hammond seems to believe – the cause of the problem but merely a symptom of it.  In this sense, Hammond’s proposed new tax is more likely to exacerbate the problem; which in short can be summarised as: declining real wages and increasing non-discretionary spending costs (housing, energy, transport, etc.) for the mass of the population (fuelled by government austerity cuts) has caused a sharp fall in discretionary purchases.  In an attempt to arrest the decline in their purchasing power, consumers have taken advantage of lower online prices when just a few years ago they would have shopped on the High Street.

Levying a new tax on online retailers does nothing to halt the decline.  Global corporations like Amazon and Google are not about to pay any new tax the Chancellor may impose; whether by international agreement or not.  Instead, they will merely pass the cost on to one or both of consumers and suppliers (whose employees are also consumers).  The result, therefore, is that the discretionary spending power of the mass of the population will fall even further.  Meanwhile, overburdened High Street retailers will continue to face Britain’s insane Business Rates system which taxes retailers according to the size of their premises rather than the size of their balance sheets.

Hammond, of course, may be fully aware of this; in which case he is merely using the plight of Britain’s retailers as a cover for imposing a new tax.  The – entirely plausible – alternative is that Hammond (and the economists who advise him) is an idiot.  Because the true solution to Britain’s growing retail apocalypse is a combination of increased wages for the mass of the population; an end to the politically motivated austerity policies of the last ten years; and a radical reform of the taxes levied on Britain’s retail businesses.  Or, to put it simply, the exact reverse of a decade of Tory government policy… don’t hold your breath.

As you made it to the end…

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