Finance Bill

Chris Evans Excerpts

Report stage & Report stage: House of Commons & Report: 1st sitting & Report: 1st sitting: House of Commons
Wednesday 1st July 2020 Commons Chamber

[Chris Evans (Islwyn) (Lab/Co-op)]

I rise to support amendment 18 on the digital services tax, and I will focus my comments on the pressures faced by businesses on high streets. The coronavirus crisis has brought into sharp focus the issues that high street businesses have faced over the past decade. Primarily, those include outdated and confusing business rates, sky-rocketing rent costs, and competition from the internet and out-of-town shopping centres.

Last year I visited Tidal’s Store, a furniture retailer located on Blackwood high street in my constituency. It told me that shops at the top of the high street are charged business rates at £300 per square metre, those in the middle are charged £310, while further down the rate is £320. Ironically, those charged the highest rate overlook a business park that contains many large chains that are charged only £60 per square metre. The council agrees that is unfair, but it cannot do anything because it only collects the rates. When queried, the Valuation Office Agency hides behind byzantine rules that it says are set by central Government and are completely in order.

Since lockdown, the high street has been on life support. Independent businesses have faced uncertainty, and despite help with the furlough scheme and support grants, they have had to find innovative ways to stay afloat amid the pandemic. Household names such as Cath Kidston, Oasis and Warehouse have announced the permanent closure of their stores, and Debenhams, once a staple of every major town centre, has announced a string of further store closures as it enters administration.

The pandemic has changed the shopping habits of Britain, with supermarkets and in particular online retailers being the biggest beneficiaries of lockdown. However, when the supermarket shelves were empty, and when online retailers sold out of basic essentials and items such as hand sanitisers, the local corner and high street shops came to the rescue. Local restaurants and cafes helped to feed those in need in the community, and provided food and discounts for key workers during the pandemic. Those businesses stepped up to the plate for us, and the Government have a duty to step up for them.

Many of those businesses are family-owned and run, and employ local people. They pay rent, meet their business rates, and play by the rules. All they ask for is a level playing field. The question that must be asked—this goes to the heart of the amendment—is why large multinational companies such as Amazon, which often undercut our independent shops, are allowed to pay lower tax rates than the stores on our high streets.

Online businesses have lower property costs, due to being based out of single warehouses or offices. They are also able to domicile their businesses in tax havens. Meanwhile, our struggling local businesses have to pay extortionate business rates and rents for a spot on the local high street. In many cases that is more than businesses can afford, and thus they find themselves in debt and facing closure. How are small and medium-sized businesses expected to compete with large, multinational retailers or the online behemoths of fast fashion brands, when the financial odds are so stacked against them?

Large multinational conglomerates pay very little corporation tax in the UK. Research conducted by TaxWatch UK suggests that the UK is losing up to £1.3 billion in corporation tax from five of the biggest US technology firms each year. This is not only an issue for the UK. Across the world, these corporations are exploiting gaps in countries’ tax laws to avoid paying more tax. Worst of all, this base erosion and profit shifting has the most detrimental impact on developing countries, which rely on corporate tax more heavily than others to sustain their economies.

Although the digital services tax would go some way to making up for that £1.3 billion loss in corporation tax, it is not anywhere near enough. As my hon. Friend the Member for Houghton and Sunderland South (Bridget Phillipson) said from the Front Bench, it is estimated that the digital services tax will produce only £440 million annually. That is why it needs to be reviewed every year. That is what amendment 18 would do, and I hope that the Government adopt it.

However, like my hon. Friend, my support for the tax is qualified. My concern is that it will be the consumer who ultimately pays it. What measures will be put in place to ensure that companies do not offload the tax on to shoppers in order to avoid paying it from their own profits? Amazon has already been open about this matter and increased its costs for the small online businesses that sell and deliver through its platform. That means that the customer, in turn, pays more, with Amazon seeing no difference in its profits as a result of the tax. It is time that those who operate in this country paid their fair share of tax in this country.

The amendment for a fair taxation system in regard to the digital services tax is welcome. The data could be provided by businesses subject to the tax, and country-by-country reporting would better equip Governments who want to identify and tackle tax avoidance schemes in their country. The OECD worked with the G20 to develop this, and it is high time that the Government implemented this measure right here in the UK.

That said, the belief that imposing this tax is some sort of silver bullet to cure the high street of all its ills is misguided. If we are serious about rejuvenating our high streets, particularly after the coronavirus pandemic, alongside this tax there needs to be a clear, coherent strategy to save our high streets. That must include immediate reform of business rates that is fair, transparent and open to appeal. I also urge the Government to devolve business rates to local government so that it can set rates according to local economic conditions. Equally, we need to address parking, although I think that is a matter for another day.

In essence, the reason I support amendment 18 and urge the House to do the same is that the lockdown and the closure of non-essential shops has allowed online retailers to make hay while British businesses in our town centres and on our high streets face grave uncertainly. There is still no vaccine for covid-19, which means that those businesses that can open will be able to operate only in a limited manner, impacting sales and profits, and many more businesses will have to stay shut indefinitely. Without help, this nation’s once proud boast that Britain is a nation of shopkeepers will become, like many of our big-name stores, a thing of the past.

[Andrew Jones (Harrogate and Knaresborough) (Con)]

One of the features of the lockdown economy has been the march of online retail, as evidenced by the prominence of delivery vehicles on all our streets, but the growth of the digital economy is actually deeper.

The Federation of Small Businesses in North Yorkshire tells me that one of the major concerns among its members is the extent of the digital skills that they have in their businesses. I have spent a significant amount of time listening to business—I know that is something we all do as Members of Parliament, but I have also done so as a Minister and as someone with specific responsibility for this for my party—and one of the messages from that engagement was to focus on digital. That means different things for different companies. It could be the new channels to market and the need to ensure that they are able to reach their customers in the most appropriate way. It could simply be the opportunities to enhance productivity by digitising processes. My point, really, is that the digital economy is the future.

From a Treasury perspective, that is quite difficult. It presents it with hard challenges. The international nature of this economy makes it hard to collect tax—a point already made by colleagues in the debate.

--- Later in debate ---

[Chris Evans]

The hon. Lady is making a fantastic speech; she is a lot more confident than I was when I entered the House. I have a word of warning for her: she said that she enjoyed the Finance Bill Committee. I was like her once—I said that, and I ended up sitting on six in a row. Even the most enthusiastic Member can get weighed down after a while. The real concern for the digital high street is how we can ensure that the burden of the digital tax bill is not being rested on the shoulders of the millions upon millions of small digital traders. How does she think the Government can guard against that happening?

[Miriam Cates]

I did not enjoy the Committee that much; I want to put that on record. The hon. Gentleman makes a good point, but I will say two things. First, we are only talking about the very largest businesses here—those with £25 million of UK revenues, though I appreciate that for some companies that may be split. Secondly, we are one of the first countries in the world to introduce a tax such as this, and it will take time to record, report and analyse its exact effects. As a number of Members have said, we are hoping for international co-operation in the long term, and hopefully this is a short-term measure where the UK is acting alone. I think things will become clear over time.

For companies that do become liable for the tax following the passage of the Bill, it may be some time after the 12-month period following Royal Assent before they actually pay the levy, and some businesses will only be paying the amount due during the part of the year that the Bill was enacted. That means that there will be little, if any, meaningful data within six months or even 12 months of the Bill being enacted, so the amendments add little value to the Bill.

New clause 33 would require all groups subject to the DST to publish a group tax strategy with a country-by-country report, including information about the group’s global activities. While I have no doubt that this is a well-intentioned amendment, I fear that it may have some unintended negative consequences. We need to remember that the DST will affect only the very largest companies—those with over £500 million of international revenues and over £25 million of revenues from UK-based activities. Companies like this will think nothing of rearranging their activities to avoid this kind of enforcement, so UK mandation alone could push businesses offshore. We want to encourage voluntary compliance, and I know that my right hon. Friend the Financial Secretary to the Treasury and his colleagues have worked hard to ensure that this new tax will not deter UK trade. At this point, especially given that the UK is one of the first nations in the world to introduce such a tax, and given how mobile these companies are, it is prudent to ensure that the administrative burden is as light-touch as possible.

It has been a great opportunity to serve on the Finance Bill Committee. My hon. Friend the Member for Aberconwy (Robin Millar) said how much fun it was. I am not sure that I would go so far as to say that it was fun, but it has been a privilege, particularly given the opportunity to discuss a groundbreaking new measure that will level up our tax system and help to restore a level playing field in our UK economy.