The former boss of Sainsbury’s has waded into the row over the tax paid by multinationals such as Amazon and eBay, saying it was unfair that that traditional retailers must pay huge rates bills for services such as roads and waste collection, while their online rivals paid little but received the same benefits.
Business rates, said Justin King, are a bigger problem for British retailers than the corporation tax scandal.
Amazon and other US businesses including Starbucks, Google and eBay have been criticised for paying little corporation tax in the UK compared to the value of the business that they do.
But for retailers, said King, corporation tax is vastly overshadowed by the huge difference in business rates between firms with chains of stores and online players with just a few big warehouses.
“Business rates are by far the most significant inbalance in the tax system,” King said. “Business rates for most retail businesses are a much more significant part of the tax burden than any other part of the tax system.”
He said the low level of business rates paid by online retailers in comparison to supermarkets and other major retail chains was accelerating change on Britain’s high streets.
Amazon, which raked in sales of more than £6bn in sales from UK shoppers, is estimated to pay only about £10m in business rates. Marks & Spencer, which has UK sales of just less than £10bn, last year faced a rates bill of £177m.
Tesco’s UK sales last year were nearly £44bn, more than seven times those of Amazon, but its business rates bill is 60 times higher.
Sainsbury’s, Kings former employer, pays £480m in business rates.
King said: “A big part of of the advantage non bricks and mortar retailers enjoy is their ability to use services that their competitors paid for. They use the roads, they still use waste collection services but they are paid for by the local retailer, through business rates, who has just had that sale competed away from him.
“That unbalance is a [big] part of the change we are seeing [on the high street] and clearly has to change at some point,” added King, who now works for private equity firm Terra Firma, which owns Wyevale Garden Centres, Odeon cinemas and the Four Seasons care homes.
He added: “The reality is it is an ever inflating figure paid by an ever decreasing number of people and you only have to draw lines forward to realise that at some point in time the government is going to have to plug that hole in the tax system. ”
Retailers are becoming increasingly vocal in calling for a change to the rates system as they face increasing competition from online rivals such as Amazon. John Lewis boss Andy Street, Tesco’s Dave Lewis and Mike Coupe, the current boss of Sainsbury’s, have all said the system is putting unfair pressure on their businesses.
Lewis said retailers face a “potentially lethal cocktail” as profits come under pressure from increased competition but costs rise because of business rates and the national living wage.
Paul Turner-Mitchell, a business rates campaigner who calculated Amazon’s estimated business rates bill, said: “Retail has evolved over recent years but the current business rate regime simply does not ebb and flow with economical or market place changes.”
David Cameron promised “radical reform” of the system, but a Treasury review has only pledged to look at the way the system is administered, not the total amount of tax taken.
The complexity of the system could increase after chancellor George Osborne said that local councils could be allowed to retain the amount they raise from business rates and set special rates for certain areas. The outcome of the review is expected to be announced with the budget next month.
How the rates bills compare
Tesco: £630m
Sainsbury’s: £480m
Asda: £400m
Morrisons: £300m
Marks & Spencer: £177m
Amazon: £10m
