A Tesco tax won’t help anyone

It was probably the last thing Dave Lewis, Tesco’s new chief executive, wanted to read about. As soon as his appointment was announced, the papers were suddenly filled with headlines about a ‘Tesco tax’.

In fact, the proposed Tesco tax is not a special one-off levy on grocers who expanded too ambitiously overseas, and built too many drab sheds filled with rather mediocre stuff that was a bit more expensive than it really should have been.

It is, instead, a proposal by a group of local councils for extra business rates on big out-of-town superstores to help struggling local high street retailers.

The trouble is, a Tesco tax is not going to help anyone. The big out-of-town retailers are facing precisely the same fix as the small high street retailers. The only difference is the out-of-town crew are a few years behind.

They have built too much space, their margins are being squeezed by online rivals, and real wages are falling, which means most people have less money to spend. An extra tax is not going to solve these problems. It will only make things worse.

A group of 19 local councils, led by Derby, have asked the government for permission to impose an additional business rates levy of up to 8.5% on big supermarkets, and use the money to help local businesses as well as community centres and parks.

A similar scheme already operates in Scotland and Northern Ireland, and the councils pushing for it calculate it could bring in an extra £400m a year.

According to the Derby City Council leader, Ranjit Banwait, life and business is being “sucked out of the city centre” by large warehouse-style stores that are based out of town.

In fairness, the councils have a point. It is certainly the case that the big retail parks that have sprung up across the country in the last two decades have made life tougher for the old high street shops. Out-of-town shops normally offer more choice, lower prices, and easier parking.

Not surprisingly, customers have flocked to them. As a result, many traditional shopping streets have been turned into dismal places, with nothing more than a few charity and betting shops.

Of course, to some degree, the councils have only themselves to blame. They pushed uprates and parking charges in town centres, which made it even harder for the high street to compete. They also gave planning permission for all those retail parks in the first place.

Even so, it is easy to understand why councils want to do something to revive traditional shopping areas. These streets are trapped in a cycle of decline, with few shops, and fewer people visiting them, which puts even more pressure on those that remain.

A ‘Tesco tax’ is not the right way to fix that, however. Leaving aside the fact that the embattled retailer needs another tax about as much as it needs another 500 branches of Aldi, it is not going to help anyone.

The high street is not being put out of business by the out-of-town malls. It’s just the first victim of a wider retail crisis. All the retailers, whether on the high street or out of town, face three big problems.

Firstly, there is too much space. In the last decade, developers threw up a huge number of malls. Great big boxes were built alongside every main road, just waiting for another Tesco, B&Q or Currys to move in. For a country with a relatively slow growth rate, it was too much space. And there just isn’t enough business to go round.

Next, the internet has slashed retailers’ margins. The cheapest place to buy that new TV used to be the retail park, or even the high street, but now we can buy TVs on the web. Even if we don’t, we will certainly check and compare pricesonline first, and that means the retailers cannot charge anymore than the online stores, even though most online retailers have lower costs.

Finally, real wages have been falling all through the recession, and the tepid recovery that followed it, and are still going down. Pay rates are not going up in line with inflation, while taxes and utility bills keep getting higher. The result is that people have far less money to spend.

To which of those problems is another tax the answer? The answer is none of them. The French have tried to stem the growth of internet retailing with taxes and prices controls, and have been rewarded with the slowest growing economy in Europe.

There is no good argument for the British following them. Indeed punishing business rates are already the reason so many retailers are in trouble – raising them even higher is hardly going to help matters.

High street shops have been hit by the retail crisis earlier than their competitors in the malls, mainly because they are smaller businesses and have higher costs. But the out-of-town retailers will be hit in due course – the troubles at Tesco are the first signs of that, with probably many more to come in the next few years. If companies are already facing challenging times, then higher taxes will only serve to make it worse.

We already have rows of dismal, down-at-heel, boarded-up high streets that nobody wants to go to. All higher taxes will achieve is wasteland shopping malls to go alongside them. Retail has plenty of problems, but unfortunately local councils still don’t understand them, nor are they offering any serious solutions.

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