Why tax the poor to make our high streets nicer?

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July 28, 2014 by Paul Goldsmith

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I grew up in a small town north west of London called Northwood. The high street used to be a eclectic mix of shops that were interesting and different. You got to know those who worked there by their first name, and they got to know you. There was a butcher, a baker, and I would bet someone made candlesticks there too. Then, one day, a supermarket appeared, right in the middle of the town. Within months, many of the smaller shops were gone. Nowadays, twenty years later, the only retail outlets are strictly those that sell items that the supermarket doesn’t cover. Restaurants, coffee shops, estate agents, a golf shop, a book shop, but if you want food, you go to the supermarket, and that’s that.

Do I think this is ‘good’ for Northwood high street? No, I liked the variety of shops. Do I think this is inevitable given what the supermarket offers? Yes, in one place you can get your food at prices that smaller shops can’t beat. Do I think that something should be done to ‘save’ the high street? Well, yes, but not if it punishes consumers. This is why the so – called “Tesco Tax” on big retailers, suggested under the Sustainable Communities Act, is problematic, because it punishes the very consumers it purports to help.

The levy on large businesses, which would be placed on the business rates paid by not just supermarkets but also large DIY stores and other outlets would be used to help small businesses, to support local community centres and parks (although there is a suspicion it will simply be used to blog council budget shortfalls). It would cost the big retailers about £400million, with the supermarkets alone having to contribute £190 million. The justification used by Derby County Council, who are asking the Department for Communities and Local Government (DCLG) to have the right to levy the tax, say that 90% of all money taken by a big retailer leaves the local community, but only 50% does so if taken by a small independent local retailer.

But where do they think that £400 million will come from? Do they think that the large retailers will roll over and reduce their profits by £400 million? Supermarkets sell food. Food is a necessity. People need to buy food. So the supermarkets will raise the money to pay for the levy by simply raising their prices. They won’t have to raise prices by much, as they sell in such significant volume that they can raise the extra £190m by putting just pennies on their prices. But these pennies are significant. They make a difference to the poorest consumers.

Even if the tax is hypothecated (ring-fenced) specifically towards subsiding local retailers on a high street, they still cannot compete with the buying power and resultant lower prices of supermarkets, which, whatever you think of them, have improved the living standards of low income consumers for decades. Is that not more important than what our high streets look like? The truth is that many business taxes in this country are passed onto consumers. Sometimes, like with cigarettes and alcohol, there is public health justification for this. But there is weak justification for the “Tesco Tax”, especially if you are asking low-income families to pay more for their food.

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