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Dia Chakravarty

Dia Chakravarty is Political Director of the TaxPayers’ Alliance.

Twenty councils, led by Derby City, are calling for the right to impose a tax on large supermarkets, supposedly to be reinvested in the community and help small businesses. Retail outlets with a rateable value of over £500,000 would have to pay an extra business levy of up to 8.5 per cent.

Derby City Council estimates that this would raise £2 million a year. They claim that this would correct an imbalance in the local economy as “95 per cent of money spent in large supermarkets leaves the local economy for good, compared with 50 per cent from local independent retailers.” With this new levy in place, more money will remain in the local economy, so they say.

Despite what might seem like a seductive appeal to help small, local businesses, this proposal is very dangerous, hugely unfair and alarmingly anti-business. The twin motives behind the proposals are raising revenue and boosting struggling local high streets.

But many local councils are going to have to open their eyes to the way people’s shopping behaviour is changing and get used to the fact that their retail districts are going to continue contracting and changing. This is being driven by a combination of internet shopping and a desire to save money by shopping for groceries at the more efficient large format stores. Hammering large format stores with extra taxes isn’t going to change the underlying reality that often people don’t have the time or money to do the shopping in the same way we did 60 or even 6 years ago.

Similarly, the idea that large shops should be taxed more heavily because they are typically less locally focussed doesn’t stand up to closer scrutiny. The arguments are exactly the same as those used to justify cross-border trade restrictions and tariffs at an international level. There’s a good reason why a much smaller proportion of large shops’ revenues stays within a local area than it does with smaller shops: it’s much more efficient, and much less wasteful, to organise logistics and finance operations on a bigger, national or international scale than it is to do things on a small scale. That’s why Tesco’s prices are so cheap compared to a small shop, and it’s also why the much bigger Walmart beats Tesco’s prices. It’s unclear whether the statistics on how much money stays in the local economy cited by Derby City include the money which local consumers keep in their pockets due to lower prices, but this is just one of the many benefits of an open economy without arbitrary barriers.

Perhaps most strikingly of all, however, is how happily these councils seem to be to hurt shoppers while justifying it on the grounds of helping out business owners. They might feel as though they’re backing the underdog local business owner against big business, but they can only do this by sacrificing the interests of ordinary shoppers, including those on low incomes. Who’s really the underdog, here? Do they really feel comfortable cutting the spending power of poor people’s incomes so that business owners can become wealthier?

And what about the jobs these supermarkets create? The proposed levy is very likely to discourage new investors from entering these cities, or it could mean existing supermarkets moving to neighbouring districts. Some of those customers are bound to follow, taking their cash across the border. How does that help the local community?

Local businesses across the country have been facing hardship as the economy struggles to recover. The best way to help local, small businesses is to cut taxes. Business rates, fuel duty, VAT, even National Insurance Contributions – all these taxes hold our local businesses back, all contribute towards sucking the life out of the city centre. The economy consists of small, large, medium-sized businesses. When will our politicians learn that punishing businesses of any size is going to restrict economic growth? If any part of the economy suffers, the effect is felt by all of us.

There are better ways of dealing with necessary budget cuts than by imposing further taxes on our already over-taxed businesses. Last year, Derby Council spent £24 million of residents’ money on a controversial council house refurbishment, wasting over £46,000 on trees alone, all of which had to be removed after water from the planters leaked on to the pavement.

This is also the third time in a month that I’ve seen a story about seeking new ways to secure more money. There was the Local Government Association (LGA) proposal to ring-fence a bit of Fuel Duty revenue for fixing potholes. Sounds good – anyone driving on our roads probably has a good pothole rant up their sleeve. But why aren’t potholes being fixed with existing budgets? There is undoubtedly significant pressure on council budgets, but politicians have to find way of prioritising key services without taking more of taxpayers’ cash.

Then the LGA also proposed taking 20 per cent of VAT receipts from junk food and sugary drinks to go to councils to combat obesity. Again, that might sound reasonable on the face of it, but we still have the same problem of ring-fencing. We should be careful about ring-fencing anything, as it could lead to central government looking to plug the gaps in their revenue with higher taxes elsewhere.

There seems to be a concerted effort by local authorities – and the LGA in particular – to come up with new ways to secure more taxpayers’ money. There’s no denying that times are tough for local authorities, but there are other ways to ensure services are delivered with reduced budgets. Cutting wasteful spending is a good start.

30 comments for: Dia Chakravarty: Slapping a new tax on supermarkets won’t help small businesses or shoppers

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