Proposed High Street Tax could hit shoppers’ baskets

Tuesday 03 October 2017

Prices could be set to rise in Jersey shops after the Treasury announced a new ‘High Street Tax’ to plug a funding gap left by the rejected health charge.

The new tax on shops was announced today in the 2018 States Budget - the last one before the forthcoming elections in May - which also sees wealthy residents asked to pay a little more tax.

It will see ‘large corporate retailers’ made to pay up to 20% in tax if they make profits of more than £500,000 each year.

The Treasury says that it should hit around 20 retailers, of which one quarter are locally owned, but have not yet named which businesses are part of this list.

With ‘large corporate retailers’ defined as those who gain at least 60% of their income from sales in Jersey and make more than £2million per year, online retailers operating from Jersey may escape the shopping basket levy if a majority of their customers are international.

Pictured: The new tax is expected to affect around 20 retail businesses, which have not yet been named.

It comes at a time when the local high street is facing struggles both in the UK and across the Channel Islands as increasing amounts of shoppers turn to the internet to order products. A report last week showed that the wholesale and retail industry’s value to the economy had dropped by as much as £7million between 2015 and 2016.

But the Treasury argue that the new measures are necessary “to fund the growing costs of health and social care, making a contribution towards the funding lost when the States Assembly rejected a sustainable health charge.”

Gerald Voisin, Owner of Voisins Department Store, told Express that he was unhappy with the proposed High Street Tax – the fourth change to company tax regimes in recent years - and that the timing was “unfortunate” given that the sector was contracting.

Calling for “stability” from the government, he commented: “The rate of 20% is short-sighted as the UK Corporation tax rate is currently 19% and the UK Government have announced an intent to reduce this to 15%. UK based companies will therefore have an incentive to apply legitimate expenses to their branches in Jersey and reduce their taxable profits. Why not set a competitive rate from the outset to discourage this behaviour?”

Pictured: Gerald Voisin, Owner of Voisins Department Store, disagreed with the proposed high street tax. 

“The proposals appear to be worded to exclude those retailers that make most of their sales on the Internet, why is this differentiation necessary?” he added.

While the retail sector may be displeased by the new measures, this year’s budget moves to appease the hospitality industry, who have repeatedly lobbied against increased impôts on alcohol over the years. 

This year, duties on alcohol will only increase in line with inflation – equivalent to 1p per pint of beer, 4p per bottle of wine or 35p per litre bottle of spirits – raising around £21million in 2018.

Road fuel will also only be subject to an inflationary increase, resulting in a 1p rise per litre of unleaded petrol. In the budget, the Minister acknowledged that the States would have to prepare for reduced income from fuel duty in future as islanders move towards hybrid and electric vehicles - of which there were 140 new registrations in the first eight months of this year alone. The Vehicle Emissions Duty (VED) bands were subsequently amended to only exempt cars emitting 50kg/km of CO2, which he hopes will both raise additional revenue and further encourage people to opt for less polluting vehicles.

Health concerns seem to only relate to tobacco, rather than alcohol, as once again smoking duties will rise above the cost of living in a bid to further disincentivise the habit. A packet of 20 cigarettes will be priced around 43p higher as a result of a 7.5% impôts rise, while hand-rolling tobacco will go up by 10%. These measures are expected to raise an estimated £15million for the States, unless smokers chose to shop in duty-free outlets instead. 

Pictured: Duties will rise on tobacco, but not on alcohol.

The budget also aims to put more cash in working families' pockets, with an increase in tax allowances, while new so called 'High Value Residents' will also be asked to contribute more from 2018, with a minimum tax contribution of £145,000 rather than the current £125,000. 

After the notorious ‘black hole’ in Jersey’s budget was revealed in 2014, the States Treasury have repeatedly vowed to have “broadly balanced books” by 2019.

But that target was made more challenging after the proposed health charge was thrown out by the States Assembly earlier this year, and the shelving of the liquid waste charge, which is now on hold until next Autumn.

While some savings may be made after a majority of Constables disagreed with the idea of making the States pay rates on public buildings last week, the Treasury Minister acknowledged that there were still "difficult decisions ahead."

"User-pays charges proposed as part of a package of measures in the MTFP (Medium Term Financial Plan) were carefully developed in the context of our priorities. If we do not implement these, or if equivalent revenue raising measures are not found, we will not be able to fully fund the growth in spending we need in health, social services and education," he said.

Nonetheless, both Treasury Minister Senator Alan Maclean and Treasurer Richard Bell said that they were still on track to have filled the funding gap in two years’ time – albeit with a very narrow margin. 

Pictured: Treasury Minister Alan Maclean and Treasurer Richard Bell announced the proposed 2018 Budget at a briefing yesterday.

This year’s forecasted deficit is to be £38.1million, which should drop to £28.1million by the end of 2018. The year after that, the States are expecting to finally be in the black by just £332,000. 

At just 0.04% of their predicted £788m income, however, that very narrow target could be shaken by the unexpected shocks and volatility arising through Brexit.

Nonetheless, the Treasury Minister said he was confident that Jersey would be able to weather any difficulties during the UK's period of withdrawal from the EU.

He commented: “We need to maintain investment in priority services and our balanced approach to savings, efficiencies, and revenue raising secures that investment in a way that is fair, appropriate, and in the best interests of our island. 

“The post-Brexit reality is an uncertain one but our strong public finances and resilient economy are well positioned to manage both the opportunities and threats that will emerge.”

Politicians will now have a chance to review the proposed budget and lodge any amendments, before it is debated in late November.