Government targets Facebook and Google with digital ad tax

Chancellor Philip Hammond unveiled his budget plans for the year ahead this afternoon, with his plans including a digital services tax and and a cut to business rates for small retailers.

The UK government is to introduce a tax on digital tech giants such as Amazon and Google that would effectively tax UK digital ad sales.

Speaking as part of the 2018 Budget, Chancellor Philip Hammond said tech giants that are profitable and have at least £500m in global revenue would be taxed 2% on the money they make from UK users. It is expected to generate more than £400m a year and will come into effect in April 2020.

Hammond added that the tax would be applied to “specific digital business models where their revenues are linked with the participation of UK users” and has said it would not impact startups. He has also said it could be canned if a consensus can be reached globally on how to better tax the digital giants.

Exactly what it would look like is up for consultation, but it appears to effectively be a tax on digital ad sales as Hammond ruled out taxing goods sold.

While the move has been welcomed by some, the ad industry has raised concerns that it could have a negative impact on the wider market.

“The announcement of the new Digital Services Tax on tech companies’ global digital turnover poses a significant challenge to the UK digital advertising market at a time when it is already facing an uncertain economic and regulatory climate. It might create a disincentive for competitors to set up and grow in the UK and may also impact on mid-market players who drive competition and provide choice,” says IAB UK CEO Jon Mew.

“The commitment of an extra £500m for Brexit preparations is good news but above all we need clarity as there are still a lot of unanswered questions around talent and data flows. We sincerely hope the Government is indeed committed to ‘leading the world in innovation-friendly regulation that supports the growth of the tech sector”.

Meanwhile, Stephen Woodford, chief executive of the Advertising Association, says the tax will need to ensure in its detail that Britain remains attractive to international tech investment, especially at a time of great change for the UK’s relationship with the EU and the wider world.

Business rates cut

Elsewhere in the budget, small high street retailers will be breathing a sigh of relief at Hammond’s promise to cut business rates by a third for all retailers in England with a rateable value of £51,000 or less. This means up to 90% of all independent shops, pubs, restaurants and cafes will save up to £8,000 a year.

Some £675m of co-funding has also been set aside to create a ‘Future High Streets Fund’ to support councils to draw up plans for the transformation of their high streets.

This is good news for many on the high street; however, cutting business rates alone will not fix a struggling sector and retailers will continue to suffer unless they begin investing in technologies that will help get them up to speed with modern-day consumer habits.

“While we welcome the temporary support being given to small businesses, these measures alone are not sufficient to enable a successful reinvention of our high streets,” says British Retail Consortium CEO Helen Dickinson. “Retailers are currently in the midst of a perfect storm of factors – technology changing how people shop, rising public policy costs and softening demand. Rather than tinkering around the edges, struggling high streets require wholesale reform of business rates in order to thrive. The issue remains that the business rates burden is simply too high.”

Economy snapshot

Good news for unemployment, which is forecast to fall to 3.7% in 2019, its lowest rate in more than four decades. Around 32.4 million people are currently employed in the UK, with this set to rise to 33.2 million in 2023.

The government also pledged to effectively cut taxes, giving consumers a little more money to spend each month. The basic rate threshold will rise to £12,500 and the higher rate to £50,000 from April 2019, up from £11,850 and £46,350 respectively now.

That decision sees the Conservatives meet a manifesto promise on income tax cuts a year early, with the tax thresholds indexed from 2020 onwards.

GDP growth, however, is relatively slow, especially compared to historical figures, over the next five years. It is expected to increase by just 1.3% in 2018, 1.6% in 2019, 1.4% in 2020, 1.4% in 2021, 1.5% in 2022 and 1.6% in 2023. Critics have called the growth figures “dismal”.

And on other business

Elsewhere, brands including Costa and Starbucks will breathe a sigh of relief as Hammond said he will not introduce a tax on disposable plastic cups, saying he doesn’t believe it will in isolation lead to a decisive shift to reusable cups. However, he says he could return to the issue if progress to cut their use isn’t made.

There will, however, be a new tax on plastic packaging that contains less than 30% recyclable plastic that will likely hit the food and drink industry.

“While we are committed to reducing packaging waste and working with government, today’s new tax on plastic packaging will result in significantly increased costs for UK food and drink manufacturers, due to the input costs required to produce food-grade recycled packaging,” says Ian Wright, the CEO of the Food and Drink Federation.

It was a mixed afternoon for the alcohol industry too, with duty frozen on beer, cider and spirits but raised on wine and white cider. Fuel duty has also been frozen for the ninth consecutive year.

Miles Beale, CEO of the Wine and Spirit Trade Association, says: “We welcome the government’s decision to freeze duty on spirits, which will support this great British sector to invest, grow and create jobs, as well as supporting the public finances through increased revenues.

“However, the decision by the Chancellor to increase wine rates significantly is a hammer blow to this great British industry,” he adds. “By increasing the UK’s already excessive duty rates the Chancellor will clobber wine importing businesses, including thousands of SMEs; stifle growth of our flourishing English wine industry; and raise prices for consumers.”

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