Death, Taxes and Pyjamas – Market Matters

In the 1700’s Benjamin Franklin said

“Nothing can be said to be certain, except death and taxes”. That can’t be far from the mind of whichever Chancellor of the Exchequer occupies No.11 Downing Street after May. The politicians are all struggling to find a very large Elastoplast to stick over an equally large hole in public finances that is now apparent. The penny really dropped (sorry about the pun) when the Treasury did its sums in February and had to borrow money to finance Government spending – something it has never, ever had to do before. Since records began, the Exchequer has been swimming in cash after the January tax deadline – but not in 2010. 

Alistair Darling: Probably glad to walk away from No.11

Well, at least HM Government can still borrow money. It’s not that easy if you’re a small business. Despite the Government injecting billions into the banking system, most independent retailers are still unable to get business loans from the banks.

The obvious solution to plug the hole is to grow the UK’s national economy and generate tax income faster than the borrowing charges that have been racked up whilst cutting public spending. Maybe we’ll see some really swingeing IMF-imposed public service cuts like in Ireland and Greece, but which sector would YOU cut first – benefits, defence, the NHS, pension or education? Not nice choices, but one thing is for sure – it’s going to be a long slog before public finances are balanced again.

Chancellors are good at high-profile, short-term fixes e.g. a nice holiday for residential stamp duty (now ended) and lower VAT rates (also now ended) but they just tinker with the central problem of balancing Government spending against tax income. Shadow Chancellor George Osborne can see he stands to inherit a major problem and has now switched the Conservative party line from abolishing the (completely-immoral) Inheritance Tax to applying it to ‘millionaires only’, whatever that means.

Maybe the unique scale of the problem will force HM Government into adopting an equally radical solution. Is it time to grit our teeth and follow the German example of hitting public spending whilst cutting taxes to stimulate growth? How about slashing Corporation Tax levied on company profits to stimulate economic growth? OK, so the Government takes a short-term hit on it’s income but the long-term logic is not lost on German Chancellor Angela Merkel. She seems intent on cutting corporate taxation and as she leads Europe’s largest economy she has clout. And how about chucking in a few tax-breaks at the same time? The Yanks have always been good at that which may be why their economy is emerging from recession whilst ours bounces along the bottom. If the UK’s reluctant banks see their lending business going to the USA or Germany, they might start looking after their domestic customers.

German Chancellor Angela Merkel: Setting a good example?

And what should the UK’s independent retail sector and market industry be doing to help itself? Certainly not standing still and waiting for the cavalry to arrive because the Yanks have enough problems of their own. The ‘big four’ supermarket chains and High Street multiples may have taken a short-term hit but they are well capitalised, widely diversified and they know how to play the corporate tax game. They are not waiting for the UK Government to stimulate consumer spending but are doing it themselves with online sales, loyalty cards, direct marketing, discount vouchers and home deliveries.

The UK markets industry needs to ask itself how many of it’s members are willing to play the game and make the leap from sole trader to independent retailer and take plastic, charge VAT and pay corporation tax? More than ever before the pressure is on HM Revenue and Customs to raise more tax so VAT on rents and service charges is inevitable. Unless you’re registered and can claim it back then bang goes some of your margin.

But as importantly, Government economic policies are targeted at the mainstream economy i.e. incorporated businesses, not the predominantly cash economy of the markets industry. You’ll be waiting a long time to see the benefits unless you’re in a position to take advantage of economic stimulation. That is what the mainstream competition is doing, so this might be the right time to talk to your accountant.

Talking of setting an example, did you hear about Elaine Carmody?

The 24 year-old mother of two has been refused entry to the Cardiff St Mellons branch of Tesco whilst wearing her pyjamas. She protested that she and her friends had regularly gone shopping at the store in their PJ’s until recently turned away when ‘popping in for a pack of fags’. But she added if she had been doing a full shop then she would ‘obviously have gone in clothed’. Ms Carmody added, “I think it’s stupid really. It’s not as if my pyjamas are going to fall down or anything like that.”

A sign has now been posted in the entrance of the store informing shoppers: ‘To avoid causing offence or embarrassment to others we ask that our customers are appropriately dressed when visiting our store. Footwear must be worn at all times and no nightwear is permitted’.

A Tesco spokesperson confirmed that, although commonplace, barefoot shopping would not now be permitted because customers’ toes might be run over by trolleys. As far as he was aware the practice of shopping in bare feet and pyjamas during the day was restricted to Cardiff.

Enough said.

Jonathan Owen is a director of Quarterbridge Project Management – a specialist consultancy providing business advice and design services to market owners and trade associations. He has a keen interest in the politics of retailing, growing vegetables and eating well.

Market Matters, published in Market Trade News magazine