APPENDIX 4
Memorandum from British Retail Consortium
SUMMARY OF
KEY POINTS
British Retail Consortium (BRC), which represents
90 per cent of all retailing, is deeply concerned by this Levy,
as currently designed. It will not meet the Government's targets
to reduce carbon emissions, but will simply act as a further tax
on business, with the Government already quoting the revenue target
of £1.75 billion that it wishes to raise through this Levy.
The Levy will cost retailers £92 million
per year, after the reduction in employers' NICs. Despite retail
being an employment intensive sector, which might be expected
to benefit from the 0.5 per cent cut in employers'NICs, but this
is not the case. Capital Economics has identified four reasons
why retailers may lose out, unless the design of the Levy is improved:
— retailers are comparitively heavy
users of electricity, but low users of gas;
— on average full-time retail employees
are paid comparatively less than in other industries, which means
that the employers will receive less of a rebate from the reduction
in NICs, than other industries;
— many retailers provide for their
employees pension contributions that are outside of the State
Earnings Related Pension Scheme—as a result they will not
see a reduction in the employers' NICs for these employees; and
— 57 per cent of the retail workforce
is part-time—as a result a large number of employees earn
less than the £83 per week threshold for employers' NICs.
Therefore retailers will not receive any benefit from the 0.5
per cent reduction in NICs for these employees.
Retailers will have to find the extra £92
million from existing funds. This will threaten the development
of innovation in the field of energy efficiency, of which retailers
are at the forefront. However, it will also impact upon other
areas of retail operations, including: limiting job creation;
pushing up prices, resulting in higher inflation; and a reduction
in investment in areas such as logistics, supply chain programmes
and refurbishment of current properties, as well as new store
build programmes.
Large retailers have spent on average £19,000
on energy efficiency per store over the past three years. As a
result the scope for further improvements in energy efficiency
is limited, except potentially amongst SMEs. Retailers will not
be able to reduce their consumption sufficiently to make this
Levy revenue neutral. The Levy is therefore simply a crude tax
on business.
INTRODUCTION
British Retail Consortium (BRC) represents 90
per cent of the total retail trade in the UK, operating in excess
of 290,000 shops and stores, occupying over 30 per cent of commercial
property portfolio by floor space and providing employment for
about 2.9 million people, some 11 per cent of the workforce.
Membership covers all forms of retailing, from
the large multiples and department stores, through to the corner
shop, from food and drink to furniture and DIY, from centre of
town to rural, to mail order. Retailing is a major engine of employment
growth in the economy, creating 57,400 net new jobs in 1998. Over
the same period manufacturing reduced its workforce by 119,000.
Retailers share the Government's aim to reduce
carbon emissions, and BRC is currently considering the development
of a retail sustainability strategy, which will support the Government's
targets under the Kyoto Protocol. However, the Climate Change
Levy, as it is currently designed, will not encourage change,
but will just add further costs to businesses, making it more
difficult to invest in energy efficient measures, which can be
capital intensive.
Attached to this submission are two pieces of
research: details of BRC's survey of members into the net cost
to retailers of the Levy (attached at Annex A); and BRC commissioned
Capital Economics Ltd to look at the impact of the Levy on retailers
(an Executive Summary is attached at Annex B).
COST OF
THE LEVY
TO RETAILERS
The Government has assumed that this tax will
be revenue neutral, through a reduction in employers' National
Insurance Contributions. Retail, as an employment intensive sector,
might be expected to even benefit from the 0.5 per cent cut in
employers' NICs, but this is not the case. BRC has surveyed its
membership and found that the net cost to retailers after the
reduction in National Insurance Contributions will be£92
million per year.[8]
COMPARISON OF
THE LEVY
AGAINST THE
GOVERNMENT'S
STATEMENT OF
INTENT ON
ENVIRONMENTAL TAXATION
BRC has considered the design of the current
Climate Change Levy against the Government's statement of intent
on environmental taxation, published in July 1997.
Encourage innovation in meeting higher environmental
standards?
BRC's survey1 has found that retailers have
spent on average £19,000 per store on energy efficiency over
the past three years. This means that many retailers are already
reasonably energy efficient and the scope for further improvements
in energy efficiency is limited. Retailers will not be able to
reduce their consumption sufficiently to make this Levy revenue
neutral. For example: one retailer has an internal objective to
reduce its energy consumption by 10 per cent by the year 2005—this
objective is stretching enough. However, for this company to be
in a position for the Levy to be revenue neutral, it would need
to cut its energy consumption by a third within the next 22 months.
Indeed BRC's survey has found that retailers will only be able
to find an average 7.5 per cent of the net cost of the Levy, through
a further take-up of energy efficiency measures. Therefore, this
Levy is simply a tax on business.
Retailers will have to find the extra £92
million per year from existing resources. This will threaten the
development of innovation in the field of energy efficiency, of
which retailers are at the forefront: for example, refrigeration
equipment used in stores now uses 20 per cent less electricity
than four years ago. This clearly counters part of the Government's
statement of intent—"to encourage innovation in meeting
higher environmental standards".
Deliver a more dynamic economy and a cleaner environment?
BRC does not consider that the Levy will encourage
a cleaner environment, as companies could be paying for the Levy
with funds allocated to the development of energy efficiency.
However, the scale of the Levy, coupled with other new/increasing
costs, such as the cumulative impact of employment legislation,
increasing transport charges and business rates, will enevitably
impact upon other areas of retail operations. These operations
could potentially include: limiting job creation, including limiting
support for programmes such, as New Deal; passing the costs on
to the customer through increased prices, resulting in higher
inflation; and a reduction in investment in the development of
operations, such as supply chain programmes, logistics, refurbishment
of current properties and new store build programmes. Therefore
the Levy will have a detrimental effect on the economy as a whole.
Shift the burden of tax from "goods"
to "bads"?
In the case of climate change, the "bad"
is not the use of energy, but is the carbon content of the fuels
used. However, the Levy is targeted at energy usage. This provides
no incentive to switch to energy generated and supplied from renewables,
which could reduce the UK's overall carbon emissions. Therefore
the Levy does not support the Government's targets under the Kyoto
Protocol.
At first sight the concept of charging companies
a Climate Change Levy, in return for a reduced employers' NICs,
is sound. Furthermore, retail, as an employment intensive sector,
might be expected to benefit from such a concept. However, this
is not the case as BRC's survey1 of members found. BRC was concerned
how this could be, and so commissioned Capital Economics Ltd to
undertake an independent study[9]
into the impact on retailers of the Levy and the reduction in
employers' NICs. Capital Economics identified four reasons why
retailers may lose out, even if the rates for the levy and the
rebate scheme are set so that on average companies will not be
significant net losers:
— many retailers are comparatively
heavy users of electricity, but low users of gas—the Levy
places a much higher cost on the use of electricity compared to
gas.
— full-time retail employees are paid
comparatively less than in other industries, which means that
the employers will receive less of a rebate from the reduction
in NICs, than other industries [Full-time retail employees are
paid on average £290.10, which compares favourably with the
average of all services of £280.70, but less favourably with
the average of all industries of £307.30[10].]
— as retailers are good employers many
provide for their employees pension contributions that are outside
of the State Earnings Related Pension Scheme, which of course
also supports the Government's policy that individuals should
take more responsibility for funding their retirement. Since April
1999, businesses that do this have been subject to a 3 per cent
discount (reducing the rate from 12.2 per cent to 9.2 per cent)
on employers' NICs applying to earnings between £83 and £500
per week. It is unclear whether there will be a 0.5 per cent reduction
in the 9.2 per cent rate. As a result retailers will not see a
reduction in the employers' NICs for these employees.
— 57 per cent of the retail workforce
is part-time, providing flexibility for the employee and the employer.
As a result a large number of employees earn less than the £83
per week threshold for employers' NICs. Therefore companies will
not receive any benefit from the 0.5 per cent reduction in NICs
for these employees.
Capital Economics Ltd concludes that: "labour
costs for retailers will not fall by as much as for many other
employers following the reduction in the rate of employers' NICs.
Given the Government's efforts to improve the flexibility and
efficiency of the labour market, the design fault in the rebate
which is responsible for this effect is particularly unfortunate."
Meet the general test of good taxation?
Well designed: The above sets out
that the Levy is badly designed. If its intention is to reduce
carbon emissions in support of the Government's targets under
the Kyoto Protocol, it will fail. It provides no incentive to
move to "greener" electricity, but is simply a further
tax on business. Neither does the Levy take into account the amount
of investment that companies have made in energy efficiency measures.
The link with a reduction in employers' NICs does not nearly offset
the overall cost of the Levy. Indeed it conspires against the
Government's objectives that individuals should have their own
personal pension plans; and against those industries which provide
opportunities for part-time employment.
BRC has drawn the Government's attention to
the Californian scheme of setting a benchmark (by reference to
square-footage) to the amount of energy consumed for different
sectors. Only those companies which do not meet the benchmark
are taxed. Such a system would draw on the work BRC is currently
undertaking with the Building Research Establishment, with DETR
funding, to identify the potential for retailers to reduce their
energy consumption and carbon emissions.
Without undesirable side effects: the
Levy has undesirable side effects, as it diverts funds away from
current energy efficiency programmes, but also from other retail
operations: limiting job creation; passing on the costs to customers
through increased prices, resulting in higher inflation; and a
reduction in the investment in the development of operations.
It also sends signals to employers that the Government does not
support individuals holding personal pension plans, or offering
part-time employment.
Deadweight compliance costs to a minimum: The
compliance costs are unclear at this stage.
Distributional impact must be acceptable: Capital
Economics Ltd states "If implemented in the proposed way
it (the reduction in NICs) will lead to a haphazard redistribution
of profits between companies and sectors. And there will be some
positively bizarre results. Whereas many, if not most, retailers
will be net losers, investment banks will receive large NIC rebates
and may even be substantial net gainers overall." This is
due to the structure of the workforce in investment banks—ie
many full-timers; and the high average pay in this sector.
Implications for international competitiveness: The
Levy is adding cost to UK businesses, which will inevitably result
in implications for international competitiveness. The tax will
impact severely on a sector of the economy which is world-class
and key to the UK's position as innovator and job creator.
September 1999
8 Details of BRC's survey into the net cost to retailers
of the levy is attached at Annex A. Back
9
Capital Economics Ltd independent study into the Climatem Change
Levy and the National Insurance Rebate-The Impact on Retailers-an
Executive Summary is attached at Annex B. Back
10
New Earnings Survey, part of Labour Market Trends April 1998. Back
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