Digital services tax: introduction

Part of Finance Bill – in a Public Bill Committee at 12:00 pm on 11th June 2020.

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Photo of Andrew Jones Andrew Jones Chair, European Statutory Instruments Committee, Chair, European Statutory Instruments Committee 12:00 pm, 11th June 2020

I am also not usually somebody who likes to find new ways to tax people in the UK. The digital services tax is totally new, but it is the right thing to do. The clauses detail the scope and the mechanisms for the tax and its collection. We even have a clause with an algebraic formula, which should certainly raise an eyebrow. [Laughter.]

The main thing to note is that the economy is changing fast and the tax is a part of that change. The Government’s response is to work internationally as we plot the course to a digital economy. Such economies are by definition international, so it is right to respond in a multinational way. I also know that it is very hard and takes a long time to achieve the objectives, so it is clearly right to proceed in the short term with this measure. Digital firms must pay their fair share.

It is increasingly hard for Governments to raise revenue from their traditional routes. The Government obviously have to raise revenue to fund the public services that we want. There is therefore an underlying, fundamental challenge for the Treasury. Work and consumption patterns change. I recognise that I possibly view this through the prism of somebody who has had responsibility for raising Government revenue—once a Treasury Minister, always a Treasury Minister—but this tax and the thinking behind it are the shape of things to come. Tax has to evolve to reflect the way the economy evolves.

The rise of the digital economy means different things for different companies. The opportunities for productivity and environmental gains are absolutely immense, so we must do all that we can to encourage the shift into a digital economy. Most people encounter it through social media search engines and online retail, which are the target areas for the tax. The growth of online retail has placed ever greater pressure on traditional high street retail businesses: a trend compounded, as colleagues have said, by the current crisis.

There have been concerns about the nature of competition and whether there has been a level playing field between online and offline: the argument between bricks and clicks. We should make every effort to level the playing field and the tax is a part of that. High streets have a role beyond their traditional economic role. They have a social role and bring people together. They create hubs for communities, but they also have to evolve to reflect the changing nature of competition, and a more level playing field in taxation will help give them the space to evolve.

I had some concerns that the tax may discourage digital start-ups; we have seen a good period for start-ups in the UK and I think that we have led Europe in this sector. However, I think those concerns have been dealt with by the threshold at which the tax becomes payable, which will only capture the very largest of businesses.

So, we have a very interesting new area for taxation, which I do not think any Government can enter into lightly. The Minister is an old friend—we have worked together for many years—and I commend him, because this is not easy stuff; it is pioneering for the UK and indeed for the world. But we have found a way forward that updates our taxation system and introduces more fairness to it, and through the operation of the new system we will learn how future taxation may work. So, as we go through further clauses in detail today, perhaps he could comment on how any learnings from this tax might influence and develop future taxation thinking.