Tesco are selling electronics products like CDs and DVDs from the Channel Islands where there is no VAT to pay. In doing so, they are undercutting the prices of retailers based on the British mainland. This practice used to be done from Jersey, but the government there blocked it because it was apparently giving the island a bad reputation. Yesterday, it was announced that Tesco had consequently switched to selling from Guernsey.
British retailers selling on British high streets are understandably annoyed that their prices are undercut by quasi-foreign competition. Frankly, I think they have a point. However, their angst, channelled through Grauniad articles like this one, is aimed squarely at the wrong people. It is, after all, the Westminster government, not Tesco, that creates this loophole for Tesco to exploit – by levying such a high VAT on British businesses. It is the fact that the British government arbitrarily hammers British vendors that means Tesco can graft a competitive advantage by avoiding it.
New Labour has made much of the benefits of globalisation over the last 13 years. However they usually try to ignore the fact that the internationalisation of trade and the Internet Age have both resulted in the realisation that such high taxes are, frankly, wasteful. This realisation could only have come about because places like Jersey and Guernsey, so close to the UK mainland, maintain low taxes. As Dan Mitchell of Cato has argued persuasively, this ‘tax competition’ has been enormously beneficial in keeping high tax countries from becoming very-high tax countries, extorting their populace still further. If the left-wing press and the British government are able to shut down such schemes by forcing the hands of the Channel Islands’ governments, they will have eroded yet more of the processes by which a free people can keep their government honest and responsible.
Furthermore, The Grauniad article ignores some of the more tangible, less lofty benefits of Tesco’s policy. It argues that we should focus on those high street retailers who have lost out because of Tesco’s scheme. Whilst I agree with the sentiment, to do this exclusively would be to focus on only the ‘sell side’ of the buy-sell equation. What is forgotten is the ‘buy side’ – the fact that consumers now have 17.5% (actually about 14.9% if you do the math properly – 17.5 is 14.9% of 117.5) more money to spend on other goods or services, which will in all likelihood be bought from the British High Street, creating more jobs in the British economy etc.
Indeed, the Guernsey example should be celebrated, not condemned, by the people at large. Unlike complicated tax avoidance schemes run by highly paid accountants and lawyers, which largely benefit only incredibly wealthy individuals or corporations, Tesco’s scheme enables anyone and everyone to benefit from reduced taxation, by paying less for products they want to buy.