A modest proposal: take VAT off everything

The high street is struggling, and booksellers are not immune to the challenges facing retail. Against the aggressive margin squeezing of Amazon and Waterstones, smaller retailers are unable to match the discounts customers have come to expect. Front-line booksellers have been pushing for sorely needed pay rises, which their employers can little afford. And, it has been argued, improving the terms from publishers would merely shift more of the pain onto authors.

At the same time, the ongoing campaign to get VAT taken off e-books and audiobooks continues to grow. Why should readers who benefit from—or need—the accessibility of digital formats have to pay more? Publishers, authors, and politicians are keen to correct the situation. Yet retailers are quiet on the topic—perhaps unsurprisingly, given that Amazon dominates the market for these formats. A policy change that pushes even more customers to the American behemoth, with little benefit to other retailers, won't appeal to many booksellers. 

One compromise would be to apply the VAT exemption only to digital formats which are open and not tied to a single provider’s system. Epub files which can be read on any e-reader could be made VAT-free, while the tax is still applied to Amazon’s mobi files which lock readers into using Kindle e-readers. But VAT is complicated enough as it is, and such a compromise might just mean that most digital readers, already settled into Amazon’s monolithic standard, end up not benefiting from the change.

What about a policy change that would benefit readers of e-books, give high-street retailers a shot in the arm, and ease some of the financial burden on underpaid front-line bookshop staff without costing their employers anything? I propose eliminating VAT—not just on e-books and audiobooks, but on everything.

The general arguments for replacing VAT with higher income and corporation taxes are strong (especially if the government works to close loopholes that stop companies like Amazon from paying their fair share). Low-earners end up paying a significantly bigger proportion of their income in VAT than higher earners do. The complicated structure of VAT can be a burden on retailers and costly for the state to administer. Shifting tax incomes from VAT to progressive taxes would make the system simpler and fairer. This could be a positive policy change enabled by Brexit, as changes to VAT regimes are restricted in the EU.

This change would be a win-win for booksellers. Whilst physical books would be unaffected, bookshops today don’t just sell books. VAT-attracting gifts and stationery are important drivers of revenue for bookshops of all sizes. Removing this surcharge would give bookshops a much-needed boost in margin, while keeping prices at the till the same or even lower than they are with VAT.

Reduced prices across the board would make life more affordable for lower earners, a group including most bookshop staff. This would be equivalent to a pay-rise for employees, without the extra financial strain on retailers caused by increases to the minimum wage. Bookshop staff would be more financially stable and less stressed, improving retention of experienced and skilled staff. Happier staff will perform better, selling more books and boosting the entire book ecosystem from retailers to publishers and authors. 

Publishers would benefit both through increased e-book and audiobook sales and via knock-on effects from a healthier climate for bookshops. Independent bookshops, which play such a vital role in spreading the word about books and making them accessible to communities across the country, would be less likely to close. These bookshops, which often receive far lower discounts from publishers than the likes of Amazon or Waterstones, would thrive, living another day to sell books at rates profitable for publishers and authors alike.

It is an injustice that independent bookshops struggle with poor terms while Amazon demands the best rates in the industry in exchange for its harmful practices that leave us all poorer. Co-operating with Amazon is important for individual publishers in the short-term as to make themselves pariahs on the world’s biggest retail platform would be financially catastrophic. Yet the industry as a whole could resist the inequities of the Amazon model by co-operating and deciding in unison to standardise a smaller gap between the terms given to the biggest and smallest retailers. Met by a united front, Amazon would have to comply. Publishers and authors would make more from Amazon sales, and some of that benefit could be passed to smaller bookshops in the form of better terms, increasing the retail sales that already give the biggest cut to publishers and authors.

But in the absence of a co-ordinated book industry acting in the collective interest of all its members, it is not enough to merely squabble over terms, shifting shrinking pieces of the pie from authors to bookshops and back via publishers. We need bold, universal improvements that will endure. Eliminating VAT would bring benefits across the board, with the financial burden borne only by those most able to afford it through progressive forms of taxation. 

Is it realistic? Will it happen? We can dream. But while we’re at it, let us dream up ambitious and radical reforms until we find one that sticks and rescues this vital cultural industry.

The author is an employee of a bookseller in the process of renegotiating its terms with publishers. They supplement their low wage through freelance writing.