The Forum Of Private Business is citing a new survey by consumer magazine Which? to back its argument that that much previously reported VAT loophole is driving down the profit margins available on music CDs which, in turn, is threatening the businesses of independent music retailers.
The new Which? Survey, in the magazine's January edition, compared the price of a Justin Timberlake and a Beatles CD in various European countries, including Germany, France, Ireland and the UK, and found that the average price of a UK CD was as much as £2.50 less than elsewhere in Europe.
The FPB reckon this is because of online mail order operations that base themselves in the Channel Islands. As previously reported, current VAT rules mean that goods sold from the Channel Islands that are under £18 (ie most CDs and DVDs) are not subject to VAT, meaning that mail order operations who utilise the loophole save £1.75 on every ten pound purchase. High street retailers argue that that gives the mail order firms, like Play.com and HMV's online operation, an unfair advantage, while forcing high street retailers to drop their prices also.
While that could be argued to be a good thing for consumers (who can buy CD albums for less money), independent retailers argue that the need to compete with the online retailers cuts their margins to dangerously low levels, forcing some record stores out of business. And, of course, while consumers may be getting cheaper CDs, in their capacity as tax payers they are considerably worse off because the mail order operations aren't paying VAT.
Commenting on the Which? report and his organisation's ongoing attempts to have the Channel Island VAT loophole closed, the FPB's Nick Goulding told reporters: "Too often the picture is blurred by the insistence that the sole factor in the demise of high street music retailers is the increase in music downloads. This report ... adds more strength to the argument that something must be done to close this loophole."
Richard Allen of mainland mail order music seller Delerium Mail Order, who is lobbying for a judicial review of the VAT situation, added: "If, as the Treasury believes, various factors are affecting UK music retail prices, why do prices remain buoyant in the rest of Europe? Surely it is obvious that the differentiating factor in the UK market is the presence of the hugely exploited VAT loophole which is now achieving saturation advertising on TV and in the print media. When you have Channel Islands-based retailers like Play.com and HMV advertising new releases at £8.99 including delivery in mainstream music publications, then must be an effect on pricing in shops. It also has as a longer term effect on the public's general perception of prices. Because the UK mainland retailer is still having to compete to survive but also has to suffer a VAT element, prices are now reaching levels that are unsustainable as a business model. We are already seeing individual shops and chains going to the wall as a result".