Tax Nonsense of Christmas Past

I’ve been asked to give a presentation this coming Wednesday at the Autumn National and 40th Anniversary gathering of the Automated Customs and International Trade Association in London. In preparing for it, I’ve been digging through my archives—and in doing so, I stumbled upon a splendid piece of nonsense from 2006, courtesy of Dawn Primarolo MP, then Paymaster General in the Labour Government.

Dawn Primarolo was responding to questions in an adjournment debate in the run up to Christmas that year, concerning the Channel Islands mail-order VAT avoidance industry. The backdrop to this was Gordon Brown’s infamous interview with a men’s magazine, in which he claimed to listen to the Arctic Monkeys on his iPod—though he couldn’t name a single track.

In the debate, Primarolo stated:

“We need to look at all aspects of the tax system and balance the costs of compliance and enforcement rules against the need to protect revenue and minimise distortions in the market. Clearly, in considering the economic link between importing CDs and retailers, the Government need to take account of the other pressures on retailing in this sector. For instance, the change in the market for audio-visual products, which is undergoing rapid structural change as consumers switch to downloading music and, increasingly, video and film over the internet. We have recently seen notable successes of young talent who have made their name exclusively via that medium.”

Every word of this is nonsense. In fact, the final sentence, which alludes to the Arctic Monkey's selling mainly downloads, is not even true!

The Arctic Monkeys’ debut album sold 363,735 physical copies - mainly on CD - in its first week of release. I dread to think how many of those sold via Jersey. Download sales were negligible by comparison. Downloads, as a format, ultimately failed to take hold—and it wasn’t until the rise of streaming that digital music began to significantly impact physical sales. Even as late as 2018, the Arctic Monkeys sold 25,000 vinyl copies of a new album in its first week, making it the fastest-selling vinyl release in 25 years.

To be clear, I’m not making a partisan point. A Conservative government would likely have been just as ineffective. It’s obvious that Primarolo was reading from a script prepared by Treasury & HMRC advisers. But what their word salad reveals is how music industry hype and lobbying from interested parties (Royal Mail, carriers and the Channel Island retailers) had convinced officials that VAT avoidance and evasion could be justified—or at least tolerated—on the basis of “structural change” in the market. In other words: who cares about record shops? They’re going bust anyway.

In reality, the government had allowed record shops based in the Channel Islands to enjoy a mail-order advantage over their UK counterparts. Digital music retail had absolutely nothing to do with it.