It is time for the Treasury to axe the card tax and save British businesses billions
Contactless payment (Alamy)
4 min read
The Spring budget is on the horizon, and many sectors are on their knees. As economic uncertainty persists, business leaders are imploring the Prime Minister and Chancellor to release whatever funding they can, as businesses fight just to stay afloat.
The retail industry is no different. Retailers have been hit hard in recent years, from the pandemic reducing footfall (which was still 10% below pre-pandemic levels in late 2022), to rising energy costs, supply chain issues and more recently strikes, all impacting balance sheets. Retailers need help.
But the need for support must always be tempered with realism, and we recognise that there is only so much money to go around. We also know the government could make positive changes to businesses by fixing the broken payments sector, and doing so won’t cost them a penny.
We speak to and represent thousands of retailers every year, and what is clear is that the UK payments market is in desperate need of an overhaul. With inflation soaring, retailers face a drop in consumer spending as disposable income goes down. Couple this with the rising cost of doing business, and retailers face an uphill battle. The central problem is what we call the card tax — a hidden cost that every business pays, every single day. Brexit gave the UK the autonomy to slash this cost, but they did the opposite — it’s been creeping up without challenge.
The payments market is dominated by a duopoly. Every tap of your card delivers a slice of profit to the card schemes, with the biggest two raking in almost £2 billion every year from UK transactions. That might seem fair enough on the face of it — the card giants deserve their slice for the service they provide.
But dig a little deeper and problems begin to surface. The amount that card schemes charge for their services has exploded by 600% in the last eight years, without any clear reason as to what these additional fees are for. When you extrapolate the additional money businesses have therefore paid over those years as the fees have been hiked, British businesses have lost out on millions of pounds for years.
That’s why trade bodies including the British Retail Consortium, Federation of Small Businesses and Coalition for a Digital Economy have come together to form the Axe the Card Tax campaign. We represent six major trade bodies and more than 240,000 members across the UK, and are all calling for money to be fairly returned to the pockets of struggling British businesses.
According to the BRC’s own data, as much as 90% of all retail spending in the UK now takes place on card. Finding a way to rebalance this outdated market will unlock crucial funds for hundreds of thousands of businesses, and provide a shot in the arm for the UK Fintech sector, which is being hampered by the stranglehold the US giants have.
Understanding the scale of the problem is a crucial first step, and that is why the campaign is calling on the Payments Systems Regulator (PSR) and the Treasury to take three critical measures to begin the process of rebalancing the market. These are:
- An immediate reversal of the 400% increase in cross-border transactions between the UK and EU, which is costing businesses upwards of £36m a year.
- The PSR to freeze all other payment fees with immediate effect until their investigations of the payment sector are complete.
- An urgent Treasury review into the cost of accepting card payments in the UK, as a first step to creating a more competitive payments market.
Much of our existing payments structure is tied to legacy EU regulation. We now have the ability to liberalise trade for retailers. Instead, businesses are being penalised simply for being paid by their customers. The high street is part of our national identity, but a failure to solve this issue is simply adding to a cocktail of chaos for already embattled retailers.
It’s time to put that right.
This should be a win for the government — an opportunity to help British business without incurring any cost to the exchequer. There are encouraging signs. We are already engaging with the Treasury on this issue, but now it is time for action.
Nobody is asking for handouts or preferential treatment. What we are asking for are the tools to succeed and a payments market that works competitively, lowers costs and improves efficiency for retailers and businesses.
Hannah Regan is Financial Policy Lead at the British Retail Consortium.
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