{"id":8998,"date":"2023-02-09T17:30:00","date_gmt":"2023-02-09T17:30:00","guid":{"rendered":"https:\/\/www.taxpolicy.org.uk\/?p=8998"},"modified":"2024-01-21T23:11:49","modified_gmt":"2024-01-21T23:11:49","slug":"ebooks","status":"publish","type":"post","link":"https:\/\/heacham.neidles.com\/2023\/02\/09\/ebooks\/","title":{"rendered":"The abolition of VAT on ebooks was a \u00a3200m handout to publishers"},"content":{"rendered":"\n

The UK charged<\/em><\/strong> 20% VAT on ebooks until May 2020, when it was abolished<\/a> following a lobbying campaign by the publishing industry. They claimed that consumers would benefit from lower prices. Our analysis shows that this didn’t happen – publishers retained the VAT saving for themselves, costing the country \u00a3200m<\/em><\/strong>.<\/p>\n\n\n

Background<\/h2>\n\n\n

Books have always benefited from 0% VAT. Ebooks were subject to 20% VAT.1<\/a><\/sup>Historically, EU law permitted reduced or 0% VAT on books, but required ebooks to be subject to the full rate – so 20% in the UK. That was changed in October 2018, permitting Member States flexibility in what rate they applied.<\/span> An EU law change in 20182<\/a><\/sup>In July 2019 many EU states reduced the rate of VAT on ebooks<\/a>. The UK didn’t follow until March 2020, when the then-Chancellor Rishi Sunak announced that the UK would cut the rate to 0%<\/a> from end 2020. Then in April 2020 he announced the cut would be accelerated to May 2020<\/a>.<\/span> permitted the UK to reduce the rate of VAT on ebooks, which the UK initially resisted. Following a lobbying campaign<\/a> from the publishing industry, the UK scrapped3<\/a><\/sup>Technically this was a reduction in VAT from 20% to 0%, which is different from an exemption (and more favourable, because it means retailers\/publishers can claim a refund of VAT on their inputs\/expenses). In the interests of clarity we will use terms like “scrapped” and “cut” because we think that is easier to understand, and the further technical consequences of a 0% rate are not relevant to this report<\/span> VAT on ebooks4<\/a><\/sup>VAT was also cut for electronic newspapers\/magazines, but that’s outside the scope of this report<\/span> in March 2020. The cost to the Exchequer was \u00a3200m.5<\/a><\/sup>See page 66 of the March 2020 Budget Red Book<\/a>, item 15<\/span> <\/p>\n\n\n\n

The Axe The Reading Tax Campaign<\/a> (run by the Publishers Association) said that removing VAT from ebooks would result in lower prices for consumers:<\/a> <\/p>\n\n\n\n

\"Removing<\/figure>\n\n\n\n

Did it?<\/p>\n\n\n

Our conclusions<\/h2>\n\n\n

We analysed the detailed ONS sampling data of ebook pricing, compiled as part of the consumer price index. We found no significant change in ebook pricing around the time of the VAT cut. Full details of the ONS analysis are below.<\/a> <\/p>\n\n\n\n

This is the key chart, showing the change in average pricing for the 23 months6<\/a><\/sup>We set the cut-off at 23 months because inflation tends to dominate after Q1 2023<\/span> before and after the VAT cut, for both ebooks and other comparable products:<\/p>\n\n\n\n

\"\"<\/figure>\n\n\n\n

The VAT cut means that ebook publishers could have cut their prices by 17%7<\/a><\/sup>Why 17% and not 20%? Because a \u00a310 ebook before May 2020 represented a \u00a38.33 price plus \u00a31.67 VAT. After May 2020, the publisher could charge \u00a38.33 and receive the same net proceeds – that’s a 17% price cut to the consumer.<\/span> and made the same profit. They didn’t. Over this period there were 8%+ price reductions for comparable products – computer game and app downloads – where there was no VAT cut. There were no overall price reductions for ebooks.<\/p>\n\n\n\n

We also analysed individual pricing data for the 30 best-selling ebooks on Amazon UK in 2020 (as Amazon is by far the most significant ebook retailer). Only (at most) four out of thirty showed a sustained price reduction which could plausibly have been attributed to the May 2020 VAT cut. That likely overstates the effect.8<\/a><\/sup>Overstates because these changes could be coincidental; only one was the “correct” percentage price cut at the “correct” date; also the prices of individual books tend to fall after they are published. The ONS data samples the ebook market as a whole, and so is not prone to these problems.<\/span> Full details of price movements on these ebooks are below.<\/a><\/p>\n\n\n\n

VAT was also cut for electronically delivered newspapers and magazines – that’s not something we’ve looked into in this report.<\/p>\n\n\n\n

Perhaps there was a benefit to consumers, but that was hidden by increased costs\/inflation?<\/strong><\/p>\n\n\n\n

This is often the excuse for a failure to pass on VAT cuts, but it doesn’t wash here – this is an unusually clear effect:<\/p>\n\n\n\n