This article is more than 2 years old

This article is more than 2 years old

The government has hinted it could impose an “Amazon tax” on online sales as House of Fraser became the latest high street retailer to go into administration.

The stricken department store chain, shorn of its debts and pension fund, was immediately snapped up by Sports Direct, the sportswear chain controlled by Mike Ashley, in a £90m rescue deal. The deal will protect 16,000 jobs for the time being.

Speaking on Friday, the chancellor, Philip Hammond, said: “We want to ensure that the high street remains resilient, and we also make sure that taxation is fair between business doing business the traditional way, and those doing business online.

Harrods of the high street? Maybe not, but Mike Ashley's mission could succeed Read more

“We may have to look at temporary tax measures to rebalance the playing field until we can get international agreements sorted out.”

Traditional retailers face much higher tax charges than their online rivals. The business rates bill for House of Fraser’s 59 outlets last year was just over £30m, according to the property advisers Altus Group. House of Fraser had total sales of £787m. By comparison, Amazon had UK sales of nearly £9bn, but paid only £33m in business rates because it operates from low value warehouse property rather than prime high street locations.

Last week it was revealed that Amazon UK’s annual corporation tax bill – levied on profits from its warehouse business – was just £4.6m. That was a reduction on the previous year, even though its profits were up from £24m to £72m. It was also able to defer a chunk of the total bill, so only paid £1.7m. Its actual sales are recorded in Luxembourg.

There have been a run of high street failures and closures this year, taking about 30,000 retail jobs with them. Toys R Us, Poundworld and Maplin have collapsed, while New Look, Mothercare, Marks & Spencer and Carpetright have announced plans to close hundreds of stores as weak consumer confidence is compounded by the online shopping boom.

On Friday, Sports Direct confirmed it had bought House of Fraser for £90m in cash. Ashley, who also owns Newcastle United, promised to turn the struggling chain into “the Harrods of the high street”, keeping as many stores open as possible.

High street 2018: a tale of lost shops and at least 35,000 jobs at risk Read more

The chain was put into administration after talks with its creditors, which went on until 3am in the morning, failed to produce a better option.

The loss-making retailer had £400m of debt. The deal will mean its secured lenders, who are at the front of queue to be paid in the event of administration, recoup abound 22p in the pound. The store chain’s suppliers, who were due to be paid about £60m next week, are expected to get only 3p in the £1.

House of Fraser’s pension fund will now be assessed by the pension protection fund (PPF), the industry-backed lifeboat scheme. As the fund is in surplus by about £20m as measured by the PPF, it is possible the scheme could be taken over by an insurance firm. However, any deal is still likely to fall short of previously promised benefits.

All 59 House of Fraser stores will come under Sports Direct’s control and all 16,000 staff are being transferred on the same employment terms and conditions. However, Ashley’s plans for the business are unclear, and some stores may close in the future.

Profile Mike Ashley's empire Show Hide Mike Ashley’s empire Mike Ashley’s empire (held through his Mash Holdings private company): Sports Direct (Ashley owns 61%)

•757 sports stores in the UK and Europe. • 73 casual fashion stores in the UK - including USC, Flannels and Cruise. • Range of sports and fashion brands - including Slazenger, Everlast, Lonsdale, Karrimor, Kangol, No Fear and Firetrap. • “Strategic” investments: 29.7% of Debenhams.

27% of French Connection.

25.4% of Game Digital.

29.9% of Findel (owner of Express Gifts).

18.9% of Goals Soccer Centres.

4.8% of MySale (online discounter).

8.6% of Iconix Brands ( Lee Cooper and Umbro).

Newcastle United football club

Property lnvestments

Properties including the Lion Hotel in Worksop, his family home in north London and two chalets in Switzerland. Radar Radio

Run by Ashley’s son Ollie. Four Holdings

Owns Agent Provocateur lingerie. Acts as an agency for other brands. Runs 11 other stores, including upmarket 18montrose fashion outlets. Rangers Retail

Rights to sell Rangers kit, currently the subject of a legal battle with the Scottish football club.

House of Fraser’s previous owner Nanjing Cenbest, part of China’s Sanpower conglomerate, had planned to close 31 of the stores using a company voluntary arrangement (CVA), an insolvency procedure, but that deal lapsed when the 169-year-old department store chain went into administration.

Ashley, whose business empire also includes a US sports business and a luxury London property development, has long wanted to take control of House of Fraser. He bought an 11% stake in 2014, when 89% of the business was sold to Sanpower in a deal worth £480m.



He also has a 29.7% stake in House of Fraser’s rival Debenhams.

Quick guide History of House of Fraser Show Hide House of Fraser traces its origins back to 1849, when Hugh Fraser and James Arthur opened a drapery shop on the corner of Argyle Street and Buchanan Street in the centre of Glasgow. By 1941, it had expanded into a number of shops in Scotland and became House of Fraser. The 1950s marked a period of major expansion for House of Fraser. In 1953, still owned by the Fraser family, the group extended its geographic reach across Scotland and into north-east England and Carlisle with the purchase of the Binns chain, which had its origins in an early 19th century Sunderland drapery business. Harrods, the luxury London department store, and Dickins & Jones, became part of the House of Fraser group in the late 1950s. Growth continued in the 1970s, with the addition of well-known names such as Rackhams, the Army & Navy stores and Dingles. Change came in 1985 when the House of Fraser group was bought by the Al Fayed family for £615m and a new business strategy was announced, with plans to replace smaller branches with larger stores. In 1994 House of Fraser was floated on the London Stock Exchange at a market value of £484m, with Harrods split off and kept under private ownership by Al Fayed. A takeover bid from Scottish retail entrepreneur Tom Hunter was rejected in 2003 and some branches in Scotland were sold or closed. However, two years later the group was in expansion mode again, buying 16 stores under the Jenners and Beatties brands became part of the group in 2005. Large new store openings followed in 2008 at locations including Belfast, Bristol and the Westfield shopping centre in west London. In 2013, House of Fraser opened its first store overseas, in Abu Dhabi’s World Trade Center shopping mall.

House of Fraser was bought by China’s Nanjing Xinjiekou Department Store Co – also known as Nanjing Cenbest – in 2014. Angela Monaghan

The addition of House of Fraser to the Sports Direct group will create a new force in high street retailing with annual sales of £4.1bn – bigger than fashion and homewares chain Next. Sports Direct also owns the London sportswear store Lillywhites and the designer fashion chain Flannels.

Scott Lennon, a regional officer at Unite, said the union was worried about how the Sports Direct takeover would affect working conditions at the House of Fraser: “The staff are entering a period of great uncertainty and worry.”

A Guardian investigation in 2015 found workers at Sports Direct’s Shirebrook warehouse operation in the east Midlands effectively receiving hourly rates of pay below the minimum wage.

“Sports Direct is a leopard that has not changed its spots and we hope that its poor record on pay and employment practices are not transferred to the House of Fraser,” Lennon said.

Facebook Twitter Pinterest Mike Ashley has long wanted to take control of House of Fraser. Photograph: Chris J Ratcliffe/AFP/Getty Images

House of Fraser has been scrabbling to find a new buyer since the start of this month when C.banner, the Hong Kong-listed owner of Hamleys, pulled out of a commitment to invest £70m in the business.

The department store chain has been struggling as fewer shoppers visit the high street and last year’s business rates increase makes running large high street stores even more expensive at a time when sales are moving online. Critics of the property tax argue that it gives online retailers such an Amazon an unfair advantage over traditional high street chains.

Hammond told Sky News that any tax changes would require new international agreements: “That requires us to renegotiate international tax treaties because many of the big online businesses are international companies. We also agree with the French and the Germans that if we can’t get international engagement to do this, we may have to look at temporary tax measures to rebalance the playing field until we can get international agreements sorted out.”



The EU has been talking about a tax on online platform businesses based on the value generated. Hammond said that was something he was “prepared to consider”.

The speed of the House of Fraser-Sports Direct deal surprised other potential bidders including Philip Day, the owner of Edinburgh Woollen Mill. A source close to Day claimed the entrepreneur had put forward a proposal on Thursday and attempted to follow it up on Friday morning with a £100m offer. However, deal insiders countered: “There was only one bid on the table last night and there was no offer this morning.”

Alan Hudson, one of the joint administrators, described the attempt to find a new owner as a “race against time”.

Sign up to the daily Business Today email or follow Guardian Business on Twitter at @BusinessDesk

“We are pleased that we have been able to successfully conclude a sale of the business in short timescales which preserves as many of the jobs of House of Frasers employees as possible. We hope that this will give the business the stable financial platform that it requires to flourish in the current retail environment,” he said.

Richard Lim, the chief executive of Retail Economics, said: “This is a hugely ambitious move for Sports Direct. The combination of both businesses will yield some vital cost-savings while it’s likely that some of the struggling House of Fraser sites will be rebranded to Sports Direct.”



He added: “This [department store] is a part of the industry that is under a huge amount of pressure. Turning around the business will not come easy.”



