One of the (many) villains in Walled Culture the book (free ebook versions) is the publishing industry, specifically in the context of the transition from analogue books to ebooks. What could have been one of the most important expansions of the power and possibility of the book form became instead its opposite – a diminishment of both. As a result of publishers’ greed, ebooks became something you rented, rather than owned. Libraries are particularly hard hit: publishers typically only allow the books they license to educational establishments to be lent out for a limited number of times, or for a limited period. Publishers achieved the feat of using the shift to powerful digital technologies to make books less useful, purely in order to boost their profits.
The Walled Culture book explains in detail how the industry was able to do that thanks to bad copyright laws being abused yet further. But there’s a footnote to this transition that I was unaware of when I wrote my history of copyright in the digital age, but which underlines the extent to which most publishers are driven purely by the bottom line, and care little for readers or writers.
It concerns the taxing of books in the UK. Most goods there are subject to a Value Added Tax (VAT), which is a simple percentage of the sale price – generally 20%. However, certain classes of goods are exempt: this applies to things like food, children’s clothing, and also books. Or rather, to physical books: one quirk of the early ebook market was that ebooks were taxed at 20%, even though physical books were not. This led to a 2018 campaign with the catchy slogan “Axe the reading tax”. It was led by the Publishers Association, which wrote in a press release at the time:
Stephen Lotinga, CEO of the Publishers Association, said: “The government must do everything it can to cut the unfair tax on ebooks, magazine and newspaper online subscriptions.
“It makes no sense in the modern world that readers are being penalised with an additional 20% tax for choosing to embrace digital.
“Whether a book, newspaper or magazine is electronic does not change the principle that we should not be taxing reading and learning.
It was a powerful campaign, backed by just about everyone who cared about books, reading, education and knowledge. It had an extensive Web site Axethereadingtax.org, with lots of very good reasons why the tax should be abolished, such as:
A simpler VAT regime would benefit universities and libraries in terms of freeing up resource and money, as well as students buying educational materials.
Digital formats are vital for the blind and partially sighted, who can listen to audiobooks or read in the largest print sizes on electronic devices, for those with dyslexia and for elderly or disabled people who may lack the physical capabilities to handle print books easily.
The extra 20% tax meant that everyone was paying higher prices for no benefit. The Publishers Association pointed out:
Removing the VAT from ebooks and epublications would mean that people who buy them would benefit from lower prices. The impact on the government would be a modest reduction in VAT revenues and is small relative to reduced VAT revenues from other goods and services which are zero-rated, including caravans and hot takeaway food.
The good news is that in 2020, the UK government finally removed the 20% VAT on ebooks. The Publishers Association was rightly triumphant:
We are thrilled that, as of 1 May 2020, the unfair 20% VAT on eBooks and digital newspapers, magazines and journals has been removed. Knowledge and learning are vital, whatever format you favour.
Three years later, it’s interesting to see how that has worked out in practice, and fortunately Tax Policy Associates have done the calculations. Here’s what they found:
The VAT cut means that ebook publishers could have cut their prices by 17% 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.
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 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.
UK government figures show that dropping VAT on ebooks cost the state £200 million. In theory, that is £200 million that could have flowed to everyone buying ebooks, in the form of lower prices. Here’s where it actually went:
Amazon generally retains a royalty of around 30%, so we can say that of the £200m annual cost of the VAT abolition, Amazon received about £60m and publishers/authors about £140m.
To put these figures in context, the publishing industry’s UK profit in 2021 was probably around £200m. Even after increased author royalty payments, this looks like a very significant enhancement to publisher profitability.
This is a perfect example of the how the copyright world operates. It lobbies for changes in the law, claiming that the public is suffering in some way, and exploits the willingness of creators to help put pressure on the government to right that wrong. But when those changes are made, the companies do not pass on the benefits to the public or creators, but keep most of it for themselves.
In the case of axing the reading tax, it was indeed axed – but none of the claimed benefits for universities, or the blind and partially sighted materialised. The publishers kept book prices the same, which means that they picked up an extra 20% of an ebook’s price, since they no longer had to pay VAT. In effect, the tax was still there, but now it simply went to publishers, not the government. All the problems the Publishers Association complained about in terms of the harm to books, reading, learning and education remain. But publishers have become much richer for zero additional work, so suddenly these things don’t matter any more…
Featured image created with Stable Diffusion.