Rishi Sunak considers online sales tax in bid to save high street

Rishi Sunak

Rishi Sunak is considering a new tax on goods sold online amid mounting concern about the collapse of the high street as Britain emerges from the coronavirus crisis.

The chancellor is examining proposals for an online sales tax to provide a “sustainable and meaningful revenue source for the government” and help bricks-and-mortar retailers to compete.

In a call for evidence published last week, the Treasury highlighted concerns that business rates were effectively penalising the high street because online rivals did not need to rent “high-value” properties.

It said that the coronavirus crisis “has had a significant impact on how business is done” and that the government must act to make sure that “the tax system raises sufficient revenue”.

The Treasury is also considering radical plans to abolish business rates and replace them with a “capital values tax” based on the value of land and the buildings on it. The tax would be paid by the owner of the property rather than the business leasing it. The government is understood to be considering two forms of online sales tax. The first would be a levy of around 2 per cent on goods sold online, which would raise about £2 billion a year.

The second would be a mandatory charge on consumer deliveries, which would form part of a campaign to cut congestion and toxic emissions. There are concerns, however, that both approaches could lead to higher costs for consumers.

The Treasury said: “The pandemic has had a significant impact on how business is done, particularly for firms which rely on customers visiting them. The full impact of this will become clear over time. As the economy moves towards recovery the government will continue to support businesses as far as possible, but it must also ensure that the tax system raises sufficient revenue to fund the services that have been essential parts of the pandemic response, as well as public services more broadly.”

During the crisis Mr Sunak introduced a one-year £10 billion business rates holiday for the retail, hospitality and leisure sectors. The Treasury said this had led to a 40 per cent drop in revenue from business rates.

In its proposal for an online sales tax, the Treasury highlighted concerns that the business rates system “imposes an unreasonable burden on retail”.

However, the call for evidence also noted that some retailers had warned that an online sales tax “would simply increase the costs for consumers of regularly purchased items”.

The business rates system is based on shop rental values, calculated every five years and paid by tenants, rather than landowners.

It is viewed as outdated because companies that need a presence in town centres pay higher rates than online and out-of-town rivals.

Retail sales rose by 13.9 per cent last month after shops reopened, fuelled by a drive towards online shopping. This has risen by a record level and now accounts for £3 in every £10 spent.