Andy Burnham’s government has stepped back, for now, from an immediate business rates raid on large warehouses.

Reports earlier this week suggested the new Prime Minister was preparing to raise as much as £1bn from distribution centres operated by businesses such as Amazon and Asos, using the proceeds to reduce the tax burden on pubs and high-street businesses.

The business rates package unveiled on Thursday was considerably narrower. Nearly 32,000 pubs, social clubs and live music venues will receive a 20 per cent reduction from April 2027, at an annual cost to the Treasury of around £100m.

Rather than announcing a warehouse surcharge, the government said it would examine reliefs received by businesses such as vape shops and pursue tax avoidance by sellers using online marketplaces.

However, it also promised to return to the wider business rates system at the Budget, leaving the warehouse proposal firmly in play.

A policy presented politically as an “Amazon tax” would, in practice, be a tax on valuable property, and the two are not the same thing.

A warehouse tax cannot easily distinguish online from high street

The attraction of the policy is straightforward. Physical retailers have spent years arguing that stores shoulder a disproportionate share of business rates, while online competitors can generate billions of pounds in sales from a much smaller property footprint.

Increasing the rates paid by large fulfilment centres therefore offers a seemingly simple way to shift some of that burden away from town centres.

But business rates are calculated according to the rateable value and use of individual properties. They do not assess whether the company occupying a building is an online pureplay, a supermarket, a department store or an omnichannel retailer.

That makes targeting online businesses through the property tax system, unfortunately,  extremely difficult.

Analysis from property tax specialist Ryan found that only 129 of the 1,900 large warehouses most likely to face higher rates were operated by online-only retailers. Even doubling the applicable rate for those warehouses would not raise enough to fund the previously proposed reductions.

The same distribution centre may replenish stores, process ecommerce orders, handle returns and supply wholesale customers. It could also be operated by a third-party logistics provider serving dozens of retail brands.

Industry figures estimate that high-street retailers occupied 97m sq ft of warehouse space in 2024, compared with 69m sq ft taken by online retailers. The largest and most valuable warehouses include facilities used by Next, Tesco, Lidl, John Lewis, M&S and Sports Direct, as well as Amazon.

In other words, the warehouse has become part of the high street’s vital infrastructure, rather than its opponent.

Retailers are already paying the warehouse premium

The government has already begun using business rates to redistribute costs between smaller high-street premises and valuable commercial properties.

Since April, qualifying retail, hospitality and leisure properties with rateable values below £500,000 have received permanently lower multipliers. Small qualifying properties pay 38.2p in the pound, while those valued between £51,000 and £499,999 pay 43p.

Properties worth £500,000 or more, regardless of whether they are warehouses, shops or other commercial buildings, pay the high-value multiplier of 50.8p. The standard rate for a non-retail property below the threshold is 48p.

The Treasury estimated that 1,900 distribution warehouses would contribute an additional £270m over the three years to 2028/29 under the high-value rate already introduced. Official figures show that just over 21,000 properties of all types fall into the high-value band.

The legislative framework gives the government room to go further.

The high-value multiplier can be set as much as 10p above the standard multiplier, compared with the current gap of 2.8p. Property tax advisers have estimated that using the maximum surcharge across large commercial sites could generate approximately £1.32bn a year.

However, raising that sum would require casting the net much wider than Amazon and Asos.

It could increase bills for supermarket superstores, department stores, retail parks, large manufacturing facilities and flagship shops. Retailers could consequently find themselves paying higher rates both on the warehouses supplying their stores and on their biggest customer-facing properties.

The revaluation has already increased uncertainty

The debate is also arriving immediately after April’s nationwide property revaluation.

Although the headline multipliers fell following the revaluation, an individual company’s bill depends on both the multiplier and its property’s new rateable value. Rapid rental growth in the logistics market has pushed up many warehouse valuations, meaning a lower multiplier does not necessarily translate into a lower bill.

The UK Warehousing Association said warehouse rates bills increased by an average of nine per cent in April, with almost a quarter of sites experiencing rises of more than 20 per cent. It warned that further increases would ultimately be reflected in logistics fees and consumer prices because many warehouse operators work on thin margins.

For large retailers, those costs cannot simply be isolated within the online channel. Distribution networks now support click-and-collect, ship-from-store, home delivery, returns and physical-store replenishment simultaneously.

A warehouse levy might therefore reduce the business rates bill for a small shop while increasing the cost of getting products onto its shelves.

The £1bn question

The warehouse tax debate gets to the heart of the central weakness of successive attempts to reform business rates. Cutting bills for one group generally requires increasing them for another.

Permanent support for smaller high-street premises is welcomed by retailers. But funding it through increasingly narrow surcharges risks producing more thresholds, exemptions and unintended consequences in a system businesses already regard as overly complex.

There is also a major difference between taxing valuable property and taxing companies perceived to have benefited from the growth of ecommerce. Amazon may be the political target, but a property-based measure cannot reliably separate it from Tesco, M&S or a logistics provider serving independent shops.

Burnham’s initial package has avoided that problem by focusing on a relatively modest £100m reduction and online marketplace tax compliance. The more difficult decisions have been deferred until the Budget.

When the government returns to wider reform, retailers will be watching whether it attempts to increase the existing high-value multiplier or creates a warehouse-specific charge.

Either option may raise money, but neither offers a clean raid on online-only retail. Without careful design, the warehouse tax could become another cost borne by the very high streets it is supposed to protect.

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