More than 200 business leaders, including bosses at The Entertainer, Boodles and F Hinds, have urged the Chancellor to introduce a two per cent online sales levy to fund sweeping cuts to business rates.
The retailers are among the signatories of an open letter to John Healey calling for a shake-up of the tax system ahead of his October 28 Budget, arguing that businesses operating physical stores are being unfairly penalised.
The proposal, put forward by the Real Rates Reform Alliance, would combine a lower property-based tax with a two per cent levy on eligible online sales, which campaigners claim could reduce business rates bills by up to 37 per cent.
Gieves & Hawkes and jeweller David Morris International have also backed the campaign, alongside hospitality, leisure and property businesses.
The alliance, whose founding members include the British Independent Retailers Association, UKHospitality and the Institute of Directors, represents more than 28,000 businesses and business leaders.
It argues that successive governments have failed to address the imbalance between online businesses and retailers operating physical stores, instead introducing temporary reliefs and exemptions that have made the system increasingly complicated.
Ros Morgan, chair of the Real Rates Reform Alliance, said: “Decades of piecemeal reliefs have failed to fix the underlying problem.”
She added that the government had an opportunity to deliver fundamental reform rather than continuing to shift the tax burden between sectors.
Under the plans, the levy would be collected through the existing VAT system, with exemptions intended to protect smaller businesses and certain categories of spending.
Research commissioned by Heart of London Business Alliance suggests a hybrid system could lower the property-based business rates multiplier to 34.8p, reducing bills by between 31 per cent and 37 per cent, depending on the property.
The group argues that the changes could be introduced without reducing the overall tax revenue available to local government.
Michael Wainwright, managing director of Boodles, said the current system placed an unfair burden on businesses investing in stores and employing people.
He argued that a lower property tax, supported by a levy on online transactions, would allow retailers to put more money into their premises, staff and future growth.
Online sales tax divides retail industry
Changes introduced in April lowered business rates multipliers for eligible retail, hospitality and leisure properties in England with rateable values below £500,000.
Those reductions are funded in part by a higher multiplier for properties valued at £500,000 or more, affecting larger retail stores as well as distribution warehouses.
However, the alliance argues that shifting the cost between different commercial properties fails to address how online commerce has changed the retail market.
An online sales tax is not without controversy.
The government previously rejected proposals for such a levy in 2022 following a Treasury consultation, citing concerns that it could push up consumer prices, create additional administration and penalise retailers operating both online and in stores.
The latest proposal would also affect multichannel retailers, rather than exclusively targeting ecommerce businesses such as Amazon.
Its supporters argue that substantial reductions in property-based business rates would help offset those additional costs, although the net benefit would depend on an individual retailer’s balance of physical and online sales.
The Chancellor is reportedly considering separate measures to tackle VAT avoidance on online marketplaces, with platforms potentially made responsible for collecting tax from more third-party sellers.
However, that proposal is distinct from the alliance’s two per cent sales levy, which would create a new contribution towards business rates funding rather than enforce existing VAT obligations.
With the Budget approaching, the alliance is urging the government to move beyond targeted reliefs and deliver a more comprehensive overhaul of the tax system.
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