Online Sales Tax Call Puts £1bn High Street Question Into Budget

Chancellor John Healey's budget on Wednesday is tipped to raise up to £1bn extra by forcing online marketplaces such as Amazon and eBay to collect VAT on behalf of large-scale sellers — both UK-based and overseas. The move anchors a wider push to stop the shutters coming down on British high streets, and one of the prime minister's most senior former advisers wants him to go much further.

Andy Haldane, former chief economist at the Bank of England and president of the British Chambers of Commerce, has urged the government to tax internet sales at a higher rate than sales in physical shops. Haldane advised the prime minister, Andy Burnham, ahead of his entry into Downing Street, though he took no formal government position.

What does Haldane want changed?

In an interview for a Guardian series on reversing the decline of Britain's towns, Haldane called for a realignment of the tax system away from favouring online sellers, alongside a review of business rates and measures to accelerate devolution.

"The balance of tax incentives are strongly skewed towards the digital over the physical, and the large over small, and if you're serious about high streets that needs somehow rebalancing," he said.

He pushed Burnham to deliver on Labour's manifesto promise to "replace" the business rates system, saying "some levelling of the playing field" was needed for smaller operators battling soaring costs and evaporating demand.

"One of the reasons why high streets are dying, and some of the towns, is business rates are punitive for smaller shops," Haldane said. "This needs to be wrapped up with that more fundamental review of business rates and I'll hope we see that in the budget."

The plain takeaway: Haldane sees business rates relief and an online sales tax as two halves of one fix, not separate policies.

What is the budget actually expected to do?

Healey's package is expected to include several measures aimed at struggling town centres:

• A tax crackdown on online marketplaces, raising up to £1bn by forcing VAT collection for large-scale UK and overseas sellers.
• Honouring Burnham's June promise to raise the rent valuation threshold at which businesses start paying rates, taking more small players out of the system.
• A Treasury interest in an IPPR thinktank report proposing an online sales tax to fund lower high street business rates — a move long backed by big retailers including Morrisons, Waterstones and Tesco.

Labour has already run one rates shake-up. In April, taxes on warehouses used by online retailers went up. But the increase also hit the UK's most valuable commercial properties — department stores and hotels among them — fuelling calls for further tweaks. Some retailers warn against a more targeted warehouse tax, because many big chains now combine online shopping with a high-street presence.

The Treasury defended its record. A spokesperson said: "We are on the side of businesses. The chancellor is giving the high street more breathing space, cutting business rates by 20% for pubs, social clubs and live music venues. This is alongside £4.3bn to limit bill rises, funded by a higher tax rate for big online warehouses, and capping corporation tax." The spokesperson added that tax decisions are a matter for the chancellor at fiscal events, not routine comment on "rumour, speculation or proposals".

How big is the political risk?

There's a tariff threat hanging over any crackdown on US tech giants. Allen Simpson, head of trade body UKHospitality, said the government had signalled it would ease costs on his sector, but he sensed ministers were wary of US retribution if Amazon and eBay were hit. "Trump might hit us with a tariff," he warned.

The politics cut both ways. Nigel Farage's Reform UK is pushing to weaponise high-street decline, and research shows support for the rightwing populist party has grown most where vacancy rates have risen most.

Does devolution carry the rest of the plan?

Haldane thinks so. A leading expert in regional economic development who masterminded Boris Johnson's levelling up plans before distancing himself from the Conservatives over local government cuts, he praised Burnham's agenda of handing more power and funding to local leaders.

"That would be a very, very important element of the 'growth in every postcode', and making the most of devolution outside the city centric mayoralties," he said of a rates revamp.

He urged Labour to hand directly elected mayors eventual responsibility for setting local rates of income tax, national insurance and VAT. "Other countries have cracked the code on this. So there's no reason why we couldn't or shouldn't," he said.

Healey plans to let mayors retain a share of income tax, but is expected to stop short of handing them rate-setting powers from the Treasury.

What do voters think?

Polling by More in Common, shared with the Guardian by the campaign group Power to Change, shows the scale of the challenge. Most people describe their local area warmly, but opinions flip negative on high streets — "empty", "run down", "tired" and "declining" are the common words. Six in 10 think giving more power to community organisations, residents or local businesses would improve their high street. Just 15% thought the government would make better decisions.

Burnham has already moved: business rates cuts for pubs, clubs and live music venues from April, community ownership funds, and a £5.8bn "pride in place" strategy. But retail and hospitality leaders argue Labour has added to high-street headwinds by raising employment taxes and other costs, and want those increases partly reversed to fund youth job creation.

With a refreshed high streets strategy due and Healey's budget landing Wednesday, the £1bn question is whether VAT enforcement on marketplaces becomes the down payment on a full online sales tax — or gets shelved the moment Washington pushes back.