Business Alliance Proposes 2% Online Sales Tax and 37% Cut to Physical Business Rates

The Real Rates Reform Alliance launched on Tuesday with a proposal to replace Britain’s business rates with a hybrid system that taxes all online sales at 2%. The Independent reported that the group, which includes UKHospitality and the Institute of Directors and represents more than 28,000 firms and business leaders, said the tax would allow a 37% cut in rates for bricks-and-mortar firms while raising slightly more than the £34 billion currently collected each year.

The alliance cited a Savanta poll of 1,000 firms showing 17% have cut jobs because of business rates, 15% have imposed hiring freezes, and 31% have raised prices.

It also reported that 55% of firms view the tax as a major or moderate cost and that digital firms pay 9% of total rates despite accounting for a fifth of economic activity, while retail and hospitality firms pay 34% of rates while contributing around 9% of the economy.

Ros Morgan, chief executive of Heart of London Business Alliance and chair of the alliance, said business rates should support growth, not hold it back. She added that Andy Burnham has acknowledged the system is unfair and has discussed levelling the playing field between online and physical businesses, though the group wants him to go further.

Burnham, expected to become prime minister as soon as next week, has pledged to reform business rates and has signalled plans to raise property taxes on large warehouses, particularly targeting online giants such as Amazon. His proposals include raising the threshold for 100% small business rates relief in England from £12,000 to £18,000 and extending tapered relief up to £21,000 from the current £15,000.