The Government is considering a new online sales tax to protect high streets from online competition.
A new CPS report out today demonstrates that such a tax would be unfair, inefficient, overly complex and widely unpopular – as well as doing little to help the high street
It shows that the added cost would be borne disproportionately by the poorest and most vulnerable and in the areas that the Government has promised to ‘level up’. In fact the only group of voters who tend to support the idea are wealthy Londoners
A new paper from the Centre for Policy Studies, supported by the Coalition for a Digital Economy (Coadec), today shows that this would do more harm than good to consumers, businesses and the economy – as the Government’s own consultation paper to a large extent acknowledges.
Polling shows that 83% of businesses selling online are likely to pass the cost of an online sales tax on to consumers, with economic analysis showing that consumers would absorb 72% of the cost of the tax. So during the worst cost of living crisis in a generation, the UK’s poorest households could face an additional financial burden of up to £76 a year, rising to a potential average of £175 across all income brackets.
These added costs fall disproportionately in disadvantaged regions of the UK and among those on lower incomes, as well as on many elderly and disabled people who now depend on online shopping.
As a result, the tax is markedly unpopular with voters and small businesses alike. Polling by Public First for Coadec has shown that some 41% of micro-businesses and 46% of consumers oppose it, with 29% being strongly against. The lowest income bracket where there was majority approval for the measures was from those on over £70,000 a year.
In addition, such a tax would undermine competition, stifle innovation and distort the market. It would also, as the CPS’s research shows, be difficult to design and costly to implement, directly contradicting the Government’s commitment to increase growth, simplify taxation and ease the cost of living crisis. It would also hit the firms it is meant to help: most high street businesses also operate online, with 87% of small high street shops believing that having an online presence is paramount to success.
The paper – ‘No Way to Help the High Street’ by Tom Clougherty and Elizabeth Dunkley – also sets out a range of alternatives that really would help the high street – foremost among them a fundamental reform and reduction of business rates. It points out that the UK has the highest such taxes of any major economy, and that their level and design actively damage both retailers and manufacturers – deterring badly needed investment and making our high streets worse places than they should be.
Dom Hallas, Executive Director of Coadec, said:
‘As consumers and small businesses grapple with a cost of living crisis, an online sales tax wouldn’t help them at all. While it would hit the pockets of hard-pressed consumers, it would also punish and deter innovation, investment, and competition.
‘The UK’s e-commerce sector was world-leading even before the Pandemic led adoption to skyrocket. Efforts to reinvigorate the High Street are needed and laudable, but punishing progress is no sure way to get there.’
Tom Clougherty, report co-author and Head of Tax at the Centre for Policy Studies, said:
‘An online sales tax would raise prices for consumers in the middle of a cost of living crisis. It would burden small businesses who sell online just as the economy risks sliding towards recession. And it would help undermine the Government’s broader efforts to level up and boost economic growth.
‘Business rates reform is long overdue and sorely needed. But tying that important agenda to an ill-conceived tax like the OST makes no economic sense at all.’
