(Bloomberg) -- Chancellor of the Exchequer Rachel Reeves is considering plans to increase taxes paid by online giants such as Amazon.com Inc., as she seeks to bolster UK high street shops in her budget next week.
Britain’s finance minister is looking at ways to change the existing system of business rates — under which tax bills are based on the value of a firm’s physical premises — so that e-commerce companies such as Amazon pay more, according to people familiar with the matter, who requested anonymity discussing plans that haven’t been finalized. She’s examining the move alongside a move to reduce bills on shops, leisure and hospitality, the people said.
Reeves is due to set out her thinking in the budget on Oct. 30, though details may change, the people said. The plans are likely to be put to a consultation to lay the ground for broader reform next year, they said. The Treasury didn’t immediately respond to a request for comment.
Reeves is overhauling the government’s finances in the Labour Party’s first spending plan in 14 years. She’s mulling a mix of tax rises with short-term spending restraint and longer-term investment in public services as part of a push to raise as much as £40 billion ($52 billion) to fund her party’s priorities and plug a budgetary hole she says the previous Conservative administration left behind.
The revenue-neutral proposal on business rates would aim to deliver on Labour’s election pledge to redress the balance between bricks-and-mortar retailers and their online competitors, in an effort to revive town centers around the country. The current system of business rates is controversial because it’s seen to disadvantage firms with a presence on high streets, where property values are higher than the out-of-town locations of warehouses and distribution centers favored by online giants.
Because of that, the government faces widespread calls from across industry to reform the system. Nevertheless, business rates are a key source of funding for local authorities, and the chancellor will want to ensure that any overhaul doesn’t harm that revenue stream, which will generate about £26 billion in 2024-25, according to data from the Department for Levelling Up, Housing & Communities.
Amazon reported earning almost $33.6 billion of revenue in the UK last year, or 5.8% of the company’s global total.
“The current business rates system disincentivizes investment, creates uncertainty and places an undue burden on our high streets,” Labour said in its manifesto. “In England, Labour will replace the business rates system, so we can raise the same revenue but in a fairer way. This new system will level the playing field between the high street and online giants, better incentivize investment, tackle empty properties and support entrepreneurship.” Labour didn’t elaborate on how it intended to achieve those aims.
Adding to the urgency to act soon, there’s a looming cliff-edge facing firms such as shops, restaurants, cinemas and hotels, because a coronavirus-era 75% business rates relief is due to expire in April.
On Monday, 170 bosses from across the UK hospitality sector — including JD Wetherspoon Plc Chief Executive Officer John Hutson, Greene King’s Nick Mackenzie and Alasdair Murdoch, CEO of Burger King UK — signed an open letter to Reeves calling on her to take action and cut business rates bills for hospitality firms.
“This budget is the last chance to prevent bills quadrupling for high streets across the country,” they wrote. “We are asking you to grasp this opportunity to deliver your manifesto commitment to fix business rates and protect businesses.”
Reeves isn’t planning to extend the 75% relief but wants to soften the blow for affected firms, according to the people, who said that’s informing her thinking around potential higher taxes for online retailers. Treasury officials are also reviewing proposals submitted by the British Retail Consortium, a lobby group, which has called for a 20% reduction in bills for retail properties.
The people suggested Reeves is not likely to introduce an online sales tax, which has been mooted in the past as a way to boost high streets. The previous Tory government consulted on such a measure, and rejected it two years ago.
Reeves herself has regularly raised the issue of business rates reform while in opposition. In her 2021 speech to Labour’s annual conference, she said Britain’s system of business taxation was “not fair” and “not fit for purpose.”
“High street businesses pay over a third of business rates, despite making up only 15% of the overall economy,” she said. “But when Amazon’s revenues went up by almost £2 billion last year, how much did their tax go up? Less than 1%. If you can afford to fly to space, you can pay your taxes here on Earth.”
Options under consideration by the Treasury to generate extra revenue include applying different multipliers used by the government when calculating business rates bills for different classes of property — such as warehouses — and changing how the value of a premise is assessed, according to the people. The latter option could look at the revenue or profits of the business occupying the premise — an approach that would reduce bills faced by struggling firms, they said.
--With assistance from Mark Bergen.
(Updates with budget deficit in fourth paragraph.)
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