The Government has floated the idea of an online sales tax to support high streets at the expense of online retailers, potentially set at 1% or 2% of online sales. 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.
Tom is Head of Tax at the CPS. He was previously executive director of the Adam Smith Institute, before moving to the US to become managing editor at the Reason Foundation, and then a senior editor at the Cato Institute, the leading Washington think-tank.
Elizabeth is a researcher at the Centre for Policy Studies. She was previously a Policy and Regulatory Affairs Advisor for the News Media Association and prior to that, she worked for UK Finance as a Government and Regulatory Affairs intern.
