Chancellor John Healey is under pressure to raise revenue in the October 28 Budget, and a Labour-linked think tank has proposed a new 2% sales tax on online purchases that could raise £1.5 billion a year.
The Institute for Public Policy Research (IPPR), which has close links to Labour, argues the tax would make US tech platforms such as Amazon pay their share, as traditional retailers pay business rates on their premises while online-only rivals largely escape them. The revenue could fund business rate cuts for pubs, shops and hotels, helping to revive high streets.
Budget pressures mount for Labour
The Budget is proving difficult for the Prime Minister and Chancellor. Labour is anxious about how the October 28 announcement lands with the public, as it could make or break Andy Burnham's strategy of generating optimism before calling a snap election, taking advantage of the Green Party's difficulties and the split on the right between the Tories and Reform UK.
Healey, however, is constrained by fiscal discipline and cannot keep raising taxes or borrowing from the bond market. Reform UK has warned he is lining up a £30 billion "sucker punch," and he does not want a third Labour tax blitz after the first two damaged Rachel Reeves's career trajectory.
Risks of the online sales tax
Options on the table include a bigger windfall tax on banks and oil giants, new property levies and higher capital gains tax, all of which could backfire by driving business away. The online sales tax also has downsides. UK retailers like John Lewis and Marks & Spencer sell plenty online too, so the tax could punish the very businesses it is meant to help, as well as small businesses.
Ultimately, shoppers would pay. Retailers could absorb some of the cost, but with tight profit margins, most would pass the tax on to consumers. The tax would strike every time someone buys anything online, and there is no guarantee it would stop at 2%, becoming another stealthy way for cash-strapped chancellors to raise money on Budget day.
