(Bloomberg) — Finance Minister Rachel Reeves is considering plans to increase taxes paid by online giants such as Amazon.com Inc. as she looks to boost British high street shops in her budget next week.
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Britain’s Chancellor of the Exchequer is exploring ways to change the existing system of business rates — where tax assessments are based on the value of a company’s physical buildings — so that e-commerce companies like Amazon pay more, according to people familiar with the matter. who requested anonymity in discussing plans that have not yet been finalized. She is examining the measure alongside a measure to reduce retail, leisure and hospitality bills, the people said.
Reeves will lay out her thoughts in the Oct. 30 budget, though the details could change, the people said. The plans are likely to be put to a consultation to lay the groundwork for wider reforms next year, they said. The Treasury Department did not immediately respond to a request for comment.
Reeves is overhauling the public finances in the Labor Party’s first spending plan in fourteen years. She is considering a mix of tax increases with short-term spending cuts and longer-term investments in public services as part of an effort to raise as much as £40 billion ($52 billion) to fund her party’s priorities and fill a budget gap to close, she says. left behind the previous conservative government.
The revenue-neutral proposal on business rates would aim to deliver on Labour’s election promise to restore the balance between bricks-and-mortar retailers and their online competitors, in a bid to revitalize city centers across the country. The current business rates system is controversial because it penalizes businesses with a presence on the high street, where property values are higher than the out-of-town locations of warehouses and distribution centers favored by online giants.
That’s why the government is facing widespread calls from across the industry to reform the system. Nevertheless, business rates are an important source of funding for local authorities, and the Chancellor will want to ensure that any review does not damage the revenue stream, which will generate around £26 billion in 2024-25, according to ministry data. for Leveling, Housing and Communities.
Amazon reported sales of nearly $33.6 billion in Britain last year, or 5.8% of the company’s global total.
“The current business rates system discourages investment, creates uncertainty and places an unnecessary burden on our high streets,” Labor said in its manifesto. “In England, Labor will replace the business rates system so we can generate the same revenues, but in a fairer way. This new system will level the playing field between the major shopping streets and online giants, better stimulate investments, tackle vacant properties and support entrepreneurship.” Labor did not elaborate on how it intended to achieve these objectives.
Adding to the urgency to act quickly, there is a looming cliff edge for businesses such as shops, restaurants, cinemas and hotels as the 75% discount on coronavirus-era business rates expires 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 Burger King UK CEO Alasdair Murdoch – signed an open letter to Reeves calling on her to take action and make cuts . business rates invoices for catering companies.
“This Budget is the last chance to prevent high street bills across the country from quadrupling,” they wrote. “We ask that you take this opportunity to deliver on your promise to set business rates and protect businesses.”
Reeves does not plan to extend the 75% exemption but wants to soften the blow for affected businesses, the people said, saying that inspires her to consider potentially 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% cut in retail bills.
The people suggested Reeves is unlikely to introduce an online sales tax, which has been mooted in the past as a way to boost the high street. 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 during her time in opposition. In her 2021 speech at Labour’s annual conference, she said the UK business tax system was “not fair” and “not fit for purpose”.
“Businesses on the high street pay more than a third of business rates, despite making up just 15% of the total economy,” she said. “But when Amazon’s revenues rose 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 being considered by the Treasury to raise additional revenue include applying different multipliers used by the government when calculating business rates for different types of property – such as warehouses – and changing the way on which the value of a property is assessed, the people said. The latter option could look at the revenues or profits of the business occupying the premises – an approach that would reduce the bills faced by struggling businesses, they said.
–With help from Mark Bergen.
(Updates with budget deficit in fourth paragraph.)
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