Press Story

A 2 per cent online sales tax and 1 per cent tax on click-and-collect purchases would raise at least £1.5bn
Revenue should fund a business rates cut for leisure, hospitality and retail shops on local highstreets, says IPPR

The government should rethink how it taxes retail as the shift to online shopping leaves high street businesses carrying a disproportionate share of the burden, according to a new proposal from IPPR.

As the Budget approaches, the influential think tank argues that the tax system has failed to keep pace with the growth of online shopping. With nearly three in every 10 retail sales now being made online, such businesses now generate significant profits without bearing the same costs as traditional retailers with a physical footprint.

This preferential tax treatment of online giants like Amazon comes at the expense of high streets, which are not just for shopping but are places where people from different walks of life meet and mix. Last month, the Prime Minister pledged £210 million to regenerate high streets to "restore pride" in local areas, but this would redirect existing funds.

IPPR proposes an online sales tax on large retailers in which businesses would pay 2 per cent on remote sales, falling to 1 per cent for click-and-collect purchases, while the first £500,000 of a business’s annual remote sales would be exempt, protecting smaller retailers.

IPPR estimates the tax would raise at least £1.5 billion a year. The think tank proposes using the revenue to fund a package of business rates cuts for retail, hospitality and leisure businesses in England.

It estimates this could save smaller businesses an average of around £1,400 a year, and larger firms around £2,500. Local authorities would be fully compensated for the lost business rates revenue.

The authors say this will also help address the unusual reliance Britain has on property taxes. They account for 10.5 per cent of UK tax revenues, compared with an OECD average of 5.1 per cent. Business rates alone raised £27.6 billion in 2026.

The current retail, hospitality and leisure business rates multipliers in England are 38.2p for smaller properties and 43p for standard properties. The multiplier determines the bill: businesses pay that amount in business rates for every £1 of their property's annual rental value, before any reliefs are applied. IPPR proposes reducing these to 28.2p and 41p respectively, funded by the online sales tax.

Aditi Sriram, economist at IPPR, said:

“Britain’s tax system was built for an era when the location where you did business was closely linked to how much business you did. That is no longer the case.

“As people have moved their shopping online, high street shops and restaurants continue to face large, fixed tax bills simply because they need physical premises.

“The government should shift some of the tax burden from bricks to clicks and use the money to cut bills for the businesses that bring people onto our high streets.

“Online shopping is here to stay. The question is whether the tax system catches up with the economy we now have.”

ENDS

Aditi Sriram, the report's author, and other IPPR experts are available for interview

CONTACT

David Wastell, director of news and communications: 07921 403651 d.wastell@ippr.org

Rosie Okumbe, media and digital officer: 07825 185421 r.okumbe@ippr.org

Tom Jeffery, media consultant: 07772 941254 t.jeffery@ippr.org

NOTES

The IPPR paper, Bricks vs clicks: The case for an online sales tax, by Aditi Sriram, will be published at 0001 on Thursday October 8. It will be available for download at: https://www.ippr.org/articles/bricks-vs-clicks-tax-retail.
Methodology: Average savings for small and standard firms were calculated using MHCLG 2026–27 forecasts for business rates revenue to estimate the cost of the cuts, divided by the number of properties on each multiplier.