Andy Burnham has been urged by one of his most senior former advisers to tax internet sales at a higher rate than those in physical shops to help “level the playing field” for struggling high streets.
As the prime minister and his chancellor, John Healey, prepare for their first budget next week, Andy Haldane joined calls for them to take action to stop the shutters coming down on growing numbers of shops across the UK.
In an interview for a Guardian series looking at how Britain can reverse the declining fortunes of towns, the former Bank of England chief economist urged them to launch a realignment of the tax system away from favouring online sellers, alongside a review of business rates and measures to turbocharge devolution.
“The balance of tax incentives are strongly skewed towards the digital over the physical, and the large over small, and if you’re serious about high streets that needs somehow rebalancing,” he said.
Calling on Burnham to follow through with Labour’s manifesto promise to “replace” the business rates system, Haldane said “some levelling of the playing field” was needed to help smaller operators battling with soaring costs and evaporating demand.
“One of the reasons why high streets are dying, and some of the towns, is business rates are punitive for smaller shops,” he said. “This needs to be wrapped up with that more fundamental review of business rates and I’ll hope we see that in the budget.
The prime minister has made town centres a top priority after years of decline that have left many hollowed-out, with shops closed, buildings boarded up and once-busy hubs sitting empty.
Healey’s budget on Wednesday is tipped to include measures to ease the pressure on these struggling high streets, including a tax crackdown on online marketplaces such as Amazon and eBay. The measure could raise up to an extra £1bn by forcing them to collect VAT on behalf of large-scale sellers based in the UK as well as those overseas.
He is also expected to honour the promise Burnham made in June to take more small players out of the system altogether by raising the rent valuation threshold at which businesses start paying.
The Treasury is also understood to have taken an interest in a report by the IPPR thinktank calling for an online sales tax to fund lower high street business rates. Big retailers including Morrisons, Waterstones and the UK’s biggest supermarket, Tesco, have long called for such a move.
Labour has already had one business rates shake-up. In April, taxes on warehouses used by online retailers were increased, but the increase on the UK’s most valuable commercial properties also drew other large buildings such as department stores and hotels fuelling calls for further tweaks. Some retailers have warned against a more targeted warehouse tax because many big chains now combine online shopping with a high-street presence.
Allen Simpson, the boss of the trade body UKHospitality, said the government had indicated it would ease costs on his sector, but he sensed ministers were wary of US retribution if taxes on big US-based tech firms such as Amazon and eBay were hit, warning that “Trump might hit us with a tariff”.
Burnham’s push to revive communities with measures to hand more power and money to local leaders comes as Nigel Farage’s Reform UK pushes to weaponise high-street decline. Research shows public support for his rightwing populist party has grown most in the places where high-street vacancy rates have risen most.
Haldane, who is the president of the British Chambers of Commerce, advised Burnham as he prepared to enter Downing Street, but did not take a formal position in government.
A leading expert in regional economic development who masterminded Boris Johnson’s levelling up plans – before distancing himself from the Conservatives over cuts to local government – praised Burnham’s agenda to hand more power and funding to local leaders.
However, he said a revamp of business rates would be critical for boosting the economies of struggling towns. “That would be a very, very important element of the ‘growth in every postcode’, and making the most of devolution outside the city centric mayoralties,” he said.
In his first weeks in power Burnham announced a cut in business rates for pubs, clubs and live music venues from April. Labour has also introduced community ownership funds and launched a £5.8bn “pride in place” strategy to hand more money and power to local leaders to support regeneration.
However, retail and hospitality industry leaders argue Labour has added to the headwinds facing high streets by increasing taxes on employment and adding to other business costs, and have pressed for these to be partly reversed to fund youth job creation.
As ministers prepare to publish a refreshed high streets strategy, polling by researchers at More in Common shared with the Guardian by the campaign group Power to Change show the extent of the challenge.
Whereas most people describe their local area warmly, opinions typically turn negative when asked about their high street – with words like “empty”, “run down,” “tired” and “declining” common.
As many as six in 10 think handing more power to community organisations, local residents or local businesses would help to improve their high street. As few as 15% thought the government would make better decisions.
Haldane urged Labour to hand more powers to directly elected mayors – including the eventual responsibility for setting local rates of income tax, national insurance and VAT. “Other countries have cracked the code on this. So there’s no reason why we couldn’t or shouldn’t,” he said.
Healey is preparing to use the budget to unveil plans allowing mayors to retain a share of income tax, although he is expected to stop short of handing over the responsibilities from the Treasury to set local rates.
A Treasury spokesperson said: “We are on the side of businesses. The chancellor is giving the high street more breathing space, cutting business rates by 20% for pubs, social clubs and live music venues. This is alongside £4.3bn to limit bill rises, funded by a higher tax rate for big online warehouses, and capping corporation tax.
“As has always been the case, decisions on tax are a matter for the chancellor to set out at fiscal events, rather than routinely commenting on rumour, speculation or proposals.”
