AUTUMN STATEMENT Online sales tax shelved – with business rates on large ecommerce distribution warehouses set to rise 27% instead

Image: Adobe Stock

Image: Adobe Stock

The government today says it will not introduce a long-pondered online sales tax – with business rates on the large distribution warehouses operated by ecommerce retailers set to rise by more than a quarter. Where high street retailers see the business valuation rate of their shops fall, they will benefit from that fall as soon as the new rates come into force in April – although transitional protection will be in place for those whose bills rise.

Online retailers selling through large distribution warehouses are set to see their business rates bills rise by 27% – and some high street retailers could see their bills fall if the valuation of their property drops in the ongoing review of the business rates system, according to today’s autumn statement announcement. The business rates for some 700,000 business properties are set to rise in April 2023, while the rates for 300,000 properties are set to fall. Transitional relief will be put in place in order to protect the retail sector from the full force of any valuation rise for the next one to three years – the government says only 9% of properties in England will see a bill increase of more than 15% in 2023/4. 

Today’s announcement means that an online sales tax, previously consulted on, will not now be introduced. “The idea of an online sales tax (OST),” says the government in a briefing on today’s autumn statement, “was put forward by certain stakeholders to ‘rebalance’ the business rates bills paid by in-store retailers in comparison to their online counterparts. The government’s decision reflects concerns raised about an OST’s complexity and the risk of creating unintended distortion or unfair outcomes between different business models. Stakeholders also expect that it would lead to higher prices for consumers.”

It adds: “Physical shops on the high street who are seeing a fall in bills, will… get the full reduction, as a result of transition relief reforms, whilst online marketplace warehouses will pay higher bills, as a result of the revaluation.”

The new proposals comes as Chancellor Jeremy Hunt today set out to rebalance the way that online and high street businesses are taxed through business rates, while promising to protect them from rising inflation. But some have said the promised support does not go far enough. 

The government’s ongoing review of business rates means that from April 1 2023, businesses are set to get new business rates bills that reflect the 2021 valuations of their properties. Businesses can see an estimate of their future business rates bill here

Transitional relief

Today the government announced it would invest a headline £13.6bn in freezing the business rates multiplier for a further year – rather than rising by inflation – to protect retailers and other high street against rising costs. That will keep the standard multiplier at 51.2p and the small business multiplier at 49.9p. It puts the value of not increasing the multiplier this year at £9.3bn over five years. 

Almost £2.1bn will be put into business rates relief for retail, hospitality and leisure businesses. Downward transitional relief caps will be abolished, meaning that businesses that see lower bills as a result of the government’s review of business rates will get that decrease straight away. 

Support is promised for small businesses that lose eligibility for either small business or rural rates relief due to new property valuations through a £500m supporting small business scheme. Bills for small retail, hospitality and leisure businesses will see any increase in their bills limited to £12.50 a month in 2023. 

As a result, says the government, the total increase in business rates bills will be less than 1%, where they would have grown by more than 20% without intervention. 

Shops on high streets and other relatively prime locations currently tend to pay more in business rates than online-only retailers that operate from warehouses that currently have lower business rates valuations. Today’s announcement, says the government, means that while total business rates paid by the retail sector will fall by an estimated 20% in the business rates review, large distribution warehouses will pay an average 27% more than they did, reflecting ecommerce growth in recent years. 

A £1.6bn three-year transitional relief scheme is intended to keep bills manageable for around 700,000 business properties, where valuations rise.

The wider autumn statement

The government confirmed today that the UK is now in recession and unemployment is expected to rise from 3.6m to 4.9m by 2024. The OBR now expects the economy to be 3.7% smaller in five years time than it had previously expected, with household incomes 7% lower in coming years, once price rises are taken into account. 

The main corporation tax rate is to rise to 25% from April 2023, according to today’s autumn statement. The government also committed to the Northern Powerhouse Rail core network and East West Rail, along with gigabit broadband rollout. An international agreement on OECD reforms to ensure multinational corporations pay a fair share of tax is to be implemented. The National Living Wage will rise by 9.7% to £10.42 an hour, 

Changes that will be significant for retail in today’s statement also include the decision to boost state pensions and benefits by 10.1%, since it may mean those receiving it are less likely to cut back on retail spending. Tax thresholds have been frozen, except for the £150,000 rate, now lowered to £125,140. The Energy Price Guarantee, which caps the typical energy bill at £2,500, will rise to £3,000 from April. However, there was no mention of an energy guarantee for businesses. 

Industry reaction

Helen Dickinson, chief executive of the British Retail Consortium, says: “The announcements today show the government has heard the concerns of the retail industry. Retailers are working incredibly hard to support customers – expanding value ranges, fixing the prices of essential items, and offering discounts to vulnerable households. This Autumn Statement supports that commitment by reducing upwards pressure on prices in the short term, and helping retailers protect jobs, keep shops open, and protect the vibrancy of local communities.

“The Government has taken an essential step towards longer term reform of the broken business rates system by announcing the scrapping of downwards phasing of transitional relief. This decision means that April’s bills reflect market conditions and retailers will pay only what they owe, rather than being forced to overpay their rates bill when the value of their property has already fallen. This represents the first step towards a more fundamental reform of the broken business rates system.”

Dickinson adds: “High inflation remains a major threat to the UK economy and we support the government’s objective of bringing this down. Inflation is making people poorer, damaging consumer confidence and holding back demand. It pushes up the costs to businesses which further increases prices for consumers. As the retail industry enters the crucial Christmas period, it is vital that inflation is brought to heel.”

Jon Goodwin, finance director at Weird Fish, says: “The £14bn support package for business rates is appreciated. There has been a significant need for business rates to be overhauled to make it fairer particularly for the retail, hospitality, and leisure sector where costs are substantial. These sectors are still recovering from the Covid period which was quickly followed by the global uncertainty and the cost of living crisis.

“Yet this package is said to help around 700,000 businesses across the UK. According to government figures, there are estimated to be 5.5m UK private sector businesses in the UK. Therefore, only around 12% of businesses in the UK will benefit, so it doesn’t go far enough. The decision to increase the energy windfall tax from 25% to 35% is welcomed, but the existing system needs to be carefully reviewed. It appears that while the input cost of energy hasn’t increased dramatically over the past months, energy firm charges have gone up. Businesses are still struggling enormously with energy bills so clearly more needs to be done to ensure this tax is actually having the desired effect.”

Paul Martin, UK head of retail at KPMG, says: “The Autumn Statement contained a number of announcements to support the retail industry, from the £13.6 billion transitional relief scheme, through to freezing of business rate multipliers and the long awaited business rate re-evaluation from April 2023, under which we should see a lower rates burden for many retailers.  

“Whilst the prospect of support for retail businesses coming next year will be welcomed, the UK is in recession now and many retailers will be focussed on surviving the next few months as consumer confidence and spending declines, and costs continue to rise.  The question remains, will the support offered from April next year be too little too late for some struggling retailers?”

Tarun Gidoomal, UK general manager at curated marketplace Ankorstore , says: “Britain’s small businesses and retailers are straining under the numerous changes and challenges they’ve faced over the past year including Covid, inflation, rising energy prices and now fiscal drag. A staggering 97% of independent British retailers believe the government has not provided enough support amidst the ongoing ‘permacrisis’ of 2022, and that figure has likely risen even further after today’s statement.

“Hunt saying he will ‘soften the blow’ on businesses is not enough, and independent retailers up and down the country need more in order to survive the ongoing ‘permacrisis’ of 2022. If the government fails to extend the Energy Relief Scheme, as was missed out of today’s budget entirely, the majority of independent retailers (89%) believe they will suffer as a result, with almost half of all independent retailers (42%) saying that this would cause them to close or consider closing.

“The closure of so many great independent retailers would have huge and far reaching consequences for the communities who depend on these shops – and the social infrastructure they provide, as well as Britain’s economic recovery out of what is being predicted to be our longest ever recession. We’re calling on the government to revisit today’s budget to offer more for small businesses to create greater stability and to promote growth amongst British high streets. Doing nothing is not an option.”

Chris Griffin, CEO of Secret Sales, says: “Despite the budget announcement today, the cost-of-living crisis remains a reality for many and consumer confidence is hanging on by a thread. Like never before political uncertainty is impacting consumer shopping habits, as we saw a drop in conversion rates off the back of Hunt’s previous budget plans and then a subsequent uptick in sales conversions following Truss’ resignation.

As we digest Hunt’s Autumn budget today, with news such as the threshold for income tax personal allowance being frozen, for the retail industry its important consumers feel supported in the lead up to Christmas and beyond. Shoppers are hitting fight or flight mode and as a result over half (58%) are planning to shop more at discount homeware and fashion brands this year. A trend that we’ve seen at Secret Sales, with a 70% increase in sales like-for-like compared to last year, and one that we expect to continue.”

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