Online sales tax would cost families an extra £175 a year, Sunak says

Rishi Sunak has been urged to reject plans for a new online sales tax as economists warn it would drive up inflation as families are already reeling from the fastest price rises in 40 years.

According to the Center for Policy Studies and the Coalition for a Digital Economy, the proposed 2% tax on business internet sales would be passed directly to shoppers by the vast majority of retailers.

According to the study, Britain’s poorest households could see their annual spending increase by £76 a year as prices rise, while the average household would face £175 in extra spending.

It would hurt household finances without providing serious support to high street businesses who are meant to be the beneficiaries of the policy.

“I hope they weren’t dumb enough to introduce a new consumption tax at a time like this,” Tom Clougherty told CPS.

Inflation hit 9% in April and the Bank of England expects it to peak at over 11% in October.

Mr Clougherty’s report warns that ‘introducing a tax on online sales would be complicated, costly and distorting’.

“Whatever the intention behind it, an online sales tax is bound to burden small businesses and raise prices for consumers. It would be a step backwards in the government’s campaign to tackle inflation and lower the cost of living,” the think tank said.

“To make matters worse, the introduction of an online sales tax would help undermine the government’s ambitions to boost economic growth and international competitiveness after Brexit.”

Mr Clougherty said he would prefer the government to reform and reduce the existing tax system to help businesses and their customers.

“Business tariffs are a real problem and you need a real solution – an online sales tax isn’t what you’re looking for,” he said, suggesting businesses shouldn’t be taxed more to improve their premises or invest in capital, and that the overall rate burden is reduced and transferred to another part of the economy, such as residential property.

Mr Sunak warned that excessive tax cuts could further fuel inflation.

Clougherty said cutting corporate rates would not cause inflation to rise detrimentally.

“I don’t think it would be inflationary, and any inflationary impact of the tax cut would have been offset by tighter monetary policy by the Bank of England,” he said.

“I don’t think the compromise, with more money in people’s pockets and slightly higher interest rates, seems like a clearly wrong approach.”

The Treasury has consulted on the idea and is expected to decide its course of action at budget time in the fall.

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David A. Albanese