Labour to scrap business rates in bid to shift tax burden from high street shops onto internet giants

In its most ambitious attempt yet to woo the business vote, Labour has announced plans to scrap business rates and shift the tax burden away from bricks-and-mortar companies and onto internet giants like Amazon.

Shadow chancellor Rachel Reeves will set out the plan in a keynote speech to the party’s conference in Brighton on Monday in which she will challenge the Conservative claim on the business vote, describing Labour under Keir Starmer as “pro-worker, pro-business”.

She will announce a plan to raise £2.1bn from online behemoths like Amazon, Google and Facebook with a one-year hike from 2 to 12 per cent in the digital services tax, to pay for an immediate freeze on business rates and an increase from £15,000 to £25,000 in the threshold for reliefs.

Labour would conduct a review of the £174bn-a-year reliefs and scrap those which fail to deliver for taxpayers or the economy, she will say.

The announcement is part of a push by Reeves to establish Labour as a pro-business party and shake off its reputation from the Jeremy Corbyn years.

Ms Reeves will say: “Our high street businesses do so much to enrich our lives and our communities, facing huge adversity in the past year. They are struggling right now, with a cliff edge in rates relief coming up in March.

“The next Labour government will scrap business rates.

“We will carry out the biggest overhaul of business taxation in a generation, so our businesses can lead the pack, not watch opportunities go elsewhere.”

The move bore fruit today as the Federation of Small Businesses described her rates promise as “what a pro-small business tax policy looks like” and the CBI applauded the “pro-growth, pro-investment package of reforms”.

Highlighting her background as a Bank of England economist, Ms Reeves has also announced new fiscal rules that would require a Labour chancellor to balance day-to-day spending and borrow only for capital investment, committing the party to reduce the national debt as a proportion of national income.

An Office for Value for Money would scrutinise spending proposals on behalf of the taxpayer.

And she signalled a move towards a wealth tax, declaring that people who get incomes from stocks, shares and rental income will be targets for tax rises.

But Sir Keir said on Sunday that Labour has not ruled out rises in income tax after Ms Reeves told the Sunday Times she did not have any plans to increase rates.

The party leader said that income tax hikes were not currently under consideration but “nothing is off the table”.

Ms Reeves said that the “biggest overhaul of business taxation in a generation” was needed because the UK’s outdated system currently sees retailers pay £2.30 in business rates for every £1 in corporation tax, skewing payments heavily in favour of e-commerce and against brick-and-mortar businesses.

With eight tech giants avoiding an estimated £1.5bn in tax a year, aides said that the system was not only unfair to small businesses but was also destroying Britain’s town centres, with shoppers in many areas having a choice of “Amazon or nothing”.

The shadow chancellor will also offer a guarantee that Labour’s new system will incentivise investment, rewarding businesses which move into empty premises and encouraging green improvements while ensuring councils do not lose out.

Longer-term reform would rely upon the introduction of a 21 per cent global minimum for corporate tax – up from the 15 per cent agreed earlier this year – which would effectively destroy the advantages of tax havens for multinational companies.

Of the 1,000-plus tax reliefs currently in operation – some of them unreformed since the 1980s – Ms Reeves has so far earmarked only the breaks enjoyed by private schools and the £440m carried interest loophole for private equity bonuses for abolition.

But she made clear she expected her review to identify many more, saying that “too many simply provide loopholes for those who can afford the best advice”.

FSB national chair Mike Cherry gave a warm welcome to Ms Reeves’s package.

“The gauntlet has been thrown down by the opposition, and we hope government ministers are listening,” he said. “This is what a pro-small business tax policy looks like.”

CBI director-general Tony Danker said reform of business rates was “chronically overdue”.

“The Labour Party should be applauded for grasping the nettle and putting forward a pro-growth, pro-investment package of reforms that will reflect our green ambitions, spur the economic recovery, and help level up our regions,” said Mr Danker.

An Amazon spokesman said: “Last year, we made a total UK tax contribution of £1.55 billion – £492m in direct taxes and £1.06bn in indirect taxes.”

The company said its direct taxes in the UK increased 68 per cent year-on-year from £293m in 2019 to £492m in 2020.