Andy Burnham is so desperate he could start taxing us before we’ve even left the house
Andy Burnham is in a tight spot but a sales tax won’t save him (Image: Getty)
Labour’s looming Budget is turning into a political nightmare for Prime Minister Andy Burnham and Chancellor John Healey, with mounting pressure to find billions of pounds without triggering another backlash from taxpayers. As ministers search for ways to raise revenue, one controversial proposal has emerged that could hit millions of households every time they shop online.
The idea is straightforward: introduce a new 2% tax on online purchases, raising an estimated £1.5 billion a year, according to the left-wing Institute for Public Policy Research (IPPR). Supporters argue the money could help struggling high streets by funding business rate reductions for traditional retailers, pubs and hotels.
But the proposal also carries an uncomfortable message for consumers. At a time when families are already watching their household budgets closely, a new levy on online shopping could make everyday purchases more expensive, from clothing and household essentials to electronics and other goods ordered from home.
With the Budget scheduled for October 28, the political stakes are growing. Burnham wants to present a government capable of delivering visible improvements to public services and living standards. Healey, however, faces the difficult task of finding the money to pay for those ambitions without undermining confidence in the economy.
The danger is that a policy designed to generate additional revenue could instead deepen public frustration with Labour’s approach to taxation.
Labour faces an increasingly difficult Budget
The Budget is shaping up to be a defining moment for the government. Ministers must demonstrate that they can respond to the pressures facing public services while maintaining control over public finances.
Burnham has political reasons to want a Budget that delivers a clear message of optimism. New commitments on housing, social care and other public priorities could help the government demonstrate that it has a plan for the country.
Yet every promise comes with a price tag.
Expanding council housebuilding requires investment. Improving social care means finding sustainable funding for services that face significant financial pressures. Strengthening the armed forces also demands resources, particularly as European security remains a concern.
The difficulty is that the government cannot simply announce new spending without explaining how it will be financed.
Healey is therefore expected to face competing demands from colleagues who want more money for their priorities and those who believe the government must exercise restraint. Raising taxes could provide additional revenue, but further increases risk alienating voters and businesses. Borrowing more could help finance investment, but higher borrowing costs would place further pressure on the public finances.
That leaves the Chancellor with a narrow path between competing political and economic risks.
The government also has to consider the consequences of its earlier tax decisions. Businesses and households have already had to adjust to changes announced in previous Budgets. Another major package of tax increases could reinforce the perception that Labour’s answer to almost every financial problem is to ask taxpayers for more money.
For Burnham, that would be a dangerous message to take into an election campaign.
A new tax on online shopping enters the debate
The proposed online sales tax offers a potential source of revenue without relying exclusively on familiar options such as increasing income tax or raising headline rates of taxation.
The IPPR has argued that a targeted 2% levy on online purchases could raise approximately £1.5 billion annually. The money could then be used to help reduce business rates for physical retailers, potentially easing the financial burden on shops operating from traditional premises.
The argument rests on a perceived imbalance between online and high-street businesses.
A retailer operating a shop on a town-centre high street may face rent, staffing costs, business rates, energy bills and other expenses associated with maintaining physical premises. An online-only competitor may avoid some of those particular costs, although it still faces its own expenses, including warehousing, delivery, technology and distribution.
Supporters of an online sales tax believe that a levy could help narrow the competitive gap.
They also point to the difficulties facing town centres across Britain. Empty shopfronts, declining footfall and changing shopping habits have created problems for many communities. Independent retailers often struggle to compete with larger businesses that can offer extensive product ranges and convenient delivery services.
If the additional revenue were used effectively to reduce costs for high-street businesses, the policy might provide some assistance.
However, the proposal raises a fundamental question: should online shopping itself become more expensive in order to support businesses operating through physical premises?
The answer is not as simple as the political argument suggests.
Why shoppers could end up paying the price
Although the proposed tax would formally be imposed on sales rather than directly on individual consumers, its economic effects could eventually reach shoppers.
Retailers would have several options. They could absorb the additional cost, accept lower profit margins, seek savings elsewhere or increase prices.
Some businesses might choose to absorb part of the levy to remain competitive. Others, particularly those already operating on tight margins, could find that option difficult.
As a result, at least part of the cost could be passed on to customers.
Consider a hypothetical online purchase worth £100. If a 2% tax were fully passed through to the customer, the additional cost would be £2. On a £250 purchase, the equivalent increase would be £5.
Those amounts may appear relatively small in isolation. But the effect could become more noticeable for households that regularly order groceries, clothing, school supplies, home furnishings and other necessities online.
The final impact would depend on the tax’s design, which transactions were covered, whether exemptions applied and how retailers responded. It would therefore be wrong to assume that every online purchase would automatically become exactly 2% more expensive.
Nevertheless, the possibility of higher prices is central to the debate.
For households already managing mortgage payments, rent, energy bills and food costs, even relatively modest increases can add to financial pressure.
Critics could also argue that the proposal risks penalising consumers for choosing a convenient way to shop. Online purchases are not necessarily luxury spending. For people with mobility difficulties, limited transport options or demanding working hours, shopping from home can be a practical necessity.
The political question for Burnham is whether voters would regard the levy as a reasonable contribution towards supporting town centres or simply another tax imposed on ordinary spending.
Could the policy hurt the high street it is supposed to protect?
One of the most significant complications is that traditional retailers also depend heavily on online sales.
Major British chains, including John Lewis and Marks & Spencer, operate both physical shops and substantial online businesses. Their customers may browse in person before ordering online, or use websites to purchase products unavailable in their nearest store.
A broad online sales tax could therefore affect the very companies the government hopes to support.
If a retailer had to pay additional tax on its online transactions, it might face higher costs across a large part of its business. Whether that burden was offset by lower business rates would depend on the details of the scheme and the retailer’s eligibility for relief.
There is also a question about smaller businesses.
Independent retailers increasingly use online marketplaces and their own websites to reach customers beyond their immediate neighbourhoods. For some, e-commerce is not a threat to their business model but a vital route to survival.
Additional costs could make it harder for these businesses to compete with larger rivals that benefit from economies of scale.
A policy intended to rebalance competition could therefore create new disadvantages for certain retailers.
The government would need to decide precisely which transactions were covered, how marketplaces were treated and whether small businesses received exemptions or other protections. Each exception could make the system more complicated, while a simpler system might impose costs on businesses that ministers intended to help.
There is no guarantee that the tax would deliver the intended result without creating unintended consequences.
The danger of a temporary tax becoming permanent
Another concern is what might happen after the tax was introduced.
Governments regularly present new levies as targeted solutions to specific problems. Once established, however, a tax can become a recurring source of revenue that future Chancellors may be reluctant to abandon.
That does not mean the proposed online sales tax would inevitably rise above 2%. Any increase would require political decisions and would be subject to the relevant legal and parliamentary processes.
But critics are likely to ask whether the government would commit to keeping the rate unchanged, establishing clear exemptions or reviewing the policy after a defined period.
Without such safeguards, opponents could argue that a measure initially designed to support the high street might eventually become another way to raise money from consumers.
The question is particularly sensitive because online shopping has become an ordinary part of modern life. A tax linked to routine transactions could generate revenue across a wide range of purchases, making it attractive to a government seeking additional funds.
That potential revenue is precisely what makes the proposal appealing to supporters. It is also why critics may worry about the long-term direction of the policy.
Healey’s other tax options carry their own risks
The online sales tax is only one idea being discussed as the government considers how to finance its plans.
Other possibilities include increasing taxes on exceptional profits made by certain industries, introducing new property-related levies and raising capital gains tax. Each option would have different consequences for households, investors and businesses.
A higher windfall tax on banks or oil companies could be presented as a way to make profitable industries contribute more. However, businesses may respond to additional costs by changing investment decisions, reducing expenditure or passing some costs on to customers.
Property-related taxes could raise revenue, but their effects would depend on the properties covered, the thresholds used and the treatment of homeowners, landlords and investors.
Capital gains tax increases could affect people selling investments or other assets, potentially changing when they choose to sell and how they arrange their financial affairs.
There is no painless solution. Every tax carries trade-offs, and the amount of revenue ultimately collected may differ from the government’s original forecast.
Healey must also consider the wider economic environment. If a package of tax increases weakens consumer confidence or discourages investment, the government could face an uncomfortable contradiction: measures intended to improve the public finances might also weigh on economic activity.
That is why the Chancellor’s decisions will matter beyond the immediate Budget announcement.
A political gamble ahead of a possible election
The Budget is also taking place against a backdrop of political competition.
Burnham’s government will want to demonstrate that Labour can deliver improvements that voters can see and feel. Meanwhile, opposition parties will look for evidence that the government has failed to control spending, stimulate growth or protect household finances.
Reform UK has already warned of a potential £30 billion tax package, although that figure should be treated as a political warning rather than confirmation of what the Chancellor will announce.
The government must also navigate a divided political landscape in which different parties are competing to present themselves as the alternative to Labour. The Conservatives and Reform UK will be looking for opportunities to portray Labour as economically unreliable, while the Greens and other parties may challenge the government from a different direction.
The timing matters because a Budget that restores confidence could give Burnham room to pursue his wider political strategy. A Budget that generates widespread anger could make that strategy much harder to execute.
Speculation about an early general election may therefore intensify as October 28 approaches. But the Budget alone does not establish that a snap election will happen, and the date of any election would depend on political decisions and the relevant constitutional arrangements.
For now, the immediate test is whether the government can produce a credible financial plan without adding to the perception that taxpayers are being asked to shoulder an ever-growing burden.
The real test is whether the tax delivers results
There is a legitimate argument for helping Britain’s high streets. Local shops, pubs and hotels provide jobs, services and meeting places that contribute to the character of towns and cities. When businesses close, communities can lose more than convenient places to buy goods.
But the effectiveness of an online sales tax would depend on more than the amount of money it raised.
Ministers would need to demonstrate that the revenue genuinely supported struggling businesses, that any reductions in business rates were distributed fairly and that the policy did not impose disproportionate costs on smaller retailers or consumers.
They would also need to explain why a new levy was preferable to alternative ways of reforming business rates or supporting town centres.
If shoppers pay more but high streets continue to struggle, the policy could quickly become politically toxic. If the tax proves difficult to administer or produces less revenue than forecast, the government could face criticism from both consumers and the businesses it intended to help.
Ultimately, Burnham and Healey must decide whether the potential benefits justify the risks.
The proposed 2% online sales tax remains an idea being promoted in the Budget debate, not a confirmed charge on every purchase. Its final form, if adopted at all, would depend on the government’s decisions and the details of any legislation.
Yet the controversy highlights a wider problem for Labour. Ministers want to spend more on public priorities, reassure voters about the future and demonstrate that the government can deliver change. At the same time, they face limits on how much they can raise through taxation and borrowing.
That tension is unlikely to disappear with one Budget.
For consumers, the concern is straightforward: a purchase made with a few clicks could become another source of additional cost. For retailers, the question is whether the policy would create a fairer marketplace or simply add another layer of expense. And for Burnham, the political calculation is whether a tax intended to rescue the high street could instead damage confidence in his government.
A levy on online shopping might help raise billions for the Treasury. But if households come to see it as yet another charge on everyday life, the government could discover that even a relatively small tax carries a much larger political price.