West End businesses propose taxing online sales in business rates shake-up

The Heart of London Business Alliance (HOLBA), which represents leading businesses in London’s West End, is proposing a new business rates system that would see tax collected directly from online sales in addition to brick-and-mortar businesses.

The newly proposed ‘Combined Business Rate’ would introduce a new digital business rate element generating an estimated £6 billion from 2% of all online sales in the UK (with some exemptions), and the existing business rates charged on brick-and-mortar businesses would see a cut of up to 37%.

HOLBA has published new reports entitled ‘The Potential Impact on Businesses of the Government’s Business Rates Reform Proposals​’ and ‘Business Rates Reform – An Alternative’, with research undertaken by local government finance experts using official Government data.

The research demonstrates the impact of the Government’s current plans to reform business rates in London’s West End and the wider central London economy.

Announced in the 2024 Autumn Budget, the Government is currently legislating for business rates relief for retail, hospitality and leisure businesses with rateable property values of under £500,000 to be funded, from April 2026, by higher rates from businesses occupying properties with a rateable value of over £500,000.

However, with nearly 2,000 businesses in Westminster with a rateable value of over £500,000, the proposed changes would mean London property occupiers could see their business rate bills increase by up to 20%.

Ros Morgan, CEO of HOLBA, said: "The Government has not shared an assessment of the likely impact on businesses from their proposed policy which is why we commissioned our own research by local government finance experts. This led us to develop a very credible alternative on behalf of our members.

"If the Government proceeds with its proposed changes – the impact on operating costs for many of our member businesses in the West End will be truly shocking. The business rate system was implemented before the rise of the digital economy, and it needs to catch up.

"Successive governments have tried and failed to reform business rates, but we believe that our idea for a new Combined Business Rate would widen the tax base, create a more inclusive and equitable system, potentially produce more tax for the Exchequer and reduce the unfair burden on certain sectors of the economy.

"Many of our members who will be affected by the Government’s proposed tax rise are retail, hospitality and leisure businesses – the majority of whom are currently operating on wafer thin margins.

"The cumulative impact of these cost rises is already stifling investment, employment and growth which could be very damaging in the long term for our area of the West End that is worth over £10 billion annually to the UK’s economy.

"We urge the Government to drop their plans to reform business rates and consider our proposals instead."

John Dickie, CEO of BusinessLDN, added: "The Government’s commitment to transforming business rates, including to support the retail, leisure and hospitality sectors, is laudable. But these new findings demonstrate that the proposed reforms would lead to firms in the capital shouldering more than their fair share of the burden.

"The Government should now conduct a full impact assessment and reconsider its proposals to ensure they achieve their stated objective without placing a disproportionate burden on the London economy, which is vital for the UK’s growth."

The Heart of London Business Alliance was the first Business Improvement District (BID) established in central London.

The area consists of three subdistricts: Leicester Square and Piccadilly Circus, Piccadilly and Jermyn Street and St Martin’s Lane area. Collectively, those areas host some of London’s most iconic and popular tourist and cultural attractions.

Since its establishment, HOLBA has invested a total of £35 million of the BID’s levy directly into the area to address the shared priorities of its 700 members.

During the pandemic, it also helped secure a £1.57 billion support package for the art and culture sector and successfully campaigned for business rates relief helping to save West End businesses over £1 billion.