As the world locked down in 2020, a vibrant and innovative e-commerce sector provided a lifeline for consumers and businesses confined to their homes. This accelerated a trend a long time in the making. While consumer demand for shopping online has grown, a vibrant ecosystem of online retailers, logistics providers and value add services firms have emerged, including a flourishing e-commerce startup scene.
But this booming sector has been accompanied by growing concern about the future of the high street, creating an unhelpful zero-sum narrative: that e-commerce cannot continue to flourish alongside a vibrant high street. Against this backdrop the Government is current considering introducing an Online Sales Tax.
At Coadec, we are sceptical that this is the answer, and indeed are concerned about the consequences such a measure could have on the economy. To see if our concerns were justified, earlier in the year Coadec commissioned two polls seeking views on e-commerce, one of consumers, and one of businesses. You can find the results here.
They reinforce the critical role of e-commerce in the economy today. Importantly, they also show that an Online Sales Tax is unpopular among consumers outside of London. Businesses are more open to an Online Sales Tax but critically are divided on what counts as an “online sale” and would expect significant returns.
Other headline findings include:
- 71% of consumers polled bought something online during the last week and six in ten consumers would find it hard to find the products they need without online shopping.
- Online sales are an increasingly important part of business revenue. 58% of businesses who sell directly to customers estimate that more than half of their sales come from the online part of their business.
- Modelling estimates that helping more businesses move to online sales could help them increase their revenue by over £13 billion a year, generating at least an additional £1.2 billion in tax revenue for the Government.
- E-commerce was a lifeline to businesses and consumers during the pandemic: 60% of consumer respondents said that online shopping was a lifeline during the pandemic, while 73% of businesses that sell online said that e-commerce kept them afloat during lockdowns.
- There are more consumers against the concept of an Online Sales Tax than those in favour: 46% explicitly disapproved of the tax, while only 29% approved. There was particular opposition among older generations and those based outside of London.
While more businesses support an Online Sales Tax (44%) than oppose it (33%), it is very unclear what they think the tax should apply to. When asked to define what should be taxed, there was no majority for the tax applying for any of the described goods, including only 45% of those that supported the tax were in favour of a tax on a pair of shoes bought online, and only a third were in favour of the tax applying to a holiday booked online.
What is clear is that businesses would expect a significant return: 39% of businesses said that they would want a reduction in their Business Rates of between 6% and 10% for a new tax to be worthwhile. It’s not clear how such a return could be guaranteed without a sweeping OST which applies to more goods (but has less support from businesses).