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The Treasury is expected to close a tax loophole that retailers have argued gives online giants such as Shein an unfair advantage over high street chains, as chancellor Rachel Reeves looks to shore up the public finances.
Currently overseas retailers are allowed to send small packages worth less than £135 to the UK without being charged import duties, a loophole that industry experts claim costs the exchequer up to £600mn a year.
One government official said closing the loophole was “nailed on” for Reeves’ Budget on November 26, while another said: “You can expect to see some movement on this.”
Large retailers including Next, Sainsbury’s, Primark, Superdry and Currys have publicly urged the government to overhaul the treatment, saying it allows international companies to undercut them on price when they have to pay import taxes to bring goods into the country for domestic customers. The average rate of import duty for clothing is 12 per cent.
Their argument has grown louder as the growth of Chinese retailers Shein and Temu has exploded. They now generate billions of revenue and dwarf British online rivals such as Asos and Boohoo.
The value of small packages rose by 53 per cent to £5.9 billion last year compared with £3.9 billion a year ago, according to a pre-Budget submission made by the British Retail Consortium. The BRC has said the government is losing revenue while retailers are in an unfair competition.
Industry experts have said that the Treasury could recoup an extra £400mn to £600mn by closing the loophole.
Alex Baldock, the boss of electricals retailer Currys has said that “if you want to sell to UK consumers, then abide by UK standards, and pay UK tax just as UK retailers do”.
In April, Reeves signalled she would follow the US by reviewing the custom treatment of low value imports and is now said by government officials to have been swayed to close the loophole, partly because there is a precedent in the US and Europe.
“Seeing as it has already happened in the US and Europe, the world is now coming to its senses”, one person familiar with the situation said.
Three people familiar with the situation said that the debate around the issue had been eased since Shein had dropped its plans for a London stock exchange listing.
The Chancellor had been keen to secure the £50bn fast fashion flotation as a boost for the City, despite concerns about its import duties and a lack of transparency around the retailer’s Chinese supply chain.
However, this year Shein switched plans from a London listing to a Hong Kong IPO after facing resistance from Chinese authorities who are critical to its ability to continue to use the 5,000 factories in Guangzhou that manufacture its cheap fashions.
Shein and other Asian retailers’ use of small parcels has already drawn attention in the US with President Donald Trump in August scrapping the “de minimis” rule, which meant that goods worth less than $800 were no longer exempt. The move was also partly driven by Trump’s aim to stop the shipment of illegal substances into the US via the postal system.
Since then, the volume of parcels coming to the UK from China has sharply jumped, raising fears that Britain will become a dumping ground for cheap goods that had been destined for the US.
There have been fears from some smaller businesses that closing the loophole will mean higher prices for consumers.
The Treasury said: “The chancellor is reviewing the customs treatment of low value imports after listening to concerns from some of Britain’s best-known retailers that it leaves them at a disadvantage compared to overseas competitors. That review is ongoing and will report in due course.
“We are a pro-business government that is backing Britain’s high-streets by protecting and extending business rates relief that would have ended without our action, permanently lowering rates for retailers from next year, and capping corporation tax at the lowest level in the G7 to encourage investment and growth.”
