Rachel Reeves has been slammed for creating a “barrier” between the public and the high street due to the “taxi tax.” Leading business groups are urging the Chancellor to rule out the levy, warning it will put thousands of drivers out of business and have a detrimental effect on the retail industry.

Ms Reeves is imposing a 20% VAT charge on all private hire vehicle journeys after a legal ruling. However, businesses claim it would greatly impact Britain’s high streets. The Federation of Small Businesses, Night Time Industries Association and British Independent Retailers Association have issued a joint letter to the Chancellor, outlining the negative impact her “taxi tax” will have on the economy.

The groups, who represent millions of companies, are concerned the levy would lead to journey fares rising “dramatically”, causing 25,000 drivers to quit the industry, according to the letter.

The letter to Ms Reeves read: “We cannot now afford a new tax on the customers we service, which the taxi tax would represent. The taxi tax will hit hard and be another barrier to people visiting high streets at a time when footfall is already low.”

“This would degrade local transport services and mean higher prices for passengers, with a knock-on impact on small businesses, retailers, restaurants, pubs and clubs,” the business groups added.

“This will in turn put jobs at risk, damage tax revenue and act as a drag anchor on consumer spending and economic growth. Our members cannot afford this and nor can the UK economy.”

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“Liebour always manages to give £200 with one hand and take £600 with the other whilst proclaiming we have more money in our pockets!!!” 16

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Ministers are consulting on the impact of two High Court judgments. A recent court ruling concluded that taxi companies, rather than the individual drivers, were liable for the contracts with passengers.

Historically, private hire operators were exempt from VAT because the drivers were classed as individual, self-employed contractors. However, a legal battle with Uber ruled that taxi firms, rather than drivers, held the contracts with passengers. This now results in the taxi company being liable for VAT.

The case is set to be escalated to the Supreme Court in July. HM Revenue & Customs has also launched a consultation.

The Treasury told The Times: “We are currently reviewing the feedback from our recent consultation and will publish our detailed response shortly. We are supporting drivers by freezing fuel duty — saving each driver £59 a year on average — and are putting more money in people’s pockets by boosting the minimum wage by up to £1,400 a year.

“We are also going further and faster to support high street retail and hospitality — through overhauling our planning system, extending business rates relief and cutting excess red tape.”