Plans to examine an online sales tax to help struggling High Street retailers have been reportedly been ruled out by the Treasury.

In a letter to Nicky Morgan, chairwoman of the Treasury Select Committee, and Clive Betts, chairman of the Communities and Local Government Committee, seen by the Times newspaper, Mel Stride, the financial secretary to the Treasury, warned there was a “high risk” that any tax on e-commerce sales would fall foul of EU rules on state aid.

Last year Philip Hammond, the Chancellor of the Exchequer outlined plans for a new "digital sales tax" on the revenues of global technology giants such as search engine Google, but said a tax on online goods sales would be counterproductive as retailers would simply pass the cost onto consumers.

The Treasury has come under pressure to levy additional taxation on e-commerce giants such as Amazon to level the playing field for bricks and mortar retailers after a number of high profile figures, including Sports Direct owner Mike Ashley, warned of the demise of the High Street if the government does not take action.

The letter reportedly highlights the fact that under the draft withdrawal agreement with the EU, the UK would commit to “dynamic alignment” with the bloc on state-aid rules after Brexit, scheduled for 29 March.

Under EU rules it is illegal for member countries’ governments to give financial help to some companies and not others in a way which would distort fair competition.

The letter said: “Tax proposals have been judged to constitute state aid in the past . . . This [online sales tax] could distort competition,” and added: “The government considers there a high risk that such a tax would be found to be state aid.”

In an appearance before the Housing, Communities and Local Government Committee last month, Ashley called for a levy of 20 per cent of online sales on retailers who generate more than 20 per cent of their overall turnover online.

Calling the death of the High Street a “cataclysmic” event, Ashley - who last year bought House of Fraser and Evans Cycles out of administration - said the revenue raised from such a tax could be channelled to local authorities to fund cuts to business rates and upgrades to High Streets stores.

Dave Lewis, chief executive of Tesco, has also called for a tax of two per cent of online sales as way of redressing the balance in favour of physical stores, which have seen tens of thousands of closures in the past 12 months.

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