Major retailers have welcomed the government’s review of a rule that allows small parcels to enter the UK duty-free, saying it gives overseas firms such as Shein and Temu an unfair advantage over British businesses.

Former Dragon’s Den star Theo Paphitis, whose retail group includes the Ryman and Robert Dyas chains, told the BBC the measure was ruining UK High Streets.

The rule allows international retailers to send packages to the UK worth less than £135 without incurring import taxes.

But the Federation of Small Businesses (FSB) said scrapping the exemption, which many small businesses also use, could raise costs for them and their customers.

Speaking to the BBC’s Today programme, Mr Paphitis said retailers had been lobbying government “for a very, very long time”, arguing the rule had had devasting impact “on our retail landscape and our high streets”.

He joined the bosses of Sainsbury’s, Currys and the British Retail Consortium in welcoming the government’s consultation on the rule.

Chancellor Rachel Reeves announced on Wednesday that the government planned to review the customs treatment of low-value products entering the UK, after retailers complained they were being undercut by overseas rivals.

UK businesses bringing in larger shipments have to pay taxes, and they also argue that cheaper goods might fail to meet the same environmental and ethical standards that they keep to.

The so called “de mimimis” rule has received renewed interest after US president Donald Trump scrapped a similar measure in America amid his escalating trade war with China.

Goods worth less than $800 into the US will soon be subject to charges, where they were previously exempt. The move has already prompted Chinese retailers to raise their prices.

In the UK, there are further concerns that China will dump goods here to avoid the tariffs which Trump has imposed on Chinese goods.

Earlier this month, the boss of Currys told the Financial Times that the “single biggest area where lots of stock is likely to land in the UK… is from the likes of Shein, Temu, Alibaba, TikTok shop and, most of all, Amazon marketplace”.

In response to the government’s review, the chair of the Federation of Small Businesses, Tina McKenzie, said: “It’s right to be concerned about potential future dumping of goods, as escalating tariffs applied by bigger global blocs against each other may mean a surge in goods arriving in markets like our own.

But she added that the government should proceed with caution in its de minimis consultation.

“With 16% of goods moved by small firms sitting below the £135 threshold, a decision to scrap it impacts on trading and inflation,” she said.

Measures such as de mimimis were good for small and medium businesses, she added, and scrapping it might “ultimately lead to higher prices for consumers.”

But Mr Paphitis told the BBC it was “absolute nonsense” that the measure keeps inflation and prices down, as it led to a loss of jobs and tax revenue for the UK, as businesses lost out from trying to compete with cheaper foreign rivals.

Helen Dickinson, the chief executive of the British Retail Consortium, welcomed the government consultation and said it showed Reeves was listening to retailers.

“A review of this policy, which was designed to reduce the burden on low volume, low value imports, was already needed.

“With retailers seeing a rise in the number of potentially non-compliant products entering the UK market, it’s even more critical now,” she said.

When Sainsbury’s announced their latest financial results earlier this month, boss Simon Roberts called on the government to act as soon as possible.

“Everyone should pay their tax… so if there’s a loophole here which means that’s not happening then that needs to be closed so it’s a level playing field for everybody” he said.