Only radical overhaul will save high street, MPs claim

MPs have called for business rates to be abolished and a new tax set up for retailers that would help level the playing field against online businesses, in a radical plan to save the UK high street.

The High Streets and Town Centres report, published this morning by the Housing, Communities and Local Government Committee, warned that retail on the  high street retail has reached a ‘tipping point’ and unless urgent action is taken, further deterioration, loss of visitors and dereliction may lead to some high streets and town centres “disappearing altogether”.

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Currently, the retail sector accounts for 5% of Gross Domestic Product (GDP) and pays 25% of business rates, with the hospitality sector contributing 10% of the total business rates bill while representing 3% of economic activity, while pubs account for 0.5% of total rateable turnover yet paid 2.8% of total business rates. This system, it said, was unfair.

In last year’s budget, the Chancellor announced he would cut business rates by a third for up to 90% of retail properties for the next two years, and proposed a consultation proposing reforms to high street planning, as well as the Future High Streets Fund and Future High Streets Task Force – but the new report said this did not go far enough.

It suggested introducing an online sales tax, the receipts of which would offset business rates bills, a business rate ‘holiday’ from rate increases for high street retailers who have invested in and improved their property, and a reduction in business rates for retailers in high streets and town centres, which would help balance competition from out-of-town shopping centres, and a ‘green tax’ on packaging.

However, it said there were simply too much space devoted to retail on the high street to be sustained in future – footfall on the high street fell 8.1% in the first nine months of 2018 alone, the report said, while nearly 700 pubs (692) closed in the first sixth months of the year. A more proactive and coordinated measures also needed to be taken to future-proof the high street and shift the focus from the current retail-centric model, to one centred around the community, with more leisure, health and education facilities. 

Reaction

The British Beer & Pub Association (BBPA), who gave evidence to the committee welcomed some of the suggestions, with chief executive Brigid Simmonds noting that the current business rates system “penalized” pubs and other businesses for investing in their property, as improvements invariably lead to rates rises.

“The Committee’s recommendation of exploring the introduction of a 12 month ‘holiday’ on these rates increases is most welcome. This would be a positive step forward in regenerating high streets and town centres across the UK if implemented,” she said.

However she questioned whether replacing business rates for bricks and mortar businesses with a new sales tax or VAT increase would be effective or fair.

“A replacement of business rates would need to address the fact that pubs and high street businesses are unfairly taxed, whilst online retailers are not contributing enough. As the report notes, pubs alone pay 2.8% of the total business rates bill, despite accounting for just 0.5% of total rateable turnover”

UKHospitality, the new trade body for the hospitality sector following the merger of the Association of Licensed Multiple Retailers (ALMR) and the British Hospitality Association (BHA), applauded the “radical” overhaul of the rates system, claiming property tax was the “chief cause” of the decline of the high street.

“In the absence of the Government’s promised full of review of business rates, this represents the most radical assessment of the state of the rates regime. This is a great starting point for opening up the conversation and beginning to address an issue that has crippled many high street businesses, not least in hospitality,” UKHospitality chief executive Kate Nicholls said.

“Supplementing rates with an online sales tax, something UKHospitality has pushed for, would provide a significant boost and the Government needs to consider this in the design of the Digital Services Tax. That tax will need to cover areas such as financial and professional services that have moved away from the high street in recent years. A new sales tax or increase in VAT for retail and hospitality would need to be pitched significantly lower than the current business rates charge to be helpful.”

“Policies to drive growth and regenerate high streets must have hospitality at their core and this needs to be recognised by the Government and local authorities,” she added.