Barely a day goes by without another news story about a high street name in trouble. There’s no doubt that the Great British High Street is undergoing a tumultuous period. But there’s still a lot of debate about what precisely underlying cause of these issues are. Much has been made of the rise of the online behemoths causing the death of traditional players which still rely on physical store portfolios, but for the most part the blame should be placed at the door of a much older institution – business rates.
A policy past its expiration date
Rates themselves are an old form of property tax introduced over 400 years ago in England to fund local services. Our current business rates regime marks its thirtieth birthday next year, having first been introduced in 1990. Currently, each local authority is required to identify relevant non-domestic property in their area and subsequently assign a rateable value based on a rental valuation of the property. Therefore, where a property is located is the key determiner to its rates valuation.
This last reiteration of this regime worked well when first introduced. During the nineties and early noughties the British high street was booming. Retailers were expanding rapidly and shopping at large out-of-town retail parks and centres was ordre du jour.
But fast forward 15 years and the retail landscape has been totally transformed. The technical revolution has swept across our lives. In 1990, nobody could have predicted the sheer transformative impact the internet would have on the way people shop.
Retailers haven’t only had to navigate running their businesses both on- and off-line, but they have had to continuously adapt to every aspect of their businesses in order to meet consumer expectations. Not only must they provide fast and functional websites, retail stores are now increasingly expected to be ‘experiences’ – providing something more than just the goods and checkouts.
The rise of CVAs
The Centre for Retail Research found that in 2018, 43 retailers failed. Compare this to 2019, and already 24 companies have failed and many other high street names have sought CVAs to keep themselves afloat. CVAs are a legally binding agreement with a company’s creditors, allowing a proportion of its debts to be paid over time. Though a temporary fix there is no guarantee that even this can save a business.
Of course, there are a variety of reasons behind these closures and CVAs. But there is one common thing cited by each and every one of these companies: the crippling burden of business rates which have risen by a staggering 45% since they were introduced. Successive governments are aware of this problem and have been called on to carry out a root and branch review of this regime which is almost universally accepted as no longer fit for purpose.
Is an e-tailer tax the solution?
Much has been said about an online tax as a mechanism to create a level retail playing field by taxing e-tailers which are not captured to the same extent under the current property-based business rates system. That this can seriously be considered a solution is quite simply astounding. A tax on e-tailers will not address the problems of bricks and mortar retailers. All it will do is take the problem caused by business rates and share the pain across more businesses. In this case, a problem shared is not a problem halved.
And let’s not forget that online retailers have their own set of problems to navigate. Many of the biggest e-tailers are battling the problems associated with serial returners – Asos was the first big name brand to change its policy on returns this year, but the suspicion is it will be the first of many.
But putting these issues to one side, let’s consider what an e-tailer tax would achieve. A purportedly level playing field? Perhaps. Or a level playing field where all the players have their hands tied behind their backs? Most definitely. Is this really the government’s way to make Britain Great again? The field may be level but what use is that when the players are incapable of scoring goals?
A complex solution
Retailers are the backbone of the British economy and it’s of utmost importance that we create an environment to help them to flourish. If retailers continue disappearing at the current rate, there would be an immense knock-on effect on the economy, workforce and general desirability of the UK as a whole. And of equal importance, local authorities need to have a more effective way of funding their local services. After all, a lot of empty shop fronts aren’t going to do an ounce of good for anyone.
Of course, balancing the needs of retailers and local authorities is no easy task. There is no simple or quick fix for this complex issue. What is required is a holistic review of the entire tax system. A system based on structures and ideas first implemented four centuries ago does everyone – retailers, local government and consumers alike – a disservice. If a promising future is to be achieved, a policy of the past can no longer suffice.
Hilary Ross, head of retail, food and hospitality at DWF