Britain's High Streets are Dying

News at John Hoole | 04/01/2023

Has the Government given up trying to save the high street? Ten years ago, it was one of the Coalition’s big ideas, combining what they thought was community populism with economic pragmatism. At the time, the online trade was only just beginning to make its presence fully felt and seemed less of an obstacle to the survival of physical shops than it does now, especially post-lockdown.

Mary Portas, the retail consultant, carried out an inquiry that found the shops and small businesses which provided the vibrant heart of any town were struggling. “Unless urgent action is taken much of Britain will lose, irretrievably, something that is fundamental to our society,” she concluded. In response, the then government announced dedicated “town teams” to manage high streets and a £10 million innovation fund “to bring life back to empty shops.” Yet the decline continues and is reaching crisis proportions.

Last year, 50 shops a day closed down as retailers grappled with soaring energy costs, wider inflation and online shopping. Figures from the Centre for Retail Research showed that more than 17,000 sites across the UK shut their doors for the last time – almost 50 per cent higher than in 2021. Moreover, most of these were not businesses going bust. Just 32 per cent of the closures followed insolvency proceedings. The rest were larger retailers deciding to close some stores to cut costs or independents throwing in the towel, unable to compete with online sales.

One idea to create a level playing field between internet-based and high street retailers was an online sales tax (OST) on e-commerce goods and services. When he was chancellor, Rishi Sunak launched a consultation exercise with the aim of using the money raised to subsidise business rate cuts on the high street. Three models were reviewed: a turnover tax on e-commerce; a flat-rate levy per transaction; and a delivery surcharge of the sort that operates in other countries. In France, it is set at 0.42 per cent for platforms controlling deliveries and ride sharing services.

A two per cent online sales tax in the UK would raise about £4 billion but this is dwarfed by the £25 billion raised annually by business rates. Nonetheless it would make a contribution and the revenues could be targeted to the hardest hit areas.

Or, rather, they could be if the idea had not been quietly abandoned in the Autumn Statement in November. This was not actually mentioned by Jeremy Hunt, the Chancellor, in his speech to the Commons but unearthed from the documents accompanying his statement.

“The Government’s decision reflects concerns raised about an OST’s complexity and the risk of creating unintended distortion or unfair outcomes between different business models,” it said. But the point about this exercise was that online traders do not have to pay the business rates that are crippling high street shops and businesses.

The Tories have promised reform of business rates many times only to tinker at the edges. Rishi Sunak’s modernisation plan in 2021 amounted to more regular revaluations to make the rates “fairer and timelier for two million business properties”.

The first of those revaluations will be this spring to “reflect market values”. Hunt did announce transitional relief which, he said, meant two thirds of properties will not pay a penny more and thousands of pubs, restaurants and small high street shops will benefit. But clearly many will lose out at a time when customers are thinner on the ground and have less to spend. Big department stores will soon be a thing of the past – 80 per cent have closed in the past five years.

Furthermore, seemingly unconnected decisions such as increasing the living wage hit the hospitality and retail sectors hard because they employ so many people. There are a lot more problems they have to face. They include high energy costs, parking charges, congestion and emission zones putting off customers, burgeoning rents, anti-commerce local councils and, now, rail strikes stopping people coming into bigger towns and cities.

But business rates remain the biggest bugbear and need to be replaced with a more flexible system, something the Treasury is reluctant to countenance because they raise so much money.

The Retail Jobs Alliance, which represents firms that together employ over 1 million staff, argues that there is an “urgent” need to freeze rates, followed by “proper reform”. The CBI says business rates “stifle investment in the facilities and innovations needed for sustainable growth and exacerbate regional inequality.”

However, perhaps we should not be trying to save businesses from cultural and economic changes at all. Online sales are here to stay and deliveries will grow. Big stores closing down are arguably the victims of retail Darwinism while small businesses catering for a more discerning customer still perform well.

Towns left with empty properties or a string of charity shops are depressing places, but the answer may not be to try to resuscitate the past but convert them into something new, such as the homes that are needed in abundance. A paper from the Social Market Foundation a few years ago argued that a major programme of converting retail units for residential use could allow the creation of 800,000 new homes.

The fact is that the lockdowns and their aftermath have changed the way many people live and there is no sign that things will return to where they were any time soon. But while this has hit city centre trade particularly badly, it may have boosted local commerce elsewhere since more people now work from home instead of going into the office and are more likely to shop in their own towns.

The problems that the Portas report identified have not gone away, but part of the solution is to revive other aspects of the urban landscape, not just shops and restaurants. Business rates certainly need a complete overhaul, with places hardest hit by decline able to offer special tax incentives for new companies moving in. It will need innovative thinking and gumption, which are in short supply nowadays. But, let’s face it, we would all help if we supported our local shops instead of ordering so much online.

John Hoole Estate Agents in Brighton and Hove - Source: The Telegraph - 04 January 2023
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