Memorandum by Association of Convenience
Stores (LGB 23)
The Association of Convenience Stores (ACS)
welcomes this opportunity to submit written evidence to the Transport,
Local Government and the Regions Select Committee in respect of
its inquiry into the Draft Local Government Bill. ACS has contributed
submissions to both the Green paper and the White paper on Modernising
Local Government Finance and we have therefore made our views
known to Government as the proposals have developed. The draft
Bill covers a broad range of issues, many of which are of only
tangential concern to our members. This submission therefore focuses
on those areas which will have a direct impact on our members—Part
Four, dealing with Business Improvement Districts, and Part Five,
concerned with non-domestic rating.
THE SECTOR
ACS is the trade body representing the interests
of over 25,000 neighbourhood stores operating in rural, suburban
and neighbourhood areas. Members include familiar names such as
Spar, Londis and Europa as well as independent stores operating
under their own fascia.
Trading seven days a week, typically from 6am
to 11pm, and increasingly over 24 hours, ACS member businesses
are characterised by the convenience they offer in terms of location,
range of goods, opening hours and service. There is a strong community
element to the service provided: the majority of customers live
within walking distance of the shop and the sector provides a
key source of local, family friendly employment.
The convenience store sector is vibrant, with
over 10 million customers using these stores every day for grocery
shopping. A recent report by Mintel noted that small stores are
managing to thrive in the face of competition from larger stores
by broadening the range of services beyond grocery provision.
ACS believes convenience stores are developing as a complementary
service to supermarkets and are meeting the demands of consumers
for easy access to a wide range of products and services in their
local communities.
Despite this high demand, convenience stores
do not return profits comparable to their larger counterparts
in the retail industry. Whereas a supermarket may make net profits
of 5 to 7 per cent, convenience stores make 1 to 2 per cent net
profit. This means that even a successful convenience store with
a turnover of £600,000 is unlikely to make profits in excess
of £12,000 per year. One reason for this is that the costs
of regulation bear disproportionately on smaller outlets.
The Better Regulation Task Force recently undertook
a review of the impact of regulations on small stores which noted
the disproportionate effects of legislation on small shops. The
Task Force report notes that small shops offer not only economic
and employment benefits, but a social "value added"
to poorer and isolated locations. ACS agrees with this assessment—many
stores provide a wide range of services, not only selling top
up or emergency items such as bread, milk and snacks, but also
sub-post office facilities, National Lottery terminals, mobile
phone and utility top ups and increasingly internet collection
points. They are crucial to the maintenance of access to local,
neighbourhood retail services, particularly in those areas not
well served by other larger retailers, and for those without a
car such as the elderly.
In addition to complying with regulations, the
rating system also contributes to the pressure on the sector and
has a disproportionate impact on small stores. The system by which
rates are calculated is complex, but often means that smaller
stores pay a higher price per square foot than a superstore, which
will generally recoup a far higher profit from that square footage.
Research published by the Government demonstrated that businesses
rates comprise 30 per cent of profits for businesses with a turnover
of less than £100,000. This is more than twice that of our
larger competitors. In last year's Better Regulation Taskforce
report it recommended that the Government undertake an urgent
review of the manner in which the non-domestic rating system impacts
on the small retail sector. The Government have thus far refused
to take such a step despite strong independent advice. ACS believes
that the Government should take forward the BRTF recommendation
for a fundamental review of the system. However we accept that
this Bill seeks to make improvements and welcome this aim. Below
are some comments on the specific proposals in the Bill which
will affect our members.
BUSINESS IMPROVEMENT
DISTRICTS
The draft Bill proposes legislation to allow
for the establishment of Business Improvement Districts (BIDs).
The Bill would establish a framework for the operation of BIDs
leaving the detail of how BIDs should operate to guidance drawn
up by business in partnership with Government. The process of
producing this guidance has already begun and ACS sits on the
working group carrying out this task.
ACS supports the principle that local communities
should have more say and control over addressing the problems
facing them. We support the idea of Business Improvement Districts
as a more flexible way of equipping local communities with the
tools to improve the local area. Our members often operate in
more deprived areas where crime and disorder are prevalent—indeed
retail crime is one of the greatest problems facing the sector.
We therefore support initiatives that seek to address such problems.
In addition, the BIDs proposal represents an improvement on the
previously proposed model of Supplementary Business Rates. However,
despite this, ACS has a number of concerns about how BIDs will
operate in practice.
The Draft Bill sets no upper limit on the contribution
that a business located within a BID may be required to contribute.
ACS recognises that major projects may require significant financial
resources to which local businesses may agree to contribute. However,
there remains the possibility, under the voting arrangements that
a group of businesses, commanding a slight voting majority, would
be able to compel participation from other businesses within the
zone. We accept BIDs would be ineffective if a unanimous vote
were required in the setting of a levy and determining for what
matter it was set. However, it is vital that in setting rules
for the arrangement of BIDs appropriate and effective protection
for small business is retained. We therefore believe that a maximum
percentile contribution should be set, beyond which no business
may be compelled to contribute. We also call for an effective
appeals mechanism, whereby compelled businesses may appeal against
either the size of the levy, or the purpose to which it is spent.
The Draft Bill provides scope for the Secretary
of State to make regulations as to the form ballots may take and
who is entitled to take part in a ballot. Members have expressed
concern that these regulations provide clear rights in respect
of taking full part in a BID established within their locality.
There are also concerns as to the boundary setting of BIDs and
the ability of a central voting block to compel organisations
in secondary areas to contribute to a BID levy, where they will
not accrue benefits from the operation of that BID.
The Draft Bill, and discussions which we have
had with officials, implies that BIDs will most often be targeted
at town centres. It seems apparent that those areas with an existing
Town Centre Manager or discussion forum would be best able to
form a BID. Our members are often located outside of these areas,
often in a small parade of shops with only one or two other businesses,
or even on stand alone sites.
ACS would therefore like to see clarification
that Business Improvement Districts are established with clearly
defined operational boundaries. As presently drafted it appears
that a central voting majority could cast the net of the BID across
a wide area, retaining voting power in the centre, whilst commanding
a levy from outlying non-domestic rate payers. These outlying
businesses would then see minimal benefit from the centrally determined
spending programme. We are concerned that members are not coerced
into BIDs that will deliver no tangible benefit to the locality
in which they are located and believe all businesses should implicitly
derive benefit from the BID arrangement.
We are also concerned that a full audit of external
impact of the BID proposal is factored into consideration of the
arrangement. Thought must also be given to the subsequent use
of a veto. Our experience suggests that those areas which solve
problems may in fact just displace them to other locations. For
example, Crime Reduction Partnerships have been successful in
tackling issues in many town centres, but the effect of this has
been to displace criminal behaviour into secondary areas. Our
members are concerned that this may occur as BIDs become established
and would like to see local councils have a responsibility to
address any knock-on effects of the establishment of a BID.
If secondary areas were to be expected to form
their own BIDs, they would be less able to do so as the set up
and administration costs of running the BID would be spread among
fewer businesses. Small clusters of businesses are as likely to
suffer from the problems that afflict town centres, such as crime,
and are keen to take advantage of appropriate proposals. Failure
to adequately address the needs of secondary areas could disadvantage
businesses in these areas and exacerbate concerns over the status
of some of these areas as shopping deserts breeding social exclusion.
Our members are also concerned about which activity
can be covered by BIDs, and which work they should expect to be
carried out by local authorities or other public bodies as part
of their statutory duties. Attempts to seek clarification on this
have returned only examples of what work a BID might carry out,
rather than guidelines to what may and may not be attempted. We
are concerned that local authorities do not use the opportunity
afforded by BID proposals to substitute business funding for initiatives
which should more correctly be funded through general local authority
spending. BIDs should provide additional funding for clearly stated
initiatives. These should have performance audits factored in.
These independent audits should have the power to recommend the
closure of a BID programme where they are found to be failing.
A mechanism must also be in place to ensure regular local authority
funding is not simply displaced. ACS would appreciate the Committee
fully investigating the measures which the Government intends
to put in place to guard against such an eventuality.
Finally, we believe there should be the option
available for property owners to be involved in the BID as they
will potentially benefit from the improvements to the local area
that the BID may create.
NON-DOMESTIC
RATES
This Bill introduces a small business rate relief
scheme whereby the rate bills of small businesses will be reduced
funded by a supplement on the bills of other ratepayers. The exact
reduction will be calculated via the application of the small
business non-domestic rating multiplier to the rateable value.
ACS is concerned that the Government do not
have an appropriate understanding of what makes a viable convenience
store, and therefore which should qualify for rate relief. Mandatory
rate relief will be available at 50 per cent for properties up
to a rateable value of £3,000 and will then decline on a
sliding scale as rateable value increases reaching no relief at
£8,000 rateable value. These values would not provide any
relief to a viable store. The Government have been keen to state
that rate relief should be accorded to those firms that are suffering
temporary difficulty, not as a subsidy to keep open a failing
enterprise.
We support the idea of a sliding scale to target
the relief but believe the scale should extend to significantly
higher rateable values. The average rateable value for a convenience
store is between £10,000-£15,000. For a small store,
a turnover of £4,000 per week is the minimum to make a store
viable, and the proposed threshold suggests a weekly turnover
of less than £1,346. A store that has this low level of turnover
has little chance of long-term survival even if it received rate
relief. The suggestion that rate relief for rural food shops and
small businesses be restricted to those with a rateable value
of £3,000 would result in only a very narrow band of small
businesses qualifying. A rateable value of £3,000 would mean
that a store would not be able to survive.
The Government have stated that the proposed
system of rate relief will not decrease the total raised from
the scheme for local authorities. The rate relief will be offset
by an increase in the non-domestic rates of larger businesses.
It is possible therefore that the small business relief as defined
in the Bill could in fact reduce the viability of small stores
in the retail sector.
In addition, specific rateable values can be
distorted by the location of the business and do not take account
of the particular nature of the business or its needs. Small stores
are disproportionately affected by the way in which rates are
assessed. High street rents and rateable values are increased
by the pressure of higher margin outlets moving into these locations
and pushing the rents and the rateable values up. Similarly, Local
Authorities are often landlords with the ability to determine
rents and rateable values which can also lead to increases.
Our members operate on very tight net profit
margins and within an extremely competitive market. Whilst we
accept that the policy is designed to target assistance at those
businesses facing the greatest burdens, we nevertheless believe
that the proposed thresholds for rateable value should be dramatically
increased so that the sliding scale rises to £15,000 rateable
value.
ACS also disagrees with the proposed requirement
for the business to declare that it only occupies one property
to qualify for the relief. Under the rural rate relief scheme
specific restrictions on ownership and size of the business were
disregarded as inappropriate. We believe that they are also inappropriate
in relation to the small business rate relief scheme. Convenience
stores operate as autonomous units in terms of their business
operations. Moreover they provide important services in their
locality and should be supported in this. We therefore believe
that it should be possible for a retailer to claim for one particular
small store, if it meets the criteria, even if they own others.
CONCLUSION
ACS is supportive of the Government's attempts
to bring reform to the system of local taxation. We recognise
that many local authorities are facing serious problems in terms
of service funding and support the democratic principle of allowing
communities more control of local issues. However we are concerned
about how Business Improvement Districts will work in practice
and we are keen that small neighbourhood retailers have the opportunity
to influence the process. We are also keen to ensure that BIDs
do not result in small retailers operating in secondary areas
and paying more on their rates bill without gaining the benefits
of additional services.
We support the principle of amending the system
of rate relief to target assistance to certain types of business.
Convenience stores play a vital role in local communities and
our members would very much welcome assistance in the form of
rate relief. However we believe that under the current proposals
the thresholds for rateable values are too low and will have little
or no benefit for small stores. We therefore recommend that the
thresholds are raised to ensure that assistance does reach those
businesses that provide a valuable service in local communities
and we are keen to work with the Committee to help the Government
achieve this aim.
| 
