Select Committee on Transport, Local Government and the Regions Memoranda

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.


  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.


  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.


  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.


  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.

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