Conclusions and recommendations
In the report conclusions are shown in bold,
recommendations are shown in bold italics. In this
list, recommendations are shown in italics.
Portas Pilots
1. The Government
allocated £2.3 million to fund the Portas Pilots, yet has
not been able to provide evidence of how or indeed whether that
money has been spent by local authorities. In its response to
this Report, the Government should include how much of that money
has been spent, as was promised to us by the DCLG Minister in
October 2013. There is no readily-available data on the allocation
of the funds, and, as far as we are aware, no organisation is
auditing the funds. While we appreciate the fact that the Department
for Communities and Local Government is responsible for this funding,
the Department for Business, Innovation and Skills has the policy
lead for retail and must ensure that data is made available on
whether and how the Portas Pilot funding has been spent. These
are public funds and, therefore, the use of this money needs to
be assessed for value for money, and effectiveness. Together,
the BIS and CLG Departments must decide how this assessment is
carried out. (Paragraph 14)
BIS Retail strategy
2. We recognise the
good intentions behind the Portas Review and the brief Government
retail strategies of 2012 and 2013, and the documents have resulted
in useful national discussions about the retail sector and, specifically,
the demise or otherwise of the High Street. However, the Portas
Review stressed the need for a review of Business Rates, while
the Government strategies mentioned Business Rates only in passing.
Furthermore, the strategies demonstrate a deliberate 'hands-off'
approach to many of the issues facing the retail sector, and instead
encourage local communities, including local authorities, businesses
and organisations, to boost their own local areas. However, this
encouragement comes without any meaningful finance or any coherent
and effective plan. (Paragraph 21)
3. We are not convinced
that the success of the Retail Sector should be given as a reason
for it not needing an industrial strategy. As with other sectors
where Industrial Strategies are proposed to build on areas of
strength, there is an opportunity to use policy to support even
greater success in the future. The Government should include the
retail sector in its Industrial Strategy programme, and we recommend
that the Government rectifies this omission at the earliest opportunity.
(Paragraph 24)
The High Street
4. With the dramatic
rise in internet shopping, retail businesses are no longer locked
into one way of working, and likewise, the High Street is no longer
just about retail; it is also about creating a leisure experience,
including opportunities for visiting cinemas, restaurants etc.
However, for community hubs to survive and flourish, the High
Street needs support from the Government. We do not recommend
that the Government spends huge sums propping up an outmoded way
of retailing. However, we support calls for Government to help
shops to remain on the High Street, and for new, independent shops
to be able to open on the High Street, by reviewing the burden
of Business Rates, which are still based on an outmoded pattern
of retail. (Paragraph 34)
5. The United States
has a different tax structure, but lessons could be learned from
its approach to local taxation and rent. We appreciate that this
is complex, but it is something that the Government should explore
as an alternative to the current system. The Government should
look into encouraging a more flexible approach from landlords,
and discouraging upward-only rent revisions. This would will result
in a fairer and more sustainable system.
(Paragraph 35)
Local Enterprise Partnerships (LEPs)
6. The Government
has placed the 39 Local Enterprise Partnerships (LEPs) at the
forefront of supporting the local retail sector, yet many of them
lack the necessary resources and influence to succeed. The Secretary
of State for the BIS Department acknowledged this to us in evidence.
The Government should call on LEPs to develop a strategy for
retail, in order to demonstrate their commitment to the Retail
Sector. (Paragraph 41)
7. Given the substantial
contribution of retail to employment, we recommend that all LEPs
consider appointing a retail representative on their board. For
independent traders, this may not be feasible. However, national
retail businesses should do more to encourage their local or regional
management to participate in LEPs. (Paragraph
42)
General Skills
8. We recognise
the important work that employers, unions, and the Government
do in supporting people already in the workforce to continue to
work and develop their skills. We were therefore disappointed
that the Department did not highlight this work in its Retail
Strategy. We recommend that the Department commits to continued
financial support for the Union Learning Fund, which enables unions
and employers to work together, providing employee training and
support. LEPs could provide valuable assistance in this work.
(Paragraph 47)
Apprenticeships
9. Apprenticeships
are being used more frequently in the Retail Sector. They allow
retail staff, who often leave school with few qualifications,
to gain transferable, interpersonal skills. However, retailing
is becoming a much more sophisticated industry, and those who
work in the sector need to be more comprehensively trained. We
support the work that employers do in training their workforce.
The retail sector should be more ambitious about skills training,
encouraging more staff to be trained at Level 3 and above. Furthermore,
given the importance of tourism to the United Kingdom, consideration
0should be given to developing language skills to enhance the
international consumers' retail experience.
(Paragraph 51)
Digital skills in the Retail Sector
10. The changing
nature of how people shop needs to be mirrored in the way in which
staff are trained, to enable them to provide a more tailored service.
The BIS Retail Strategy document published in 2012 made passing
reference to skills needed for the retail sector, referring only
to the need for a science, technology, engineering and mathematics
(STEM) skills gap analysis. In its follow-up document a year later,
A Strategy for Future Retail stated that an analysis of skills
needed for high level mathematics, data analysis, and general
digital skills to be completed by the Spring of 2014. In its response
to this Report, the Government must outline the results of BIS's
latest STEM skills analysis, and the timeline for the action that
it will take. (Paragraph 55)
Business Rates
11. Both Business
Rates and the high costs of rents are issues that affect the Retail
Sector. The cost of Business Rates is increasing disproportionately
to the cost of rents. The result is causing critical financial
difficulties for many retail businesses, especially SMEs. This
means that not only are those businesses suffering, and in danger
of closing, but that some High Streets are becoming littered with
shops that have closed down. This problem is exacerbated when
rents do not reflect the economic realities. (Paragraph 65)
Revaluation
12. The delay in
the planned 2015 Revaluation of Business Rates until 2017 has
been severely criticised by many in the retail sector. The Government
based its decision to delay the Revaluation on a 'high level estimate
paper' written by Valuation Office Agency, which many organisations
have criticised for its lack of firm evidence. Indeed the VOA
itself littered the paper with caveats. The delay in the 2015
Revaluation of Business Rates means that, until April 2017, Business
Rates will continue to be calculated on property rents set in
2008, before the recession took hold. In justifying the delay
in revaluation, the Government referred to the fact that the retail
sector represents only around a quarter of the businesses covered
by Business Rates. This may be so, but it is a key quarter for
driving the recovery. We urge the Government to ensure that during
the time before the next revaluation, it works towards the complete
reform of the revaluation system, one of the ambitions of which
should be the annual review of Business Rates.
(Paragraph 74)
Business Rate link to RPI
13. We welcome
the Government's capping of the inflationary limit of Business
Rates to 2% for 2014-15. However, because of the small business
multiplier, those businesses in the retail sector that do not
qualify for small business relief will see their business rates
bills rise by 2.3% next financial year. Furthermore, this cap
will apply for one year only. We urge the Government to reconsider
this limited timeframe, and to stop permanently the linking of
Business Rates to a single month snapshot of the Retail Price
Index (RPI). Furthermore, the Government should carry out a review
to ascertain whether RPI or CPI is the more appropriate index
to which Business Rates should be linked. The 12-month average
of the CPI or the RPI in the previous year, with a cap at 2%,
is a far more appropriate level at which to set the annual Business
Rate increase. This would be consistent with the recent limits
on council tax increases, and in line with the Bank of England
inflation target. (Paragraph 78)
Business Rate relief - Small business reductions
14. While we welcome
the measures introduced in the Autumn Statement 2013 to help small
businesses further in relation to Business Rates, the Government
is not addressing fundamental flaws in the way in which Business
Rates are calculated. The short-term tweaking of the Business
Rates system is building up problems for the future and, instead,
the Business Rates system need fundamental reform.
(Paragraph 85)
15. As a start,
the Government must study the level of taxation placed on small
and medium retail businesses compared with the level of taxation
placed on large retail companies. It should also provide clear
guidance that Councils are able to, and should be encouraged to,
exempt ATM cash machines, in line with arrangements for small
business rate relief. (Paragraph 86)
Pilot scheme for empty shops on the High Street
16. The high costs
of Business Rates are preventing new entrepreneurial businesses
from appearing on the High Street. We welcome the Autumn Statement's
announcement that businesses moving into high street properties
that have been vacant for a year or more will have their rates
cut by 50% for 18 months. However, we believe that the Government
must go further. We recommend a six months' Business Rates amnesty
on businesses occupying empty properties. This support would be
an economically viable model for the Government, as it would not
only support those small businesses, but could also regenerate
the High Street by occupying empty shops, and by giving local
areas renewed vibrancy as community hubs.
(Paragraph 92)
17. We support
the emergence of PopUp shops; they are an excellent example of
innovation in the retail sector, but are adversely affected by
an inflexible Business Rates structure. In any review of Business
Rates, specific attention should be given to PopUp shops, and
ways in which more can be encouraged to participate in the High
Street. (Paragraph 93)
Other rate reliefs
18. Charity shops
play an important part in our High Streets, by raising much-needed
revenue for good causes and by providing a community space for
local shoppers and volunteers. However, charity shops benefit
from 80% relief on business rates, and this blanket reduction
has loopholes which can be abused by businesses purporting to
be charities. It also has the potential for charities to threaten
other shops, especially bookshops, which have to pay the full
amount of business rates. The Government needs to outline tighter
definitions on what constitutes a charity shop, and to report
on its findings by the Autumn of 2014.
(Paragraph 97)
Alternative ways of calculating Business Rates
19. The pace of
change in the Retail Sector means that the Business Rate system,
in its current form, is not fit for purpose. The Government must
act by carrying out a wholesale review of the current Business
Rate system, which is urgently needed not only for the Retail
Sector, but for other business sectors that are also being affected.
The Department for Business, Innovation and Skills needs to initiate
urgent discussions with the Treasury and DCLG, to prepare the
ground for a full scale review and reform of Business Rates, which
will allow retail businesses, especially small and medium-sized
businesses, not only to survive, but to flourish in the current
economic climate. The Government has widely praised the Portas
Review, yet has not acted on what we believe is a vital recommendation—a
review of the basis of the calculation of Business Rates. The
Government must review the whole system—involving local
government and retail sector organisations—and not simply
tinker around edges by reviewing the administrative details of
collecting Business Rates. Indeed, the Prime Minister has agreed
that a longer-term reform of Business Rates needs to be looked
at. The Government's review must include: whether retail taxes
should be based on sales, rather than property; whether the retail
sector should have its own form of taxation, calculated in a different
way from other businesses; and how frequently the revaluation
of Business Rates should take place. (Paragraph
113)
Cross-Departmental issues
20. The BIS Minister,
Michael Fallon, was keen to tell us of the regular meetings he
attends in relation to the Retail Sector. The BIS Department employs
just over 4% of its staff to work on the Retail Sector, and does
not consider that retail should be included in an Industrial Strategy.
BIS should be leading co-ordinated work with other relevant Departments,
in order to facilitate a more practical and direct approach to
the issues facing the retail sector, the most urgent and important
of which is Business Rates. While the Department for Communities
and Local Government has an important role to play in guiding
local authorities on parking, pavement furniture, planning, and
so on, which all have an impact on retail, the Department of BIS
must take the lead in the strategic overview of the Retail Sector.
(Paragraph 118)
Conclusion
The Government's retail strategies are full of
good intentions, yet they do not seriously address what, to our
minds, is the most crucial deterrent to new businesses appearing
on the High Street and the most debilitating levy on existing
businesses: Business Rates. Fewer Government strategies are needed.
Instead, there should be simple, decisive action. Without a wholesale
review, resulting in a new way of calculating Business Rates,
the High Street—and with it community hubs attached to those
centres—will fester. As the Government Strategy states,
"This is an exciting—and volatile—time for retail",
and the volatility should be kept to a minimum by reviewing Business
Rates so that businesses on the High Street can have a fighting
chance of surviving and flourishing. (Paragraph
122)
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