UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE
To be published as HC 168-v

House of COMMONS

Oral EVIDENCE

TAKEN BEFORE the

Business, Innovation and Skills Committee

UK Retail Sector

Tuesday 29 October 2013

Bill Grimsey

Rt Hon Michael Fallon MP and Brandon Lewis MP

Evidence heard in Public Questions 350 - 435

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Oral Evidence

Taken before the Business, Innovation and Skills Committee

on Tuesday 29 October 2013

Members present:

Mr Adrian Bailey (Chair)

Mr Brian Binley

Katy Clark

Caroline Dinenage

Rebecca Harris

Ann McKechin

Mr Robin Walker

Nadhim Zahawi

________________

Examination of Witness

Witness: Bill Grimsey, businessman and author of Sold Out: Who Killed the High Street? and The Grimsey Review: an alternative future for the high street, gave evidence.

Q350 Chair: Good morning and welcome, Mr Grimsey. I do appreciate you devoting your time to answering our questions today. Before we start, we know who you are but, for voice transcription purposes, could you just introduce yourself?

Bill Grimsey: Good morning. My name is Bill Grimsey. I am a retailer of some 45 years’ experience. I think I am managing the transition between working life and eventual retirement and, as a consequence of that, I wrote a book called Sold Out: Who Killed the High Street? which then morphed into The Grimsey Review, which is an alternative review of the high street, which was compiled by a team of nine of us; it is not just my work. These other eight people are experts from the industry and we published that in September. My activities today are voluntary, and I am campaigning for better towns.

Q351 Chair: Thank you. That is a very helpful introduction. Can I open with a pretty general question? British retailing is a success story. Our retail brands are renowned throughout the world and there is huge interest from consumers in other parts of the world. Our supermarkets are reckoned to be incredibly efficient and our prices are lower in this country than corresponding prices in other countries, and yet, somehow, the high street, which should be carrying this forward, has missed out. Roughly how important do you think the high street is to retailing?

Bill Grimsey: The high street of the 21st century needs to adapt to the consumer of the 21st century. The consumer of the 21st century is going to be influenced enormously by the developments of technology, particularly mobile devices today. I predict that, shortly, you will not carry a wallet, a card, a driving licence or anything like that. It will all be electronic and on a mobile device. The high street has to accept that tomorrow’s world is about having a community hub in the middle of a town centre that is not reliant solely on retailing. That has gone.

Online shopping is growing at an alarming rate and, as far as the futures of the town centres of the 21st century are concerned, for the sake of their economic wellbeing, they have to embrace housing, education, leisure, entertainment and some shops, and develop a strategy that embraces technology and enables them to compete with other towns, as to why people go there to live, work and play, or even visit.

Q352 Chair: Often the debate about the high street is framed as high street versus outoftown shopping centres, or high street versus the socalled omnichannel approach. Do you think the whole debate is strategically misfocussed?

Bill Grimsey: Strategically, consumers and their drive for the convenience of online shopping, mobile devices, big mall visits and entertainment during the day have overrun the traditional town centre. If town centres are going to be the focal point of our communities in future, they have to change and, in order to do that, they need a plan.

When we did our review, we issued a freedom of information request to local authorities and, of the circa 50 we got back, less than half of them actually have a plan as to what to do with that town, so they are open to developers coming along and saying, "There’s a brownfield site here. We’ve got Retailer X lined up. We can put in a few more shopping units. Hey, we can create some jobs." Councils under pressure for action tend to react to that kind of stuff, and that is not going to be good enough in the 21st century. You have to define what you need for that town and then, once you have that plan together, you can go about implementing it. Without a plan or a roadmap, you are not going to get there.

Q353 Chair: Do you think it would be a fair summary to say that basically the high street is not responding flexibly enough to changing patterns of consumer demand?

Bill Grimsey: That has been true since I was a lad. When I grew up, supermarkets were in the high street and it was a hustlebustle place. Within my career, that is now no longer the case. I have lived through the fresh food revolution, which took place in the 1980s, which took all of the seasonality out of our lives. My granddaughter believes that strawberries grow all year round. She does not have the thrill every spring of those new potatoes after a winter of mash. That has all gone, and that has been done by the excellent retailers that we have in this country and the supply chains that we have developed.

As a consequence, society has changed dramatically. If you do not actually take your town centre and adapt to that new world, it is going to perpetuate a decline. Our review calls for a town centre commission that is properly constituted and properly managed, with defined terms of reference; not a town team that is not properly constituted and is often full of volunteers-very enthusiastic locals who will do tactical things that will show some shortterm gain but miss the strategic option of providing a town centre that is embracing technology.

For example-I will just finish on this-our libraries are in decline and they are being closed. In Sheffield alone, they are going to close something like nine libraries shortly. Our contention is that libraries ought to be the centrepiece of towns and they ought to be technically competent now, not with books, but they ought to be the focal point where people can actually go, and it works. We all try WiFi in places and it often does not work. We need wired high streets. We need no blackspots and we need the people in those towns to be able to use their mobile technology to interface with one another, and we need the libraries at the heart of it.

That is the vision that came out of The Grimsey Review, from the people with whom we developed it. I believe firmly that, if you did these trials of five towns, with town centre commissions, you would get a blueprint of what we should look like in 20 years’ time and how we should get there. That is a far better way than a lot of enthusiastic locals doing stuff that is short term.

Q354 Chair: Before I bring in Brian Binley, I would just like to bring up a point. You have talked very strategically. The feedback that we are getting from retailers and so on is that one of the big problems is the level of business rates in particular, but also high rents. If you were to apportion responsibility for the decline in the high street to the changes that you have just outlined or business rates, how do you think they would balance?

Bill Grimsey: It is fair to say that, as retailers, if you do not adapt to the environment that you are operating in, predict what your consumer or customer wants in future, and make sure your product is right for them, you are not going to succeed anyway. The high street as we know it and retailing in the UK in the last four years have seen the demise of several retailers, many of whom have failed to do that.

The classic is HMV. In 1990, if they had sat in their boardroom and looked forward 23 years and said, "Do you know what? We’re going to go bust because technology is going to overtake our product," they may have done something different back then and they may have been a brand today, surviving and prospering. That is my contention about the town centres and the retailers.

However, unless we do something right now about the business rates issue, which is causing many of the independent retailers in this country to undergo financial pressures, which they will not survive-it does not matter how good their product is. There are 20,000 retailers out there that are poised to fail as a consequence of business rates. Our review had several concrete recommendations.

There are two I would like to place in front of you right now. One, the rise that is now going to be implemented in the spring as a result of the RPI measure in September should be frozen and should not be put in. Two, the 2015 revaluation of properties, which was delayed by this Government until 2017, must be reinstated. It is causing no end of distress out there, and the beneficiaries of this move are the large supermarkets, so we are perpetuating a consumer drift to out of town and to different models, away from the independents, by economically favouring the supermarkets, which will benefit to the tune of £1.3 billion over two years by the delay of this revaluation.

Q355 Chair: Again, you said the supermarkets, largely out of town, will be the main beneficiaries and of course the online retailers also, because they do not pay business rates. Would it be a fair reflection to say that, in effect, the high street has not responded to changing consumer demand but, equally, the business taxation system has not done so and that is reinforcing the problem?

Bill Grimsey: There is some merit in what you say. First, the online retailers do pay business rates; they just do not pay the same rates, because they are not in the high street. We need to be aware of that. Just because one business model has different taxation because it uses different properties is no reason to try to level the playing field, so I have no sympathy with the supermarkets and the large retailers out there that are calling for that. They certainly did not have any concern about the small retailers when they moved out of town and, in effect, busted them. They just have to react to the competition that is coming.

The most important issue that we face is not the fact that this system is necessarily wrong; it is just not being applied properly at the moment. Why did this delay take place from 2015 until 2017? That valuation is important, because the last time this was done was in 2008 at the height of the market, so all of these small independents, particularly in the north of England-I can tell you now that, in Stockport and Rochdale, rental values have fallen some 40%-are still paying their rates based on rentals that were higher. In the bigger supermarkets, where their values have gone up, they are benefiting from it.

I have an example of a store in Regent Street-Hackett-which took over the Ferrari shop and has paid a record rent for it: £1.57 million a year, and it is a 15year lease. Were they to pay their business rates in 2015 based on the 2013 valuation, which should be done, their rates would be, in that year, £757,000. At the moment, it is based on 2008, when the rent was only £548,000, so they are only going to pay £285,000 of rates. Why should an upmarket shop in Regent Street be subsidised by a poor fish and chip shop in Rochdale that is struggling to stay as an independent? It is fundamentally wrong and it needs to change.

Q356 Mr Binley: Can I say how much I welcome you today, Mr Grimsey? I headed up a commission that produced a report in 2008 called Community Hubs. You look at town centres; I wonder if you read that. I would be delighted if you did, because many of the things that you were talking about were in our mind then, so I really do welcome you.

You describe the need for high streets to become "complete community hubs" in your report, which means we have to look at the whole thing holistically. We have always looked at it purely from a retail perspective in many areas, and it misses the point. My concern is about the role of local government, because they have been perhaps the major killer of our town centres, in terms of parking, in terms of ring roads encircling towns and making it difficult for people to get across; high rents and rates, as you say; piecemeal planning; no small retail units; no chances for new entrepreneurial young retailers to start a business, as you and I had. I am not a retailer, but I started a business when I was younger-two businesses actually. There is no chance for young retailers to do that now, because the rent situation or the rate situation is simply too high and there are no small units. Do you believe, as I do, that local government needs to change its attitude-seriously change its attitude-in relation to town centres? They talk the talk, but they do not walk the walk.

Bill Grimsey: It is easy to be critical of local government.

Mr Binley: I do it all the time.

Bill Grimsey: I do agree with a large part of what you said, but may I first of all say that I endorse Roger Wade of popups? He is not giving evidence today, but I fully support what they are doing with their popup campaign for business rates and for the relief to get young retailers working. That needs to be said.

Going back to the local authority, I believe that the way forward is a properly constituted town centre commission that has the right skills on it and is not reliant on being elected every five years, but has to report to a council and provide its plan there and to have a public meeting once a year to demonstrate that its plans are absolutely accurate and on track.

If we rely on the electoral way of doing things in these towns, you are going to get what has happened, for example, in Macclesfield. There is a wonderful silk heritage in Macclesfield. It is a town, if you are not aware of it, that has a great heritage and it should be protected, in its architecture and its town centre, yet they are about to put up a huge development, with a Debenhams as the anchor, with 20 retail outlets, which none of the locals wanted. Cheshire East council has 12 on the council. Nine voted for it; three against. The three who voted against it live in Macclesfield; the nine who voted for it do not live in Macclesfield. As a consequence, it is going to go through and we are going to destroy that town centre.

The last thing this country needs is more retail space. It needs less retail space and it needs public spaces used for community wellbeing. We are all living longer. I am entering my fourth 20 years on this planet, and I would like to think I am going to achieve as much in that 20 years as I did in the previous 60 but, in order to do that, I have to embrace community, embrace technology and be able to live in a vibrant environment. Unfortunately, a lot of our towns do not reflect that, because the councils clearly just do not have that vision.

Q357 Mr Binley: May I take you back to that particular example in Macclesfield and point you to Northampton? For 50 years, we have had a new planning officer every four or five years. He or she has their own particular view of Northampton, without understanding its heritage, its history or its industry. Consequently, our town centre has become a mishmash, based on poor planning officers who often have much more power than the councillors who sit on the planning committees. The councillors are frightened of planning officers because of the powers that they try to project they have. There is a real problem there. Would you accept that particular view too: that our planning is too short-term and planning officers, who know little about the area, are too powerful in many respects?

Bill Grimsey: I would be fully supportive of that view, in the sense that our review revealed that there are no strategic plans out there-or really good ones-for towns. What should they stand for? What should they look like in 20 years’ time and how are you going to migrate to them? That would then provide guidance to planning officers.

I will give you an example. We evidenced something that happened in Bicester, to come back to the parking issue, which I am afraid this Government, in particular Eric Pickles, is messing about with the edges of. It is headlinegrabbing stuff and it should not be allowed. The fact is that parking should be seen by local authorities as a commercial asset and not a revenue generator. Since they have been squeezed through the austerity programmes, I feel some sympathy for them. In Bicester, because Sainsbury’s moved into the town centre with a large store, they brought with them free parking and they subsidised it. They proved that it generated more traffic into the town centre and, as a consequence, the independent retailers roundabout prospered. I have to say it was only those that did not compete with Sainsbury’s that prospered, so the poor little butcher and baker still had a bit of a tough time but, nevertheless, they prospered.

What happened just recently is that the planning department gave permission to a competitor out of town to extend their store, without any real knowledge as to whether or not the population needed more grocery space. There is the whole point of a town centre commission. There is a science here that could help the strategy, which could be coupled with vision and imagination from the town teamtype people, and you could produce something groundbreaking to develop our towns for the 21st century and make them good places for my grandchildren to populate.

Q358 Mr Binley: This is music to my ears. You could have written the report I wrote. I am really delighted with that. One final point, if you will allow me: the onesizefitsall answer to this is not an answer actually, particularly for our smaller towns and large villages, which perhaps just have a high street and a small high street. If we are not careful, we shall be driving retail totally out of those small towns and creating just a dormitory village, in many respects. Would you agree with me that the voice of the local need is paramount and that we ought to be thinking of ways of giving that power to that voice, rather than to planning officers? It is not only about planning; it is a much more holistic problem. Frightening planning officers nullify any local thought that a local councillor might bring to it, and you made that point about Macclesfield.

Bill Grimsey: The small towns out there and the onesizefitsall reference that you made are absolutely right. It is not one size fits all. What you can argue is that the methodology to understand what you need to do with a small town and a big town is the same. The output would be totally different. I do think there is a need for that methodology to be developed, which is what we called for in our review. We need to do that and then roll it out across the country.

In the meantime, however, these small towns, particularly those in more deprived and northern areas, are suffering because of the business rates issue. If I might say, section 69 is available, and provides the power to discount rates. The evidence is that none of the councils are doing this. Of 326 councils out there, only 18 in England used it. I have been contacted, since I did this review, by independent retailers across the country, and one such is a florist in Witney, which happens to be the constituency of the Prime Minister. She is right behind our epetition, which is trying to get Government to redebate this 2015 revaluation. She has written to her council about rate relief. That council does not employ section 69.

The new Minister responsible, who has high streets in his portfolio, Brandon Lewis, who is on after me, has Great Yarmouth as his constituency. His council is not employing section 69. There has been a 33% fall in rental values in Great Yarmouth since 2008 so, quite bluntly, there is a mixture of getting right today the environment for people to survive and building a strategic plan, through a methodology that will produce a different and unique plan for every town and small village throughout this country, and enable them to get themselves into shape with an economic blueprint that fits the 21st century and embraces technology.

Mr Binley: Mr Grimsey, you are music to my ears, and I hope you have a fifth 20 years.

Q359 Caroline Dinenage: Mr Grimsey, in the report you recommend a more flexible approach to use class orders, in order to bring properties back into occupation and build these complete community hubs that you refer to. The Government have stated that they have already made it easier to build more homes on the high street, making it easier for landlords to convert offices into housing and change other buildings into shops and so on. What more do you think needs to be done on that issue?

Bill Grimsey: The most important thing is for it to be coordinated. The last thing we want to see is a house, a shop, two shops, three houses, a shop, house, shop, house. That is not going to work and it is going to cause mayhem, so you need a town plan that will then say, "This subhigh street over here needs to be converted to housing going forward. In that subhigh street, there are one or two very good retailers." You need a plan to migrate them to the main thoroughfare, then you need to go to the landlords and get them to convert that subhigh street to a complete residential high street, and for that to be part of that plan. That is the step that has to take place, so it is coordinated and joined up, otherwise it is just not going to work.

Q360 Caroline Dinenage: In addition, one of your other recommendations is for a dedicated Minister for retail, dedicated to high street rejuvenation. Can you talk us through that in a little bit more depth? How do you envisage that working? Which Government Department would they sit in, for example?

Bill Grimsey: I will just refer to something here. If you look at the economic condition of our country, the high street is a mirror image of the UK economy. We really have to take that on board. If you look at the assets employed on the high street, you will see that there is £326 billion of gross assets on the high street, which is retail in general, and 95,000 companies, which are borrowing £65 billion a year and they have a total net worth of £135 billion. If you compare that to other sectors, the education budget is only £53 billion, the defence budget is £24 billion, and even the health budget is only £110 billion. My contention is that town centres, the high street and the UK economy are so inextricably linked that there is a need for a Cabinet Minister just for town centres to sit around that table and ensure that the plans I talked about through the town centre commissions are produced, and that there is a coordinated approach to prosperity for our local communities and community hubs in the future.

However, since we produced this report, we sent it to Downing Street and I received a response on 19 September. It said, "Thank you for your letter of the 8th and the report. We will get back to you." I have heard nothing since, so the pace of activity is kind of frustrating to a retailer of my background. If you miss the sale today, you do not get it tomorrow. My plea to this Committee is that we make it quite clear that, if we are going to have a prosperous Britain going forward, as a nation of shopkeepers, we need to wake up to what needs to be done for our town centres, to embrace all the things that I have mentioned-make them community hubs with unique selling propositions for each town-to attract visitors and to make Britain successful. The only way to do that is with a Minister sitting round the table, so I do not think it should be in any Department at all. It should be a Minister responsible for towns.

Q361 Caroline Dinenage: To play devil’s advocate for a moment, one of the complaints that we hear, as MPs who are interested in business issues, is that sometimes it is difficult to get buyin from different Government Departments on business issues. How do you feel that one dedicated Minister would succeed, where lots of Ministers getting involved in this from across Government Departments and getting that crossGovernment buyin have failed?

Bill Grimsey: You know more about your environment than I do, and all I can tell you is that, all the time you have that going on, you are not going to make steps forward. I am talking about somebody coordinating what needs to be done to address the dilemma facing our decaying towns.

Let us not lose sight of some of the dramatic facts. In Morecambe, one in three shops have closed, and there is no plan as to what to do for Morecambe. I believe that somebody should be sitting around the table, at the very highest level, fighting for what needs to be done to make Morecambe a successful place for the 21st century. That is clearly not the case. In fact, what has happened is it has been demoted since I did the review. It has gone to a junior Minister now. The high street is being passed around; it is pass the parcel.

On this note, I must give a commendation to the Portas review, in the sense that it raised the profile of the high street. I am very critical of its content in the sense that I think it missed all of the things that we now put in this one, which I have pulled together voluntarily, because I said you have to put your money where your mouth is and stop criticising.

Chair: We are about to move on to Portas.

Bill Grimsey: The fact is that we need a high street Minister whom I can take this to. I am not saying that our review is the review of all reviews but, if this is going to wind up like all the other reviews-on a shelf-we are going to continue to see the decline of the high street.

Q362 Chair: Before I move on to bring in Ann McKechin on Portas, this idea that we should have a Minister for this and a Minister for that, in my view, is often actually a sort of proxy for getting over or dealing with the real problem about interdepartmental working or crossdepartmental working. It is no good just having a Minister; you have to have some sort of department to back up that Minister, which involves changing our existing departmental structure. I think the chances of getting any Government to just set up a Minister for the high street are pretty negligible, but do you think that there is, within the scope of the existing Government departmental structure, a way in which more focussed crossdepartmental working could deliver on the same objective?

Bill Grimsey: I do not know enough about the workings of the Government Departments to give a constructive reply to that question, but I would like to just make the point that, when you are running a retail business, which is rather like running a country in some respects, you have various people sitting around a boardroom. You will have a guy who is responsible for operations, which is stores, a guy responsible for marketing, a guy responsible for logistics, for personnel and for sourcing products. The fact is that, if you do not have somebody who is responsible for those shops able to have a voice at that table that says, "You, Mr Buyer, are buying the wrong product for my guys to sell out there," that retail company will not survive.

You need to be able to have people sitting round the table where you are able to say, "Unless you do something from your Department for town centres, this is the consequence," and I do not see a voice doing that. I do not see that in Government. You may know more about this than I do, but I do not see any joinedup thinking coming out of central Government or local government when it comes to a coordinated plan for what to do with our town centres.

Chair: That gives us an additional argument to put to the Ministers in a few moments. Can I bring in Ann McKechin now?

Q363 Ann McKechin: Good morning, Mr Grimsey. As you rightly said, your report and Mary Portas’s report have brought the retail sector into a much higher profile this year, but you have also been very critical of the approach taken by Mary Portas. You have stated, I think on the record, that it "promised the earth, but delivered little". Could you clarify what the key differences are in your two approaches?

Bill Grimsey: First of all, my review, as I refer to it, because it has got my name on it, is not my review. The fundamental difference between the two reviews is that mine is littered with "us" and "we", and Mary’s is littered with "I, I, I". This is not a personal issue for Bill Grimsey. This is a team effort that brought together the skills of eight other qualified professionals to produce this review.

Secondly, it was not me who went on television following the review and said, "Hi, I’m Mary Portas. I was commissioned by Government to produce a review. Now come and see me in operation at Margate." Now, I think the absolute blatant commercialism that surrounded that review was wrong, and I do not think there is any place for it. That is why this review has been fully funded by me. I had lots of offers for sponsorship for it and I completely rejected them. It has been totally voluntary from my perspective, although the other eight people on this review have day jobs. They have given up their time freely. The difference is that this is a noncommercial piece of work that is not just there for headlinegrabbing. It is there to say, "Here are the structural changes that you are facing in the industry."

When Mary published her review in December 2011, she failed to point out that the industry was going to undergo major structural changes, in my opinion. That is evidenced by the fact that, within 18 months, eight major retailers went bust. That was obvious to anyone who knew anything about retailing, and that should have been brought to the Government’s awareness. That is the difference: this is a retailer’s report based on what is happening out there. It is evidencebased with lots of facts in it, and the conclusions that we have reached and the recommendations that we have applied are all measurable and weighty. They are not motherhood and apple pie. If we can get the attention of the relevant powers to implement many of these things, I firmly believe that there will be benefits for independent retailers, as well as communities throughout the country.

Q364 Ann McKechin: Were you surprised that there was no mention of skills in the Portas review, because a number of witnesses have explained to us that, because of the changes in the industry-an increasing technological base behind it-that actually skills shortages are an issue for them? Would you concur?

Bill Grimsey: Yes, I would concur with that, but I would not be overcritical of her at the time she did the review. What I would say is that you could argue the same about our review, in terms of what is happening. What I would like to emphasise is that the pace of change, because of technology, is going to accelerate. The skills that are required out there are going to be very different. I am not sure we are preparing ourselves as a country for that.

The first store in America without anybody working in it is already on the ground. There are no cashiers; it is filled by robots. You interface with the product yourself as a person. There are cameras. There are 3 million people employed in retailing out there today, just in the shops. What are we going to do in years to come when these things change? How are we planning for that, or are we just bumbling along? My appeal through this review is that we have to strategically take account of all those changes and put in place actions today to accommodate them.

Q365 Ann McKechin: When we asked about the difference between your report and Mary Portas’s, in relation to the future of the retail sector, Ken Parsons, who is the chief executive of the Rural Shops Alliance, said, "Probably the slightly more autocratic approach from Grimsey would be much more effective but much harder to get buy-in." Brian Binley has also mentioned today the fact that, when we have asked people in the industry, they have just said they did not think the industry would actually respond favourably to this type of approach.

Bill Grimsey: I think "autocratic" is the wrong word. What we are trying to recommend with the town centre commission is that they follow a methodology to produce a unique plan for them. There is no autocratic approach to that. The fact is they do not have a plan today. What is wrong with having a plan? The one thing I would say about our review versus the Portas review is that ours is just plain common sense. It is as simple as that. I just believe that, if you do not have a vision of where you need to be and if you do not have a plan for how to get there, you are never going to get there. That is fundamentally what this review is saying.

Q366 Ann McKechin: In the industry, the bottom line sometimes comes down to the cash. Obviously, you made a proposal about a levy, which I think it is fair to say others in the industry were not very keen about, which is probably not very surprising. You advocated a fixed levy paid by retailers. One of the disadvantages could be for independent retailers with lower profit levels-for example, furniture stores have much lower profit levels or margins than people perhaps in the food or luxury goods end. It is just this issue about an additional cost on business. Given all we have just said about rates, it is inherently unpopular, so is there an alternative way in which people should consider trying to put the pot of money into the economy?

Bill Grimsey: Let us just clarify the levy, first of all. It was a levy that was 0.25% of sales on all businesses with a turnover of more than £10 million a year, and they had to be profitable, so it is not going to capture your independents.

Secondly, I do believe that my industry, in which I have enjoyed a wonderful career, internationally as well-I managed a business in Hong Kong for five years, so I have had a great life-as a consequence of the consumer boom through the 1990s and the 2000s has put down lots of space, which is now coming home to roost for many retailers. They have found they have too much space today, because the consumer is changing. We dragged the consumer, because they wanted it, out of town, and we did cause some of this issue. We were party to it. My book makes it clear that it is the customer who destroyed the high street, not the retailer, but we were part of it.

I just think, "What is wrong with a 0.25% of sales for one year to create a pot, which would be about £550 million odd, to facilitate producing those plans that we need to produce, across the country, without putting pressure on Government to provide the funds to do it?" What is wrong with that? It is called payback time.

I am not in the retail club, by the way. I have always been a bit on the outside of it, but I did not go to any of them and ask them what they thought, because it is a bit like going to turkeys and asking them to vote for Christmas, is it not? I put it in the review quite brazenly to say, "It’s time for you to pay back." Would it not be good if a Phil Clarke at Tesco stood up and said, "Do you know what? 0.25% of our turnover is X; we will put it in that trust and we will help control that trust, and we will help put our towns back on their feet and we will help the country get back into economic health"? That would be something good for his brand, so why not?

Ann McKechin: Thanks very much. You are obviously a very strong advocate.

Chair: Can I bring in Robin Walker, back to business rates?

Q367 Mr Walker: Thank you very much for your evidence so far. It has been a pleasure to hear all your passion for helping small retail businesses in particular. I guess my first question is: we have addressed some of the issues already in terms of business rates. Fundamentally, where do you think the system needs to go in order to best support small and independent retailers?

Bill Grimsey: The BRC announced recently that they were going to commission E&Y to produce a rootandbranch review, a reform, to put to Government. I spoke to the BRC about this yesterday, and I did make it clear to the chief executive that, fundamentally, I agreed with the motive; I just think it is the wrong thing. I think Government should be doing this. I do not think the BRC should be doing it. The BRC is an industry body and, like any other industry body, it has paymasters, and the paymasters are the size of the company. Guess what? The biggest paymaster into the BRC would be Tesco. Do you think the output is necessarily going to be independent and aimed at solving the problem for the independent retailers? I am afraid I am a bit old in the tooth and a little sceptical of that, and I just think that is fundamentally wrong.

I think the Government should be saying that there is enough noise out there for them to do a rootandbranch review and to look for reform of business rates, which will help and sit alongside town centre plans of the future and help the economic wellbeing of the small independent retailer. It is this Government that said it was a champion of SMEs, and yet it has just said it; its actions have been completely to the contrary. There is no question that there are parts of this country where small businesses are going to go bust, because nobody is listening to the pressures that they are under.

Q368 Mr Walker: This Select Committee, under this Government and previous Governments, has done a lot of work on things like small business rate relief, which has been extended and supported. I think this is something that obviously Government is keen to engage with. The challenge that Government has, and particularly local government has, is the fact that it has always been seen that businesses rates should be overall fiscally neutral. Is that something that you think needs to be taken on now? Actually, we should be looking to relieve the overall burden of business rates.

Bill Grimsey: If we look at the issue of business rates and the reliability that Government has on this tax, it is quite frightening. It is the only tax that does not flex with economic conditions and, therefore, it is relentlessly going upwards and onwards. It is £26 billion this year, as a total number. It is going to break through the £30 billion mark in the next couple of years under the current methodology, but it is not likely to get changed very quickly. I know enough about this place to know that the wheels do not turn that quickly and, therefore, a reform of business rates is not likely to get done in the life of this Government. Therefore, it is likely to form part of an election manifesto from the parties, and then they have to get in and then they have to get the change happening.

Meanwhile, the current methodology is in place, with the delay of the 2015 revaluation and, as a consequence, small retailers up and down the country are paying disproportionately more for rates than the large retailers are today. I have evidenced that earlier in my presentation. It is really a question of what we do right now, and that is why we must freeze it and we must bring back the 2015 revaluation. What do we do going forward? Government needs to commission a rootandbranch review to get reform that will accommodate all the things we have talked about.

Mr Walker: I know my colleague Brian wants to come in, and I agree that Government should be looking at this and should be looking at a rootandbranch review. It is very important, though, that we do focus that on how to help the small businesses on our high streets and, as you say, not just hand a cheque to some of the biggest retail businesses out there, which probably do not need the help. That needs to be at the heart of it.

Q369 Mr Binley: Thank you for that, because I just want to make a point to you that you missed out in your view of how this might proceed: that it will be in the manifesto; a Government will be elected, and they will create the policy and attempt to put it into effect. The bit you missed out is overcoming the reaction of civil servants. One of the things I have learned in this place is that the biggest hurdle to overcome is exactly that. It happens again and again, and I wondered if you would take that into account, because you have a lot to advocate, but you have to recognise the import of the civil servant. We battle with it all the time.

Bill Grimsey: Again, I am not speaking from experience, but I do have a lifetime of experience of dealing with employees and motivating people to get things done. There is a time when you have to have a bit of tough love. These guys have to realise that it is time to shape up or ship out. It is time to take the situation very seriously, and we cannot go on with business rates the way they are structured.

Q370 Mr Walker: I just want to come back on what we can do to help small businesses. You have picked up on the section 69 powers and the fact that they are not being used nearly as widely. Is that something that you are monitoring on an ongoing basis or was that just a snapshot at one particular moment in time?

Bill Grimsey: I mentioned that there is a team of us, and one of the team members is a guy called Paul Turner-Mitchell, who is an independent retailer in the Manchester area. He lives this, day in and day out. In fact, he moved his store from Rochdale to another part of Manchester, purely because of the economics that he was facing. He does all of this work and he is the expert on business rates. All of the numbers that I have been quoting to you are done by him. He does a lot of it by freedom of information requests, and I have to take my hat off to him in what he does. It is just a shame that we are reliant on individuals highlighting something that is so plainly unfair.

Q371 Mr Walker: In the current environment, of course, all our local councils are pressed for cash. It is very difficult for them, out of their own resources, to offer these discounts. I am always encouraging mine to do what it can to help local businesses but, fundamentally, I do understand the budget constraints that they are under. Do you think that is something that Government needs to be looking at-how it can incentivise them, how it can support them to do that?

Bill Grimsey: It is absolutely something that central Government should to be doing, because there is a lot of this going on, by saying, "Look, we’ve got a clause 69. They’ve got the option. They can deal with it. It’s not my problem." The reply from the Prime Minister to this florist was exactly that, and yet the councils are not invoking clause 69 and doing it. You are getting Brandon Lewis in here; I have already said his local authority is not doing it either. It is no good using that as a reason; it does not work.

There should be some empathy with the plight of the local authority, which has been squeezed and squeezed and squeezed by central government, and now we are expecting them to give rate relief. In fact, what they are tending to do is the opposite. One in seven businesses out there has been subjected to some sort of legal process to recover rates. Bailiffs are going in on a regular basis. If you take the oneinsevenfigure and then take out all the Tesco Expresses and the Sainsbury’s Locals, on the indies, that is more than one in seven. I do not have those numbers, but it is telling you that these people are under enormous pressure. I cannot solve their retailing problems; that is up to them. They have to have the right proposition at the right place, right time and right price, with the right service, but we can help them with their cost pressures now. I come back to it: we must freeze these business rates and we must bring back this 2015 revaluation, because the only beneficiaries out of this delay are the big retailers. The small ones in the north of England are suffering.

Chair: I am conscious of the fact that we have the Ministers coming in, in seven minutes’ time, so I am just going to bring in Rebecca Harris now with a couple of questions.

Q372 Rebecca Harris: Just to finish off a bit on business rates, let us assume the most pessimistic possible outcome, which is that the Chancellor of the Exchequer has no room to manoeuvre on business rates and we do not get the freeze for which you advocate very clearly, and so have many of my businesses. We do not get the revaluation, but there might be other aspects to the business rates regime that need changing in any case, as well. You spoke earlier about Roger Wade from Boxpark’s idea that, if he gave three months’ free rent, in return the Government should give rate relief. I just wondered whether there were any other ways we could look at some of the perverse effects of business rates, which are actually stopping start-ups in the high street. Do you think, for example, Roger Wade’s model could work in all high streets?

Bill Grimsey: I think Roger Wade’s model could work in many high streets, and it is a way of getting youth inspired to become entrepreneurs. The Philip Greens of this world, in 50 years’ time, are going to come from young entrepreneurs, and we need to foster that. That is important. I do think that that needs to happen.

In our review, we did mention that there are other aspects of business rates that need to be looked at. For example, we have turned our high streets into betting shops, payday loans and charity shops. The charity situation needs an examination, and we were brave enough to look at it in our review. What we said was, "Charities are charities and they should not be retailers." What has happened is Oxfam, for example, has morphed into a chain retailer. In my experience, I have seen clothing items in those shops that are really good and they are next door to a clothing retailer who is paying full rates, and they are getting 80% rate relief. That has to be wrong. Now, I am not anticharity; in fact, quite the contrary. I give my time and some of my money to charity. Our review just said, "Reduce that from 80% to 70%." It is just 10%. That will create some money, about £15 million to £20 million a year. What could you use that for?

We want to avoid just having more charity shops, more payday loan shops, more betting shops, all of which are preying on the poor in our society-because what is a payday loan shop? A place to get access to funds. What is a betting shop? It is a place to live your dream in hope. What is a charity shop? It is a place to get cheap items. Are we really satisfied that that is the legacy that we are producing for our grandchildren, up and down the country? I am certainly not and I think it needs to change, and so we need to get into that rates system and find ways of freeing up funds to encourage entrepreneurship, particularly in the way that technology is moving. The leisure industry will change completely. Technology will change.

I was in an airport where there was a new McDonald’s and-do you know?-all the tabletops are now touchscreens. You know when you used to take your kids and they would get colouring books? Forget it; in the future, they are just going to play with the tables. The world is changing, and we need to give our young people the spirit and the motivation to be entrepreneurs, and yet we burden them with tax. It has to be wrong.

Q373 Rebecca Harris: Do you have any specific thoughts about empty property rates? They were intended, I believe, when they were brought in, to try to encourage landlords to rent their empty properties cheaper. I have heard some people say that actually it is having some quite perverse effects, which is when shops go bankrupt they stay in receivership for ages so they do not come on the market, or that landlords are actually taking empty places out of use. Have you had any evidence of that?

Bill Grimsey: Do you know, I have been party to it myself? I did CVA on Focus DIY to keep it alive for the four years after we saved it from administration. Eventually, we did not overcome the current economic conditions, regrettably. During that time, we had empty units and we went to a thing called Computers 4 Africa, which is a charity. All we had to do is, for two weeks out of every six months, open the doors and bring computers in. They get shipped to Africa, close them down, and you did not pay any rates.

My obligations at that time were to my shareholders. Guess what? That is not illegal. It is exploiting the situation, but it does not necessarily make it right or deter situations that should not otherwise exist. There are loopholes out there and the charity one needs buttoning up a bit, because it has allowed charities to morph into retail chains and it has allowed landlords to exploit other charities to get rate relief, and that should stop.

Chair: I suspect your review demonstrates a level of political courage that you will not find amongst any political party in this place, but we will see. Can I thank you for that? That has really been very stimulating indeed and just what we needed, I think, before we have the Ministers in. We need now to have them in, so can I conclude by thanking you, Bill? That was very interesting indeed. Believe you me; I am sure that some of your sentiments will resurface again in our recommendations to the Government. Thank you very much.

Examination of Witnesses

Witnesses: Rt Hon Michael Fallon MP, Minister of State, Department for Business, Innovation and Skills, and Brandon Lewis MP, Parliamentary Under-Secretary of State, Department for Communities and Local Government, gave evidence.

Q374 Chair: Good morning, and can I thank you for agreeing to answer the Committee’s questions on this issue? Obviously, we know who you are but, if you can, just for voice transcription purposes introduce yourselves, starting with Michael?

Michael Fallon: Certainly. It is Michael Fallon, Minister of State at the Department for Business, Innovation and Skills.

Brandon Lewis: Brandon Lewis, Minister for local government and high streets.

Q375 Chair: Thanks very much. It will be no surprise to you that a recurring theme of our inquiry has been the issue of business rates, so I will start by just outlining some of the issues there, as they have been presented to us. That is, of course, lowering of corporation tax has been offset by an increase in other taxes, particularly property taxes like the business rate. Do you think this is the fairest way or do you think there is a better way that this could be done?

Brandon Lewis: Like anything with taxes generally, you have to look at the whole picture. As you rightly say, corporation tax has fallen and will continue to fall to make us the most competitive. We also have the drop in NI for employers coming in, which makes quite a big difference, particularly to small employers. Even with business rates of course, there has been no realterm increase. The increase has been the inflation increase, so we have managed to hold that down as far as we can, for now. On top of that, of course, we have over 900,000 businesses now-it has roughly trebled since 2010-benefiting from small business rate relief. We think, as a whole picture, that makes it a much better position for our companies to be in, and they are the employers that create jobs and growth for everybody.

Q376 Chair: One of the issues that has been put to me is that, if you like, the concessions on business rates apply to small businesses across the board. How do you think this affects the retail sector? What proportion of the total small business numbers comprises small retailers?

Brandon Lewis: What I can say to you is about 25% of all business rates is retail. I cannot give you a precise breakdown of what the percentage that benefit from small business rate relief is, but of course business rates-Chairman, as you imply in your question-go across a whole range of business sectors. It is not just retail. As I say, retail is just 25% of it. When we look at anything to do with business rates, we cannot look in isolation at retail. Anything there has an impact right across the board. It is why, actually, we think the small business rate relief is so important.

It is why it is also really important for local authorities to be looking at the powers they have. I know Bill Grimsey makes the point about how many local authorities are using the powers they have to discount business rates. We have been quite open about this: local authorities should be looking very carefully at that. They have that power there. Some local authorities are using it. They can use it in a really targeted way that is appropriate to their local area, because they will know best-they will know what high street, what part of business in their area, needs that extra bit of boost that that kind of discount can give.

It is important to put this in context. As part of the new system, it also fits in with the changeover this year to the business rates retention scheme for local authorities. 70% of their funding now is derived locally and the business rates retention is where local councils can see growth in their income. Apart from the new homes bonus, it is business rates retention so, as they grow business, they benefit from the growth in those business rates. To see that, councils need to be looking quite commercially, for two reasons.

Chair: Can I just say we want to deal with councils and business rates as a separate block of questions?

Brandon Lewis: What I will say to you is that is quite an important part in terms of what discounts a business can get. A council has the power to give them substantial discounts, beyond what are nationally available to everybody, so it is locally driven.

Chair: Robin Walker is going to ask a few questions on this. Michael, you look as if you wanted to add something. Do you want, at this stage, to say anything on that?

Michael Fallon: No.

Q377 Chair: The British Retail Consortium has recently appointed Ernst & Young to carry out research into the business rates system. What is the Government’s reaction to that? Will the Government be engaging with this?

Brandon Lewis: I met the British Retail Consortium last week. They outlined to us what they are doing, and I said to them I would be very interested to look at whatever they bring forward. The Treasury, as you will know, Chairman, always keep all taxes under review, but business rates are an important part of the tax regime in this country, and we have a fiscal deficit we need to deal with as well, so we have to look at everything as a whole. As I said earlier, it mixes in as well with the corporation tax changes and the national insurance change, all of which benefit businesses and, therefore, retail as well. When anybody comes forward with any research, it is always interesting to have a look at it.

Q378 Chair: Do you not really think the Government should be doing it, given the fact that the British Retail Consortium inevitably will reflect the balance of its members? If you like, the big supermarket chains may well have disproportionate influence on it. Would it not be better carried out by the Government?

Brandon Lewis: As I say, the Government and the Treasury always keep taxes under review. You are quite right; as I said earlier, anything the British Retail Consortium does is likely to be retail focussed. That is understandable; that is their remit. As it happens, as I said, of business rates 25% is retail, so there is actually a much bigger picture. The Treasury does keep all taxes under review.

Q379 Chair: You say they keep it under review, but keeping it under review and carrying out proactive research are slightly different. That was the thrust of my question. Do you not think the Government should be doing that?

Brandon Lewis: It is right the Government keep it under review. As I say, the Treasury is looking at these things-they look at taxes every year. We have a Budget and an autumn statement. I am sure the Chancellor’s team will be looking at this.

Q380 Chair: With respect, Mr Lewis, that sounds a bit like a stuck gramophone record. Some of us are old enough to remember the gramophone records that get stuck. One of the problems is, and this applies not just to shops but would apply to other business as well, that the calculation of business rates is linked to the asset-the property. It is a propertybased tax, rather than linked to the level of trading. Do you not think that there is an argument for doing research to change the business rate taxation system to reflect trading rather than property?

Brandon Lewis: That is where there is a huge complication. There are some people who have made that argument. Not all business rates are entirely propertybased. Pubs have an element of turnover within theirs as well. One retailer made the point to me that the turnover tax would be great for them, because they have at least one retail outlet on every high street. That is their aim and sometimes more than that, but most of their transactions involve no cash whatsoever. Their customer relations work is 80% of their transactions in store. The beauty of a property tax for the Government is it is straightforward; it is simple to assess, in the same way council tax is.

Again, we come back to the big complication if you make a change, particularly on retail. I do accept the premise of the question, which is retail is changing. It is changing to be not necessarily a propertybased business. It is moving with online, particularly. We are up at 15% in this country, which is, I think, the highest in the world now, but whatever we do with business rates goes right across all the different sectors. It is not just a retailbased tax.

Q381 Chair: Have you ever looked to change that? Is there a Godgiven reason why business rates have to be taken across the board and you cannot have a separate approach to retailers?

Brandon Lewis: You do in the sense that there is a multiplier. That is the issue that, no doubt, somebody will want to touch on, in terms of the revaluation and how different parts, different sectors, will effectively be paying different levels and have a different level of multiplier. If we had gone ahead with the revaluation, for example, certain sectors would have had much bigger rises in business rates than other sectors, because of how that works through the multiplier.

I come back to the point I made right at the beginning. Corporations in this country, small, medium or large, are not just paying business rates. It is the picture as a whole. They will be paying VAT, so those companies that have got more trade will actually be paying more tax through VAT, obviously through their corporation tax directly and other taxes that way, so there is a balance across different areas in that way anyway.

Q382 Chair: I believe all the research done to date demonstrates that retailers are paying a disproportionately high level.

Brandon Lewis: The independent research that we looked at when we took the decision on the business rates revaluation showed that retail is actually one of the sectors that would have lost out.

Q383 Mr Walker: I just wanted to reinforce that point from the Chairman. I think the very fact that you are saying 25% of business rates are paid by the retail sector, which represents 5% of GDP, does rather illustrate the fact that it appears to be bearing a disproportionate chunk of the tax burden there. I think there is a real concern that actually it is the traditional retail, which we all value in our high streets and in our communities, that is bearing that even more. As you say, the change in the nature of retail concentrates that tax burden on perhaps the shops and the retailers that might be doing the greatest social good. I do think this is something that we need to keep a pretty serious focus on.

Brandon Lewis: Actually, it is one of the reasons why, in the last couple of weeks, in the speeches and the conferences I have been at, I have been stressing the point that local authorities, which have the power to go even further with this, should be looking really carefully at what is right for their communities. If they have that kind of independent niche retailers that are important to their high street or their town centre, they should be looking to do what they can. There are some good examples around the country where this is happening, but there is a lot more. Councils could go a lot further in this. It is not just business rates; there are other things retailers have as an issue. That and parking tend to be numbers one and two.

Local authorities know their area best, rather than having something one size fits all, because what would be right in Bond Street is not necessarily going to be right, and certainly would not be right, for Great Yarmouth town centre. It is right that we have that ability for people to look at what works for them locally. I would say again, if we had gone ahead with the revaluation, the only overarching full independent review shows retail would have actually had an increase. It is London office space that would have had the benefit-and obviously the surveyors who get paid for doing these kinds of evaluations.

Q384 Caroline Dinenage: Can I have a brief supplementary, Chair? With the greatest possible respect for the Minister, can I briefly take issue with the statement that, if the business rate revaluation was going to go ahead, it would actually increase the cost? That may be true across the board, but the people who are going to bear the brunt of it are going to be the massive retailers, to the tune of £1.3 billion over two years. At the moment, they benefit from not having this business rate revaluation. It is the smaller independent traders still sitting in properties that were valued in 2008 that would benefit. These are the people we need to be, or the Government need to be, supporting-the people who are going to be the big employers, the entrepreneurs of the future-not necessarily propping up the big multinational supermarket chains to the tune of £1.3 billion over two years. Can you not understand that that is the key to this? It is supporting the small retailers over and above the big players that have undue influence over Government policy.

Brandon Lewis: That comes back to the point I have been making. There are a couple of things to this. One of the things that was really clear from the work that was done-the only independent work that has been done-on whether we did the revaluation or not, showed that the biggest beneficiary would have been London office space. Everybody else effectively would have been paying for that. Retail would have gone up. It would have actually hit independent retailers as well, potentially, because the way the multiplier works is that for any area to say they would have been better off, they would have had to have seen their rentable value not just drop but drop equivalent to or by more than the national average. Because of the scale and size of London office space, in most areas that actually would not be the case. They could have had a drop in their rentable value but still actually have had an increase in business rates, let alone the volatility it would have created. The big winners would have been London office space and the surveyors, who actually earn a lot of money from companies that look at these revaluations when they happen. We took the view that the stability going forward was hugely important, and the fact that we did not have that volatility and, potentially, increases.

Small independent retailers have two opportunities particularly that the Government has put in place. One is obviously the small business rate relief, which has trebled from around £300 million to over £900 million a year under this Government. We have extended that. I think that is hugely important. Potentially more important is the flexibility that we have given to local authorities, which know their towns best and know what kind of retail works, to go even further and give the business rate discount that they think is appropriate to work in their local area. They can target that, and that is probably more powerful, because then the Government is not just doing one size fits all, which would potentially benefit retailers and other businesses, which do not necessarily need it, some would argue.

The local authority can target it in a way, as at least one Portas pilot has done and just under 20 others have done, to help particular types of business that they think are important to their town centre. It is not just to keep the business going. I have to say I do not think it is right for government of any description, local or large, to be subsidising failing businesses, but it is right for local government to look at what helps their community. This comes back to Mr Binley’s report on community hubs. The town centre and the high street is that hub and heartbeat of a local community, and the local authority is best placed to look at what the community needs and wants. It has to do its homework around that and put in place the type of schemes, including business rate discount schemes, that help that vitality come back or remain and grow and prosper, in the future.

In the long run, the council benefits as well through the business rates retention scheme. If it gets that vibrancy back and those businesses get themselves into a really good vibrant place, then the council benefits in the long run. More importantly, the community benefits from having that real buzz in its high street.

Q385 Ann McKechin: I have listened with great interest to your justification of why a revaluation would be bad news for many retailers. Actually, I think you have articulated the argument of why business tax, in its current format, is not fit for purpose. We have, on the one hand, the particular and exceptional dynamic of a world economy around the City of London, and we then have the rest of the country, where quite different parameters exist. Can I ask you, Mr Fallon, when you last discussed with Treasury Ministers whether or not business rates and the way in which valuations are carried out are currently fit for purpose?

Michael Fallon: As you know, we discussed business rates extensively during the passage of the Growth and Infrastructure Bill, which Parliament assented to back in April. This whole issue was debated quite thoroughly on all sides. What was transparent there was, as my colleague has said, that the winners and losers were not nearly as clearcut as is sometimes portrayed, between types of business, suburban and innercity centre, and large and small. Overall, there would have been more losers than winners. So far as your question is concerned, of course the Department for Business has an input to the Treasury, as you come up to each of the fiscal events, as you would expect, the autumn statement and to the annual Budget process.

Q386 Ann McKechin: It is the Treasury ultimately that sets the business rates level and the increase, for example, that is coming in next spring. That is a Treasury responsibility at the end of the day, or are you and Mr Lewis’s Department inputting in what you think should happen?

Michael Fallon: Absolutely. We make representations on behalf of the sectors for which we have ministerial responsibility, and that of course includes the working of the small business rate relief in my Department and no doubt other aspects in Brandon’s.

Q387 Ann McKechin: The point that has been made repeatedly this morning is that the current valuations of properties, in many, many cases, do not bear any comparison to what the position is now. Particularly, we have gone through an economic recession. It has been put to us that, for example, outlying areas in perhaps Essex are actually, in effect, subsidising shops in Regent Street, which actually should have a much higher valuation. I put to you again that there is a completely different dynamic, in terms of property prices at the moment, occurring in London, as very often has been the case. Have you looked at all at whether or not we actually need to have a different tax system that suits the fact that we have a world city, on the one hand, and the rest of the country has got a very different dynamic and very different values on property? The property market is acting in a very different way.

Brandon Lewis: I have to say I think there is a misconception; that is probably the wrong word, but actually the way the system works does recognise that. The reason that the Government decided to postpone the revaluation was to avoid the volatility that would have happened for a lot of businesses. They had that certainty of planning through, as you said quite rightly, the very volatile economic period that we have been through. Hopefully, we are now coming out the other side of that, but it meant that there was that stability for companies to be able to plan and look at their plans, going forward, without the concern about what might happen in 18 months’ time.

Ann McKechin: Right across the board, businesses are saying to us that the actual failure to revalue is actually causing them real pain.

Brandon Lewis: A lot of those businesses would have been within these 800,000 losers, as opposed to 300,000 winners, because of the scale and size of the change in the property value and the rentable value, particularly for London office space. This is where there is simply no basis for the argument around the north-south divide. Actually, it is London that probably would have benefited, particularly London office space.

Ann McKechin: That is what my argument is: that we actually need different systems of tax.

Brandon Lewis: If there was a revaluation, London would have benefited, so it was important that we paused there to make sure that we do not suddenly have 800,000 losers at a time when there is an economic difficulty anyway. All parts of the retail sector are valued in the same way.

Q388 Ann McKechin: Mr Lewis, can I just stop you there? Property prices at the moment in London are rocketing, at a factor of four times the rate of increase in other parts of the United Kingdom, so why do you think that, by 2017, we will have got to a position where we will actually reconfigure ourselves, we can go ahead with the revaluation and everything will just be absolutely fine across the country? All the factors point to the fact that the distortion might get worse, not better.

Brandon Lewis: The argument is the other way round, because the problem is that the valuation of London office space at the point we were looking at this last year, had gone down, so that London would have benefited from a revaluation. The argument you are putting is that London will lose out from a revaluation in a few years’ time, which is backing up the argument we are making that, actually, we needed to pause, because the businesses outside London could have found themselves having a business rate increase, because of the way the multiplier works.

Ann McKechin: I do not know that I am not necessarily convinced by that.

Brandon Lewis: I have to say that we have also said-we have been very clear about this-you do need regular revaluation. Once we get to that 2017 revaluation, there will then be a five-yearly revaluation, so that there is some stability in that period in between. Obviously, there is an issue for the cost to the taxpayer as well, every time there is a revaluation, but it does mean companies get that fiveyear planning period as well.

Q389 Ann McKechin: It is so easy, because of political pressures, so we end up with political pressures always topping revaluations. I might say this is the same argument, but a different scenario has been presented in Scotland about why they have not also increased business rates, and they do not have a London situation to deal with either. The same happens with council tax. We put off valuations and we end up with a grossly distorted reality. That does not help business in the long run, because there are a lot of losers, where their individual circumstances are not properly taken into account. It is a question about the fairness, is it not, at the end of day, that should be at the heart of the system?

Michael Fallon: When we debated this during the passage of the Bill, it was very clear to me, as the Minister in charge of the Bill, from the only hard evidence we had, which was the analysis done by the Valuation Office Agency, that the biggest winners of all would have been in London. They would have been Canary Wharf offices and, indeed, Oxford Street premises. It is really not clear to me why we should have given them the benefit and penalised, for example, petrol stations or premises in suburban areas or on outer ring roads of town centres right across the country.

Q390 Ann McKechin: Would their value not go down as well?

Brandon Lewis: No.

Ann McKechin: You do not think their value would have gone down.

Brandon Lewis: No; because of the way the multiplier works, that cannot happen.

Q391 Ann McKechin: That would suggest we might need to change the multiplier.

Brandon Lewis: No, because the business rate levels overall stay the same. If one sector or one geographic area drops, everything else is covering the cost of that, so the multiplier has that impact.

Q392 Ann McKechin: I appreciate what the current system is, but I was just saying that the current system perhaps needs to be altered, because it is not fair to individual premises. This should be at the heart of helping businesses. The rate should be a recognition of the actual property they occupy, but it is not.

Brandon Lewis: The problem with that is you are then also altering the overall tax take, which means you are dealing with the problem than this Government is having to deal with: the deficit that it inherited and the debt we inherited. There is a fiscal consolidation we have to take into account as well.

Ann McKechin: Okay, now we get to the rub of it.

Chair: You are trying to tempt us into a much wider debate. In another context, I am sure we would be happy to participate but, given time constraints and the subject matter, we will not go there.

Q393 Mr Walker: We have heard a lot of evidence that business rates, as they stand-as the system works currently-are a major disincentive to people actually starting up in retail and going into retail businesses. We all know that there are problems around the country with empty premises. There is a whole debate around empty rates for a start but, without looking at the formula-without making it more responsive to what is happening in the market-do you not think there is a real challenge here with the amount of retail space that we have in the UK? We have heard a lot of evidence that that is likely to need to reduce over the coming years. Is there not, therefore, a risk that you are concentrating a bigger and bigger tax burden on a smaller and smaller space retail space? What can be done about that?

Brandon Lewis: If you will bear with me, I think there are two levels to this. The first point is that it is fair to say that we are seeing a huge change in the nature of our high streets and our town centres. They are going to be less retailbased. That is something else in Bill Grimsey’s report and one of the points of Mary Portas as well, who has done some great work-I have to give huge credit to Mary Portas and her team for the time they have put in working with communities around the country on this.

They are changing, and they are changing for a couple of reasons. Primarily, our shopping habits are changing. I doubt there is anybody in the room today who has not shopped online at some stage. As I have said, when we have about 15% of our population shopping online, that is going to change high street retail. You will have to excuse my colloquial way of describing this, but as I described at Bill Grimsey’s report launch, we used to go out to our town centre or high street to do our shopping. We do not anymore. We will generally go out to see something, to have something to eat, to have a drink or just for a day out and, while we are there, we will do some shopping.

High streets are changing. That is why I think it is hugely important that communities have that ability to look at what is right for their town centre, whether it is a very small village town centre, if you qualify that as well, or a big town centre or a long high street that is already vibrant, full of brand names; or whether it is a high street that has a value and a vitality because it is full of very local, independent, potentially niche, retailers that serve that community, actually, we will see variations around the country. That is quite right. We want to see that. Part of the beauty of our country is that every town you go to is slightly different. It is having that local power to look at it.

Let me just give a really clear example about this. I will pick on my colleague’s own constituency. I visited Sevenoaks a few months ago, and the town team there has done a great job. What they realise is they have this lovely town and they wanted to increase the footfall. They have some great brands, some great stores; they just wanted to increase the footfall. They have done something that somebody more centrally would never necessarily think of doing. They realise that on their doorstep is the Knole estate, which gets hundreds of thousands of visitors a year, who go there and then leave. How do they benefit from that? The town team, local people, has got together with the town council and, for a very small amount of money, has gone and got a vintage bus. People at Knole can try out a British vintage bus that takes them to the town centre and then back again. They got people on the bus who wanted to try the bus out, but it also got them into the town centre. They are seeing a real benefit from that, and they are making things in the town centre more accessible, using electronic pads so that people can look at what is there and make bookings. That is a very local thing.

For the future of our town centres, we have to understand it is changing. We have to be honest about that. It is not just about business rates; there is the whole remit of things the Government is doing. We have touched on the tax side of it today, but there are also changes we are consulting on at the moment around planning. There are flexibilities around permissions and shops being able to open just for two years-popup shops and things like that. Again, local councils and local communities have to look at making those town centres that vibrant hub. I have no doubt that they are going to get somewhat smaller in some places, because retail is changing.

Actually, the hospitality industry and the leisure industry are playing a bigger and bigger part. Towns that are doing really well are where the local authorities and local teams have realised that and are capitalising on that. They are providing a town that is vibrant around that, whether it is museums, artwork or events. That kind of thing is becoming more important. The whole structure is changing, and we have to be quite grown up and understand the fact that it is changing, and we as consumers are the ones who are changing it.

Q394 Mr Walker: I agree with a huge amount of what you have just said. It is right that we need that locally tailored approach. Obviously, with Small Business Saturday coming up, there is a real opportunity for local councils to get involved in supporting their local small businesses and doing special promotions around that. I have certainly written to my local council urging them to look at what they can do on parking for small business Saturday and support small businesses on the high street. I would hope other people are doing the same thing. While you are visiting people’s constituencies, you would always be very welcome to come to Worcester and see the vibrant high street that we have there.

In terms of supporting SMEs and in terms of supporting the growth and the jobs that they can bring, retail still plays an enormous role in giving people jobs. It is more a question for the Minister from BIS: we have flexibilities for councils at the moment to give people a discount on their business rates. We heard a lot of evidence that they do not feel currently able to use those. Is there something that the Government can be doing, particularly to support businesses that are creating new jobs and employment in this space, to give some extra skin in the game to those councils to create a pot of money or some system of funding that councils can go after, in order to offer a discount to their small businesses and the independents that create so much employment?

Michael Fallon: That is probably more a question for Brandon, in terms of creating a special fund for local authorities. What we do as a Government, of course, is encourage small businesses of all kinds and make it easier for them to take on more staff. We do that through reducing the red tape-the burden of regulation that applies to the very smallest businesses in particular. Of course, we are introducing the employment allowance from next April, which will make it much easier for the very smallest businesses to employ more staff, because it will be cheaper for them to do so. Brandon may want to say something about creating a local authority pool of money.

Brandon Lewis: This plays into the comments I was making a short while ago, in that it is part of the whole picture. There is the national insurance reduction. There is the corporation tax reduction, which will benefit all businesses. Small business rate relief is a hugely important part of that, but I would come back to that the onus has to be on those local authorities to understand that their longterm benefit, as a community and as a financial institution as a council, relies on the business rates retention scheme. If they want to see that grow, they have to encourage businesses to grow. If the business rates in their local area are the hindrance, rather than rent or anything else, then they should be looking at what they can do locally, now they have this power to discount, in any format they think is appropriate, so local businesses get that advantage.

I would also say that I do not think we should underestimate the power of being on a high street. I have met some retailers recently, in my own constituency as well, who have built up, in about 18 months, a really successful multimillion pound business in retail, starting through eBay and now online. They are desperate to get a high street presence. What they cannot do online, which you can only do on the high street with brand recognition, is build that brand recognition. That is why a lot of the big brand names, no matter how much business they do online, always want to have that high street presence in the right place, because that is a hugely important part of their brand building and their brand recognition. A lot of retailers that are currently working online from an office or wholesaler, which by the way still pay business rates when they do that, want eventually, at some stage, to have that high street presence. Even the Amazons of this world and eBays are now looking at what they can do in our high streets and our town centres in having those pickup points, which also helps them build their brand further. The high street still has a massive value to companies, which we should not underestimate.

Q395 Mr Binley: I am delighted you talked about that particular movement, but I am concerned that the Government can do more about footfall. We talk about cutting business rates, which is very important, but increasing footfall is very important in our town centres too. All too often, local government and big business have gone to the edge of town, just as supermarkets have. I know in Northampton-and if you would like to come and see Northampton Alive, which you know about, we would be delighted-we are bringing back local authority workers, partly to help the daytime economy. We believe that community hubs are the very heart of our communities, and I just wonder whether the Government could do more in that respect. It is not all about outoftown retail development; it is also about outoftown development of office buildings. We do need to keep quite a lot of that in our town centres to make them viable. Could you do more to encourage that?

Brandon Lewis: One of the key things we are consulting on at the moment, which could have a big, big beneficial impact if local authorities use it properly, is the power to convert some old retail establishments into residential. The reason for that has to be based on the vitality and vibrancy of the town centre, which is absolutely paramount, but if you have a town square or high street that then has areas just off the back of it that are struggling, allowing some of that to go back to residential has two benefits.

One is it means it refocuses your retail offer in that core area, which is where it is probably going to be moving back to anyway, but it also puts directly more footfall right on top of that high street or town centre. Having businesses close to and around town centres and high streets as well, as you say, Mr Binley, quite rightly, brings people in at lunchtime and after work.

I have the pleasure also of having responsibility for community pubs. I make the point they are an important part of the high street, but also a community pub is not just the little village pub. It could be in the heart of a high street or a town centre, because that is where people, either at lunchtime or after work, come together as a community. Local authorities can help encourage in businesses near a high street or a town centre. They can help spread that message, and town teams, Portas pilots and some of these organisations-the Association of Town Centre Managers-do some great work around this.

Equally, what I have seen is that some people make the argument that, if you get some outoftown developments, some of the bigger stores-and we have got a new Sainsbury’s coming to Great Yarmouth-if it is done appropriately and in the right way, it can actually increase footfall. We benefit because we have a Sainsbury’s in our town centre, and we have a Morrisons in one of our town centres. That brings more footfall. It does come down to-and I know this is something you feel very strongly about, and I share your view on this, Mr Binley-councils using their powers, particularly their planning powers, understanding that with that power comes, to quote Spiderman, that great responsibility. They have to use it. They have to look at the impact of the decisions they are making and how they can use them in a beneficial way for their town centre, which is ultimately good for their longterm viability financially, but it is good for their community as well.

Q396 Mr Binley: I admire your enthusiasm, Mr Lewis, for some of my beliefs. I am delighted, but you did not answer my question. The question was: can you do more? What are you doing to promote this particular movement back into our community hubs?

Brandon Lewis: I am sorry I did not answer. "Yes" is the answer, and there are a number of ways in which we can do that. One is through the consultations we are doing at the moment on planning, which I think have a really big beneficial impact. I am sorry I did not make that clear, but that is a potentially quite important thing.

The other thing is, actually, all of us have this great power from the fact that we get a microphone and we get to speak at conferences, in the Chamber and here, at a Committee like this, to keep reminding local authorities that we have given them a lot of power to deal with these issues in a way that is appropriate for their local community. It is not one size fits all, "We know best in Whitehall," but actually it is your town centre. It is your community. You have the power to do something with it. We have to cajole, encourage, nudge and motivate all our local authorities to look really carefully at what they can be doing with the powers that we have given them. I do not think we should underestimate the amount of power we have devolved that does allow councils particularly to do this.

Equally, what we can now see happening through town teams, the Portas pilots and the Association of Town Centre Managers particularly-a really good organisation-is that if people want to look at what they can do, they can bring all of that learning and information together to help areas move forward.

Q397 Mr Binley: Finally, can you book a date for a Worcester visit and for Northampton?

Brandon Lewis: I am really grateful for the invite. I am very keen to get around and see areas, so I will no doubt be seeing both and I am sure we could do a good half an hour together on the parking charges, right across our country.

Q398 Mr Walker: Thank you for those replies. It is always good to hear a Minister speaking up for local pubs, which is a cause very dear to my heart. I do just want to say one more thing on business rates. This is a fairly unique taxation system, in that it does not seem to change to reflect the underlying economics of what is going on, unlike corporation tax, unlike income tax, unlike almost any other form of taxation. It does not use thresholds in the same way as other taxes.

The small business rate relief is fantastic. This Select Committee in the past, before I joined it, did a lot of very good work on that and I agree; I think the Government has advanced the cause of small business rate relief a great deal. However, there is a challenge. It is a challenge that I often get put to me by local businesses in Worcester. You can have a business that wants to expand. It wants to take on new employees; it wants to move to new premises; and it finds it hits a real cliff edge with business rates. It is suddenly going from a very low cost, because of our good policies on small business rate relief, to a very much higher one. Is that something that you can take away and look at? I am not asking for a definitive answer, "Yes, we will do something about that right now." With the work that the BRC is doing, which is very welcome, with all the thought that is going into this in the long run, with the fact that we are now going to be looking at a business rate revaluation a few years away, is that something we can have a look at to see if we can make that work better for the businesses that are actually wanting to expand and take on new jobs?

Brandon Lewis: I do appreciate the point you are making. I can certainly say that. What I would say, though, is, even for that business, both that business and people who are working for that business should be lobbying. If there is an issue in a particular area where businesses want to grow and they have reached this point where they have just moved out of small business rate relief or they want to move to premises that have a high rentable value, and therefore its rates would be higher, there are two points. One is they have to do it when it is commercially right for them and that company is commercially viable enough to be able to afford its cost base, whatever that may be. We have to be careful that, as a Government, we are not going out of our way to subsidise businesses that, actually, are not as viable as they should be in the first place and are overreaching. We have to be careful about that.

Equally, again I come back to the fact that, in the system as it is at the moment, obviously there will be a review and a rates revaluation in 2015 for 2017, which will look at some of these issues in the way it does that revaluation. More importantly, even now, those local authorities do have the power, if they feel that businesses need to go into a particular part of their town, whether it is retail or office space, and need an extra boost to get it going, they have the power to do that now and they should be looking at how they do that. I am sure you will be able to lobby very well on your local authority to convince them of that great power that they have.

Q399 Chair: Before we just move on, so far, I believe, 18 of 326 councils have used that power. I understand from Bill Grimsey that Great Yarmouth is not one of those. Is that correct?

Brandon Lewis: As far as I understand, that is correct. I would not defend them whatsoever. If the council in Great Yarmouth, like any other, wants to see its town centre really flying, they should look carefully. I have to say we are very fortunate in Great Yarmouth. We have a great town centre with a great market. If anybody wants to visit, there are the best chips you can possibly get on our high street, in our town centre. We do not have a huge amount of empty office space or shops. We do have one big issue there that the council is trying to deal with at the moment, but that is linked to the cost of dealing with asbestos.

Q400 Chair: I do not want to go into the details. I could wax eloquent about the problems at Sandwell council.

Brandon Lewis: I was going to say, as it is a Labourrun authority, I would hope you would be able to convince your Labour colleagues in Yarmouth to see the light and use their powers.

Q401 Chair: Ultimately, Great Yarmouth is not practising what you are preaching. It does smack a bit of passing the buck.

Brandon Lewis: Actually, Mr Chairman, that is the point. It is a Labourrun authority and I would ask you-the Labour party-as well to put pressure on them, because I am certainly doing it. They should be making sure that they use the power they have, like any other authority.

Q402 Chair: They will respond in the way that councils across the board and across the political spectrum do. They will say they just do not have the cash to do it.

Brandon Lewis: If they were empty shops, it would be in their interest to do it, so the argument does not stack up.

Chair: If you could demonstrate to local authorities that there is a financial benefit to them in doing so, I am pretty certain local authorities across the board would do so.

Q403 Ann McKechin: Can I ask you just a quick question about charity shops, Mr Lewis? We have had differing evidence about the impact of charity shops on local communities. The Booksellers Association, whose members obviously operate on very narrow profit margins, told us that Oxfam actually has more outlets selling books than Waterstones, but enjoys a huge range of reliefs. Do you agree with the view that charity shops are disproportionately advantaged?

Brandon Lewis: I think it is right that we give advantages and discounts to charity shops, but equally I think-to an extent, I suppose it could be seen to be politically incorrect to say this-that actually we undervalue charity shops. In some areas, they get quite a bad press when, in reality, they can be a huge part in bringing footfall back in. There are some areas you will go to where you have charity shops of all different types. It could be one of the big brandname charities or it may be a very local charity you will only see in a particular area but, if they run something as a really well run shop, they can do very well. They can have really good products that, in themselves, build up a reputation and bring footfall in. What we are also seeing starting to grow now through charity shops is they are not just shops; some of them in themselves are becoming a community hub, where they will have tea and coffee or where people meet. That in itself is also very important.

Q404 Ann McKechin: This falls into the Grimsey Review recommendation that the relief should be reduced, but there should be a local pot so that local councils can determine if someone offers an additional service. I was in my local Barnardo’s on Friday, and they take on a lot of volunteers who are out of work and give them experience in the retail sector, so they are actually giving back a public good. Those particular shops should be rewarded perhaps to a greater extent than someone that is simply just, for example, selling books or vintage clothing at a pretty good return and not actually giving much else back directly to the local community.

Brandon Lewis: I can understand the temptation of that kind of option, but there are some problems with it. There is the complication, the cost and the question of who assesses at what point something becomes a good social value, enough to benefit from extra discounts.

Ann McKechin: Mr Lewis, it is localism and local authorities might decide.

Brandon Lewis: That again comes back to the local authority having that power, as opposed to saying that all charities are of a good charitable status. Equally, there is an issue around the point at which the charity shops are a value to their community. Again I will be colloquial. In Great Yarmouth, we have an organisation called East Coast Hospice, and they have three shops now across my constituency, in different high streets and town centres. Now, they are doing a hugely important role for the community and they do use volunteers, bring people in and give people work experience as well, as do some of the other charity shops, which are very localised and which will bring footfall into their high street because people care about the issue that they represent.

There are other charity shops, all around the country, some of which are brand names, but not always-sometimes they are local charities-that will not necessarily have people coming in just because they use local volunteers, apprentices or are giving work experience to people, but because they have a product that local people have come to value in the shop itself. Whether that is vintage clothing or whether it is books actually is important; they have become part of what brings footfall into the high streets. I think charity shops have a hugely important part to play, but I do again say that local authorities have to look at what gives a good makeup for their local town centre to encourage in the businesses that they think are appropriate to give the right balance, across the town centre, so you get that mix. Actually, the high street or town centre is at its best when it has a good mix of offer.

Q405 Caroline Dinenage: This is for Brandon Lewis. You have extolled the virtues of popup shops as a way of regenerating our high street. Some members of this Committee took part in a popup summit earlier this month, and Roger Wade, who is the director of Boxpark in Shoreditch, told the audience, and has subsequently submitted evidence to back this up, that the rating system does not work. He has offered at Boxpark three months’ free rent if, in return, the Government gives three months’ business rate relief, saying that such initiatives would kick start the retail industry, and many small businesses do not get the small business rate relief because of the square footage, which has always been the big problem for retailers, over and above other businesses. Would the Government be willing to take up this offer?

Brandon Lewis: Again, it is the local authority that has the power to do that. It is for the local authority to look at. If they think that is the right thing to do in their area, they have the power to give that business rates discount, and we do partfund it.

Q406 Caroline Dinenage: Would the Minister be prepared to write to the local council encouraging them to take up this offer?

Brandon Lewis: I would be very happy to write to the local authority to encourage them to use the powers that they have. Ultimately, it is a matter for them whether they use that power in that way.

Q407 Caroline Dinenage: Thank you. The other question is really about the high street initiatives. There is a plethora of different initiatives to help regenerate the high street-the Portas pilots, town teams, the Future High Streets Forum, the BIDs, the high street renewal award scheme. Mike Davidson from Land Securities said, "To get to the point where you can spend your time most productively doing things that are going to develop some sort of strategic change, rather than sitting in numerous talking shops, is what we would like to be able to do." Are there too many small initiatives tinkering around the edges and not enough strategic and political insight and oversight?

Brandon Lewis: They are slightly different things. The Future High Streets Forum is looking at the strategic future of our high streets. I am in the process of slightly widening it, because it is very retailfocussed, which is fantastic. We really appreciate all the time that the organisations and the retailers involved put into it. However, as I have said, the high street is also about leisure and hospitality, so we want to make sure that is reflected, and the night-time economy, in looking at this. That also works at a local level as well.

Portas pilots are a really good example. Nobody ever said, that I can see, that the Portas pilots are all going to be the same and they are the answer to the problem. They are exactly what they say on the tin; they are pilots. Every single one has got some differential between it, looking at what works in different areas.

What I think is quite interesting when we look around the country-and there are some really good examples around the country of things, whether it is Stockport, Rotherham or Sevenoaks, which are doing some really good things, and we have heard some more noted just this morning, from Mr Binley and Mr Walker, which I look forward to visiting-is you will see different things work in different places. What will work in one place will not necessarily work in another. It is right that, as a Government, we put out there a range of things and give the flexibility for local areas to pick and choose what will work best for them. They work out what is locally right for them and it is locally driven. We give the support for that and we put £1 million into the Association of Town Centre Managers, which is a national organisation. Local areas, if they want that support and information, can go there for it.

Bear in mind, as I said, that the new business rates retention scheme is going to really drive local authorities’ potential growth for the future. When I was a council leader, we had a fiveyear plan and we did change things. One of the things I am most proud of, as a councillor in my time, particularly as leader, is we completely changed the look and feel, and style and design, of our high street. It was struggling; we had lots of empty shops, certainly a lot of charity shops, where we thought we could have really good retail brand names. We had a mix of daytime and night-time economy that did not really work, so we changed it and we did that. That is not easy. It does take time, but a lot of that is around setting out-your point exactly, Ms Dinenage-a strategic plan. There is a real onus on local authorities to start looking at what they want their high street to look like in five or six years’ time.

Mr Grimsey made the point about a 20year strategic plan in almost the same sentence as saying the high street is changing faster than any of us can imagine. I do not think you can do that. In terms of a 20year plan, when things are changing as fast as they are, with people shopping online-and that will continue to accelerate because of technology-we have to be realistic. However, I do think authorities should be looking at a fiveyear plan of what they want their town centre to look like, what they can do to be part of making that change and how they encourage and motivate, whether it is a town team or their town centre manager, to have the power to make that happen.

It can be really simple. I have to say, when I was first a council leader, one of the things I was really frustrated about was the makeup of brand names that we did not have. Why did we not have them? My officers kind of looked at me rather blankly and said, "We do not know. They just do not take the shops. That is not our job." I took the view that, as I am a leader of a council that represents its residents, it is my job to make sure our town centre provides what our community wants, so we went and asked, and found out what is it that Body Shop wants to see.

I actually asked a few weeks ago. I met John Lewis and I said to John Lewis, "I would like to know from you," and they were talking about business rates, "what is the point at which you decide that that is a town centre that you want to be in. Is it just demographics? Is it business rates? Is it car parking?" I think that is a really important question local authorities need to ask. If there are certain types of brand names they do not have that they feel they should have or types of shops they have not got that they should have, go and do some work to find out why, and then you can look at whether you can provide it. They will have the tools locally to do that, so they have to make use of that. That strategic look at what is going on at a local level is hugely important.

Q408 Chair: Before we just move off this, the question was asked about Government support for schemes like Boxpark. In fairness to the Government, you had the Portas review, which made some recommendations, and the Government has come up with some cash to back those recommendations. Why can it do this and not back a scheme like Boxpark, which, I think you could argue, has equal merit?

Brandon Lewis: To an extent, I would say we have, in that we have given that power to the local authority to do exactly that.

Chair: You have given Government money to other schemes. Why not this?

Brandon Lewis: Boxpark could have bid for that for one of the schemes. For example, when the Portas pilot money was out, Boxpark could have bid for that as part of a Portas pilot project, if it wanted to. It could have bid for it as part of one of those kinds of funds, and it would have been looked at as part of that bid process. What I am saying, though, is there is that wider power, on a day-to-day basis, so that any local authority, even if there is not a particular pot of money available from the Government at the moment, can do that. The Government does partfund that, so we are playing our part.

Chair: You are saying, essentially, that they did not conform to a particular process that the Government set up.

Brandon Lewis: What I am saying is that, if at any point in time, if there is a particular project the Government is running that they want to bid for, they obviously can do that. However, regardless of that, the local authority has the power to do that. The Government is supporting it, because we partfund it.

Chair: You are saying Boxpark could actually make a bid for that cash.

Brandon Lewis: Absolutely, yes. The local authority and the Government partfund it.

Q409 Rebecca Harris: With all these people inviting Minister Brandon Lewis to their constituency, I would just like to put on record my gratitude to him for having visited my constituency. In fact, he will be well aware that Castle Point council has got a very ambitious programme for redesigning Canvey town centre.

I would like to turn to the BIS retail strategy and bring in Michael Fallon, who has been very quiet here. We have been bombarding the DCLG Minister with questions, and it is quite interesting that the retail strategy that the Government has is in the remit of BIS and BIS only, despite the fact that so many other Government Departments are responsible for the retail sector. The focus of this morning has been largely on DCLG. Why is it BIS’s responsibility?

Michael Fallon: It is a BIS responsibility because it is business. It is a sector in business, but of course it cuts across many other areas of government. I work very closely with DCLG on issues like business rates and small business rate relief. We work with the Department of Health, for example on older consumers, older customers. We work with Treasury right across Whitehall. The overall responsibility for the retail sector has to sit somewhere, and I think business is the most appropriate Department for it to sit in.

Q410 Rebecca Harris: We also heard earlier from Bill Grimsey, very much advocating that we should actually have a Minister devoted to the retail sector. I wonder whether you feel that we do, in fact, have a Minister devoted to the retail sector or what your views on that proposal would be.

Michael Fallon: I am the Minister responsible for the retail sector at the Department for Business. I have other responsibilities as well, but retail is an important part of my workload. I have regular meetings with the Retail Policy Forum, which is centred in the Department for Business and is attended by the Retail Consortium, the Association of Convenience Stores and so on. That meets very regularly. I attended a meeting of it last week. It is my job to keep in touch with the major organisations, like the Consortium, the Association of Convenience Stores and the major retailers, and that is something that I do regularly. Other business Ministers, of course, participate in other aspects of that. For example, the Minister for Skills is involved in the skills that are needed in the retail sector and so on. If you are looking for a Minister for retail, it is me.

Brandon Lewis: I would just add to that as well. In Communities and Local Government, we have an interest because it is communities and we work together. We have been working together recently, actually partly for the benefit of national retailers, around the primary authority schemes, so we do work together on that. You have the benefit of having a Minister who is looking at it from the community’s point of view as well as from the business point of view. Ultimately, I certainly answer to the Secretary of State, who has a keen interest, as has the Prime Minister, in making sure we have vibrant high streets in future. It is a really key area that the Government is very focussed on.

Q411 Rebecca Harris: One other question is that the BIS Retail Policy Forum, I gather, meets three times a year. Do we really think this is sufficient, given it is such a big area? It employs 3 million people in the economy, and there are so many different parts of Government that need pulling together to make sure we address it.

Michael Fallon: It met last week, as I said, and I attended that meeting, but it is not the only interaction between Government and the retail sector. I have regular meetings, for example, separately with the Retail Consortium and, as I said, with the Association of Convenience Stores. I see them on a regular basis. We see the major retailers regularly. There is constant interaction between us, and I make sure the retail sector is represented. To give you one example, the Prime Minister’s European Business Task Force has just reported his recommendations he took to the European Council last week, and on which he reported yesterday to this House. I chaired that task force. There were six business leaders on that task force; two of them were from the retail sector. It is one of my jobs to make sure that retail is properly considered across government.

Q412 Chair: I do feel that there is a real problem for you, as Minister for retail, insofar as the biggest issue that we have come across, as a Committee, is business rates, which are ultimately controlled by the Treasury. The other issues closely following that are issues surrounding parking and planning, which are the responsibility of DCLG. You are effectively responsible for a policy for which the key determinants of success are determined by other Departments. Do you feel that is an appropriate way of promoting the interests of the high street, or are there alternative processes that you think could deliver, within Government, a better outcome for the high street?

Michael Fallon: You have singled out two there, Chairman, and they are important-rates and parking-and I know your Committee has looked very closely at them, but they are not the only concerns of the retail sector. In the Retail Policy Forum, we cover a whole range of issues. They are engaged with us on the burden of regulation, the way in which regulation has enforced the success of the primary authority scheme, which we are widening out, the need to improve the skills base of the retail sector, how Government can help them manage the transition to more digital commerce and what needs to be done to break down some of the barriers in Europe to a more successful digital single market. There is a range of issues here, apart from rates and parking, where Government can help. That help is best centred in my Department.

Q413 Chair: There is a whole range of regulations that come under other Departments, are there not?

Michael Fallon: There are, but I am also the Minister for deregulation across government, and I deal with the redtape challenge across government, together with the Minister responsible for Government policy. I am responsible for a number of policies in this area to promote better enforcement, to reduce the burden of red tape and to make sure that business really sees the benefits of that.

Q414 Chair: What have you done in terms of DCLG regulation that will help the retail industry?

Michael Fallon: All Governments are subject to our overall review of red tape. They all have to come up with the regulations in their sectors that affect business, and have to put them before us, and before the officials in my Department, to see whether they need to be overhauled or scrapped-whether they are really fit for purpose.

Secondly, there are individual sectors inside DCLG that are the focus of what we call focus on enforcement reviews, as to how regulations are enforced. A very good example of that is the recent review of fire safety, where Brandon and his officials have had to come to us and explain how the pilot that they have been running will now lead to a much more proportionate regime of inspection and enforcement, particularly for small businesses. DCLG, like every other business, is part of the Government’s overall work on deregulation and on better enforcement. When they come forward with new regulations, as every Whitehall Department does from time to time, they are subject to the rule that we have established of one in, two out, and they have to make the case for their new regulation before my officials and the respective Cabinet committees, just like any other Department.

Q415 Mr Binley: When Mary Portas gave evidence to the CLG Select Committee in September, she talked about the Future High Street Forum, adding that it is only just beginning to get going and that there was too little guidance from Government on what a town team should be and on the best way to spend money. The experience I have in Northampton is that you have to cross government boundaries, local government boundaries, enterprise zone boundaries, county council boundaries and LEP boundaries. I am just wondering if we see this whole business of a town centre and the town itself being related to connectivity, to transport and to all of those other issues, which are important to the heartbeat of a given town. I am asking if you are giving enough guidance as to how that should operate, how you got the information based on the guidance you give and if you are doing too little. My question, actually, Mr Lewis, suggests you are.

Brandon Lewis: I did understand the inference. The point you made is absolutely right. Because of the way local government works, there are lots and lots of different boundaries for lots and lots of different things. One of the important changes we made recently, particularly for BIS, is that actually they can look at the economic area, rather than being tied down to a particular local authority boundary. One of the great advantages of enterprise zones as well is they look at that economic boundary, as the local enterprise partnerships do. That has been quite an important step forward. Certainly, town teams, looking at an area, can work on an area that they define.

To back up the point Michael made, I also meet not just the Future High Streets Forum but the British Retail Consortium; I have met Mary twice in the last two and half weeks, and I am seeing other organisations as well over the next few weeks. One of the conversations I have had with Mary directly is that we have got over 300 town teams. The fact that they are local people looking to deliver locally means we will see quite big variations, and I think that is quite right, because otherwise we get homogenous town centres, which really does not do our country or their communities any justice.

I appreciate the point, in terms of what we can be doing around connectivity and giving good advice. It is one of the things the Association of Town Centre Managers is looking at. They have just produced a really good report this week around best practice and trying to share this. One of the things we do not necessarily do well enough in this country across local government-and I keep talking to the Local Government Association about this-is share best practice, which means that the space can get filled up with some examples of what does not work. Actually, they are quite important. Looking at what does not work helps us learn lessons down the line. We have to be a bit more courageous about things not working and failure, in order to learn.

Whether it is around connectivity or whether it is around our shared passion for getting the parking structure correct and priced correctly, it is about taking best practice and sharing that around so other areas can look at what has worked, whether it is the parking charges in Braintree or whether it is the connectivity they are bringing in in Bedfordshire at the moment, and bringing that change through there, which will make a massive difference, particularly in central Beds. It is a really good idea. The local authority has looked at an area, decided to get behind something and make something happen that would not otherwise have happened and, once it is up and running, will make a massive difference. That is an important part that we should certainly be looking at, yes.

Q416 Mr Binley: Requiring local government to do a six-monthly report on what they are doing in this respect and then simply collating that-a bit of bureaucracy, but never mind-would not be a bad thing.

Brandon Lewis: We have to be a bit cautious around putting more burdens and red tape on local authorities. I know they love getting a guidance letter from me at the best of times, but certainly, as my boss would say, we would encourage muscular localism. It comes back to having this fiveyear plan: looking at what they have, what they want their town centre to be like and, more importantly, what their community wants and needs from its town centre, and then looking at what they need to deliver it. That also puts that local authority in a stronger position, if it does need to come to central Government, to bid for investment funds of whatever type, whether it is transport, connectivity or to feed into the review that is going in at the moment between DCLG and the Department for Transport. We are looking at parking particularly, and yellow lines and doubleyellow lines for town centres. It just gives them that opportunity to play a really important part in that, and they need to do that.

Q417 Mr Binley: The final question from me is about the funds allocated as part of the Portas money. Do you know how much has been spent and who is auditing those funds to ensure that it is being correctly utilised? Again, I do not want a great big bureaucratic network, but I do want to know that our money is being spent well and properly.

Brandon Lewis: In terms of the amount that has actually been spent, as of today, obviously it is all allocated but, if you do not mind, I will come back to you to make sure you get exactly the correct figure for that. I will get a note to the Committee.

Mr Binley: That would be helpful.

Brandon Lewis: I am very happy with that. The whole point of the Portas pilots is that they bid for money for specific projects, so they will be using that money to deliver those projects. As I say that could be an area like Braintree, which has come up with a new parking scheme, which seems to be working very well. They have shown about a 40,000 increase in footfall, not by taking away all the charges but making them reasonable. I think it is 10p, so at least they can also monitor it, so they can actually show the benefit they are having. It is a really good scheme. In other areas, Great Yarmouth is doing some good things like that-free parking after four o’clock-so there is a job to do in sharing that kind of best practice as well. I will come back to you with the exact numbers, if that is okay.

Q418 Mr Walker: The new BIS retail strategy contains a line that says, "The Use Class system has been criticised as being overly prescriptive and insufficiently flexible, and thereby a barrier to the growth and performance of town centres." Do you think we have done enough so far to alleviate those concerns, and when do we expect action to be taken on the consultation on permitted development rights?

Brandon Lewis: The consultation I think has just closed, but I will confirm the date for you in writing. Obviously, we will then be responding to that. I get asked this particularly with regard to pubs, but we have to make sure we do not create more regulation and make it more difficult for retail and other parts of the high-street sector to flourish. One of the important things we have looked at is the flexibility around permitted development, particularly this twoyear option for businesses to come in, which can be beneficial for popup shops to be able to come in and open up and trial something and get something going. That could be a really big step forward. That is an area where we are looking at that extra flexibility to help retail and actually give people that chance to do something, without the extra cost of going through the regulatory cost of getting planning, but just for that temporary short period.

Q419 Mr Walker: That twoyear option, I would agree, is an exciting area to explore. You also talk about the need to protect groups like pubs and community assets. Can you define more precisely what is actually defined as a community resource?

Brandon Lewis: A community asset, in terms of an asset that can be listed, is not something that we define. That is part of the beauty of it. Again, it is the flexibility. Pubs are something obviously I feel passionately about, as the community pubs Minister, but it applies to a whole range of things. What a community needs to do, if it has an asset like a pub-and I will take the chance to just give a bit of a promotion to CAMRA, which is doing some great work about getting pubs listed-is really simple. You need just 21 electors to sign it and get it listed as an asset by the local authority. It is a really good way.

Pubs are a really good example of how this works in practice. What it means is that, if they get it listed and the community values it, and a pub company, a brewery or the owner of a free house decides to sell that pub, they get that sixmonth grace period for the community to come together and buy it. It gives them that protection. It does not stop a business that is not viable from moving on to be something else, but it just gives the community that opportunity to take over and protect that particular asset. It is communitydriven and it is for the community to decide what they think that asset should be. Pubs are the one that everybody is focussed on at the moment, but it is not limited just to pubs.

Mr Walker: It could apply to shops, if you had people coming and saying, "This is a community shop, but we really value a local shop in the village," for instance.

Brandon Lewis: If you can get the people in the community to sign up to it and then get it to the local authority, they can list it, but particularly with pubs, the local authority does have more protection as well, because they also have the ability to use what is called an article 4 direction, which local authorities have been reluctant to use and there is no reason for them to be reluctant. If they think it can make a difference, then local authorities should use the powers they have.

Again, we also must make sure we are not propping up a business that is not succeeding. There is a really fine line there, and we think we have got the balance right without being too top heavy; by giving that grace period, that does not mean we are propping up a failing business, but just gives a community the chance to keep something it values. Like anything-shops, pubs, post offices-if the community values something and wants to use it, they have to use it if they are not going to lose it. Equally, the commercial operator has to make an offer that the community wants. It is a twoway street. There has to be good valueformoney customer service, a good product, and the community then, if it wants to keep it, has to go and use it.

Q420 Mr Walker: Another point in the retail strategy was that more could be done to help LEPs recognise the importance of retail and town centres to local and regional economies. Anecdotally, we have heard quite a lot of evidence that some LEPs pay attention to retail; others do not. Do you think there is more that can be done in that space for every LEP to engage with the importance of the retail economy?

Michael Fallon: Perhaps I should take that, as I have responsibility for LEPs at BIS, shared with Brandon’s colleague at DCLG. Yes, it is in the nature of LEPs, all 39 of them, that they are different from one another. They are locally led, comprising local businesses and local authorities. We do not impose a pattern on them and tell them what they should prioritise. However, we have been working with them this year on the preparation of their growth plans, which will guide the way-for example, they apply the structural and cohesion funds from next year-and the way in which they see the economic opportunities in their area for our revision of the assisted areas map, which also comes into effect next year. There is a process under way at the moment, whereby obviously we are discussing with each of the LEPs the nature of their growth plan and the scale of their ambition. I am sure encouraging them to focus on retail centres should be part of that.

Q421 Mr Binley: Can I come in with a supplementary, Minister, but declare an interest? I am a director of a LEP board, as you now know. Also I chair unofficially the Northampton Alive steering group, which is made up of the leader of the county council, the leader of the borough council, the chairman of the LEP and the chairman of the urban development corporation, both of which are involved with the enterprise zone. That crosscollectivity is vitally important, and I wonder what you are doing to encourage that, in terms of the boundaries, the silos, which have been a destructive force in local government for so long.

Michael Fallon: They have been, because they have reflected administration. To be brutal about it, they have reflected politics rather than economic geography. It is the great strength of the local enterprise partnerships that, unlike the regional development agencies that were their predecessors, they properly represent local economic geographies and that the way in which our constituents now work has changed. They drive across local authority boundaries, sometimes commuting great distances into particular centres. The local enterprise partnerships are much better suited to address that.

There will of course, as you have pointed out through your own responsibilities, be areas of overlap. We encourage the local enterprise partnerships to work with the city, if there is a city inside their area, but also to work with the neighbouring LEPs in tackling some of these issues they have in common. I would far rather have the overlap than any degree of underlap, or the kind of rigid local authority administrative boundaries that got in the way of sensible economic support in the past.

Mr Binley: You reassure me, Minister. I am grateful.

Q422 Katy Clark: I was wanting to ask some questions about skills. What specific skills training do you think is required for the retail sector? Do you think the type of training that is needed and the kinds of skills that are needed are generic skills or very sectorspecific?

Michael Fallon: I am not convinced there are very special skills in the retail sector that are easily distinct from every other sector. Obviously there are basic skills in customer service. There are management skills. There is increasingly a need for digital skills at all levels of the retail sector. I do not think it is for us to tell the retail sector how they ought to organise their skills training or to set out a particular agenda for them. It is for employers to articulate the skills they need, to identify, through bodies like the Retail Policy Forum, where they think the skills gap is and then ask us how we can help to fill it. From Government’s point of view, because these are more generic skills and it is not a very specific set of skills that might apply in one very specific industry that I am responsible for-for example electronics, nuclear, aerospace or whatever-our role really is one of enabling rather than directing.

Q423 Katy Clark: What did you learn from the retail STEM skills gap analysis that you carried out in February 2013?

Michael Fallon: We learned that there are still skills gaps inside the sector. The Minister for skills in my Department continues to meet the Retail Consortium and each of the individual retail employers, alongside the National Skills Academy, to make sure they are getting the best out of the apprenticeship scheme, that they put forward good bids for the employer ownership pilot schemes and to see what we can do to help stakeholders, particularly in this sector, map the range of retail roles that will require digital skills in the future, not least the ones that will demand a higher level of maths and knowledge of code than we have seen up till now.

Q424 Katy Clark: You have already published a retail strategy, but your new policy document, A Strategy for Future Retail, states that BIS will "explore with the retail sector how best to engage retailers in the design and piloting of new or evolving skills and qualification initiatives and processes…by March 2014". Why do you feel that this further work is required? Do you not think you are in a position to make decisions at this stage, based on what you have already done?

Michael Fallon: No. The retail strategy itself is new. What we published last week is a refresh, one year on. There are other policies across government, the launch of the digital capability programme and so on, that have come on stream this year, which need to be tailored to what we are going to do on digital. We are not dragging our feet on this at all. We want to work with the industry and make sure that we can really focus our effort on where they think the priorities are and on where they think the gaps are.

Q425 Chair: What concerns me, and I have to say that this applies to all Governments, is that the process can often replace any assessment of outcomes. The refresher of the retail strategy does seem to me part and parcel of this particular problem. How will you judge outcomes from this strategy?

Michael Fallon: You have seen some outcomes from the original document already, in the development of an international strategy for retail and some of the work we are doing with the Commission and across the member states to ensure that our retailers find it as easy to do business in other member states as they do online, for example in the United States or with Australia. There is a lot of work already going on on that. There is an ecommerce task force looking at the wider opportunities that arise from digital. We have a concerted effort now from UKTI to help smaller retailers that have not yet exported to be able to do so online, and look at some of the barriers to that. We have already seen a series of outcomes from the first retail strategy. We have refreshed it now, one year on, and we will continue to work with the industry.

I would emphasise that we see the retail sector-I know there are concerns over the future of rates and there are issues about parking. There is obviously concern as the industry changes and more of it becomes online and multichannel. I would stress that this is a very successful industry. In terms of the way it is working, in product innovation, in sales, in services, and the way it is reaching out now online to markets across the world, this is one of the industries we do really well in this country. I see it as one of our success stories.

Q426 Chair: I certainly agree with you; I think it is a success story. I suppose the issue is what role BIS has played within it. What concerns me is that you have basically underlined the point I have made. You have described, as two outcomes, what are actually strategies. What I would like to know is how you will measure the outcomes from these strategies.

Brandon Lewis: Mr Chairman, can I just clarify? Are you talking about the impact on the high street generally?

Chair: Yes, and on retailers.

Brandon Lewis: My responsibility in DCLG is about the high street and town centres. I need to clarify: there is a difference between that and retail, which falls entirely within Michael’s remit. For the high street, there is some indication already, with the figures we have, that after many years of decline in the high streets, we have started to see over the last 12 months a plateau and a slight improvement in footfall and empty shops in high streets, which is a good thing but it is only a start. That is partly because it is not just about retail. We are starting to move into another very successful area in this country, which is the leisure and hospitality industry, linking back to my community pubs brief as well, which is doing very well. Again, that is a hugely successful industry, massively innovative.

In terms of how we assess the outcomes and if we can say we have made a beneficial impact, there is an answer, but we also have to be a bit cautious. There is a risk that, if we set out too many tickbox KPIs around high streets, we start seeing examples of town teams that want to show they are doing really well and can tick the boxes-in the way that local authorities used to do for a comprehensive area assessment under the Audit Commission-and get a great score, but be providing nothing the local community actually wants, cares about or is interested in. We have to be really careful about that.

Through the Future High Streets Forum, we discussed this just a couple of weeks ago. With the support of the Association of Town Centre Managers, which we are funding, we are doing some work at the moment to look at how we can actually take a view about and judge that very point around outcomes, not just based on tickbox culture but actually looking at the social benefits as well. Part of the problem is almost that X factor. You know your high street is doing well because you have been in it, walked down it and felt the vibrancy and the vitality. As soon as you start trying to put that into some kind of a piece of paper that we can then disseminate and send around, you start taking away that real essence of what you know makes your high street work when you are walking down it.

We all, taking Mr Binley’s point from earlier, want to make sure that the money the community is putting in-and, from retail’s point of view, the money they are putting in-is getting results. We know that from walking around. The ATCM is looking at exactly how we can measure that in a productive way, but it is not straightforward. We want to make sure that we do not kill off the vibrancy and vitality that you can instinctively feel but, once you start going to a tick box, you can have an unintended consequence.

Q427 Chair: I certainly was not, I do not think, advocating a tickbox mentality, but there are ways of judging it: for instance, level of turnover in a town, footfall, rents and so on. It is reasonable to assume in a vibrant centre that rents would begin to rise.

Brandon Lewis: Mr Chairman, I understand the point you are making, but the problem with that is some town centres may well take the view that what they want to see is the community coming together. It will not necessarily be about turnover in a retail establishment. I visited St Albans recently, and one of the things St Albans has started to do is put on community events in the town centre and the high street. That is bringing lots of people in and linking up with the cathedral. They are coming into the town centre. They are not necessarily going to see all of that benefit in turnover in the shops, because some of those people will come in to that event, see that event and then leave. That does not mean that town centre is not vibrant and an important part of the community, where it is coming together. You will not necessarily judge that just through footfall or turnover in a shop. That is why I say we have to be really careful about what we see as that social value and how we work that out. That is a really tricky thing to do, without putting ourselves into a tickbox culture.

Q428 Chair: Basically, what you are getting at is that criteria for success may differ from locality to locality but, if some of the structures that have been recommended by Grimsey and others are set up, it should be possible to measure them.

Brandon Lewis: To an extent, it is measured when we are walking around our town centres and we feel they are vibrant, good places to be. As soon as you start saying, "We want to say, ‘Has a town centre got this, this, this and this to judge by?’" then we start the unintended consequence of the tickbox culture.

Chair: We could probably have a long debate. I have a couple more questions for Michael Fallon that I want to bring in, on the skills agenda.

Q429 Nadhim Zahawi: Welcome, Minister. How do you respond to the comment made to us by the National Skills Academy that many employers have been disillusioned by the changes that have happened within the skills funding system?

Michael Fallon: That has not been our experience in BIS. We have had a huge amount of interest in the employer ownership pilot, and the move to give employers themselves more responsibility for the skills funding and the skills training that they need to do has been welcomed.

Q430 Nadhim Zahawi: Martin-Christian Kent, research and policy director at People 1st, told us that many in the retail sector were slightly dumbfounded by the fact that retail is not part of the vision for the roll-out of industrial partnerships, given that it employs one in five people. Your recent strategy document A Strategy for Future Retail: Industry and Government Delivering in Partnership has no mention of industrial partnerships. Why is there not an industry partnership for retail, or do you consider the retail sector to be less important than others?

Michael Fallon: No, it is not less important. Led me deal first of all with their bid. I know People 1st were disappointed that their own particular partnership bid did not get through. The employer ownership pilot scheme, the second round, was six times oversubscribed. We had a huge number of very highquality bids. The fact that theirs was not accepted does not mean that we were opposed to the sector.

If you are asking me more generally why we do not have a fully fledged industrial strategy for retail, in the same way that we do for aerospace, chemicals, automotive and many of the other more traditional industrial sectors, the answer is that this is not a sector that requires an enormous amount of government expenditure in terms of capital support for very highcost research and development. It is not a sector where there are very high barriers of entry into the sector. It is, at the moment, a very successful sector, growing strongly, extremely competitive and not in need of the kind of longterm framework that we have put in place for aerospace or life sciences or some of the other major industries.

Q431 Nadhim Zahawi: I have got one small supplementary. How do you explain the demise of the Skillsmart Retail?

Michael Fallon: I am sorry; I am not familiar with Skillsmart. May I get back to you on that?

Chair: It was the sector skills council for retailing.

Michael Fallon: The former skills council, yes. Again, the way we have reorganised skills is now better suited to an industry like this, encouraging them to bid through the ownership pilots, to map out the skills gaps that they require and work with the Skills Academy to fill those in.

Q432 Chair: Do you not think that perhaps the employer ownership pilot approach was geared more to manufacturing than the retail sector?

Michael Fallon: It was certainly not designed to exclude retail. As you know in this Committee, probably better than anybody else in the House, we are seriously short of skills in the manufacturing sector. It is a constant cry from every manufacturing business I visit, up and down the country, from engineering to aerospace to automotive and so on. We make no bones about that. There are serious skills gaps there, and these are gaps that have not suddenly emerged. They have been created by a legacy of underinvestment in maths and science teaching much earlier in our educational system. There was no attempt to discriminate against retail. The employer ownership pilots have been extremely successful and they were massively oversubscribed. We had to judge each of these bids on quality. That is why the People 1st bid was not successful.

Q433 Chair: I was going to say: have there been any successful retail bids?

Michael Fallon: Not to my knowledge but, if I am wrong on that, I will get back to you.

Q434 Chair: I would be grateful for some information on this, because I do feel the retail sector, given its size-the number of people it employs and its contribution to GDP-does feel that it is perhaps not regarded as important as some other sectors of the economy, and this would be a reflection of it.

Michael Fallon: I am sorry; I did not catch the end of that.

Chair: I will just repeat. I think there are many within the retail sector who feel that, given the size of the contribution to GDP and the number of people they employ, the approach within the skills sector does not reflect their importance within the general economy.

Michael Fallon: That is certainly not our view. This is one of the most important sectors of all in the British economy and one of the most successful but, as you have already said, Chairman, one of the largest. We certainly regard it as one of the most important. As Katy Clark and I were discussing earlier, there are skills issues there that we do need to address, notably the improvement that is needed in digital skills as more and more retailing moves online.

Q435 Chair: The employer ownership pilot model does not seem to be addressing them. This is the argument.

Michael Fallon: I will certainly undertake to respond to you very specifically on that.

Chair: Thanks very much. Any further questions before we close? Can I thank you, Ministers, for your contribution? That is very helpful. We will deliberate and duly make our report in due course. Thanks very much.

Prepared 1st November 2013