Significant reform of business rates, a pause in extending permitted development rights and the scrapping of upward-only rent reviews are among the recommendations from a select committee inquiry into the future of our high streets and town centres.
A report published today by the Housing, Communities and Local Government Select Committee stresses that while the authors “do not believe that the high street is dead… we do agree that a tipping point has been reached”.
The report goes on to suggest a number of changes to the current system, much of it focussed on levelling the playing field between online and bricks and mortar businesses. Among these are the introduction of an online sales tax, with the aim of offseting business rates bills and funding a 12-month holiday for high street retailers from rates increases which result from investments to improvements in property. The report also urges the Government to look into further proposals for changing the business rates system, including a reduction in business rates for retailers in high streets and town centres, which would have the additional effect of balancing competition from out-of-town shopping centres and the idea of replacing business rates for retailers with a sales tax or an increase in VAT.
The report says that the use of permitted development rights (PDRs) risk undermining the strategic vision that a community has developed for its high street or town centre. It suggests that the Government should suspend any further extension of PDRs, pending an evaluation of their impact on the high street.
The authors recommend a full review of the Landlord and Tenant Act 1954 to assess “whether the law as it currently stands is impeding the emergence of a landlord tenant relationship which is more appropriate for the current retail environment”.
The report also recommends a further consultation (following the one in 2004) on outlawing the use of upwards-only rent reviews and the creation of conciliation service, similar to that provided by ACAS, to facilitate negotiations between retailers in financial distress and landlords who are proving reluctant to engage in discussions or compromise on reducing rent.
The publication of the report has been welcomed by trade bodies.
UKHospitality chief executive Kate Nicholls said: “Hospitality businesses lie at the heart of communities across the UK and play pivotal economic and social roles on UK high streets. The report gives due recognition to how crucial the sector is to the high street of the future, as they move away from the shopping-focus of the past. Policies to drive growth and regenerate high streets must have hospitality at their core and this needs to be recognised by the Government and local authorities.
“In the absence of the Government’s promised full of review of business rates, this represents the most radical assessment of the state of the rates regime. This is a great starting point for opening up the conversation and beginning to address an issue that has crippled many high street businesses, not least in hospitality.
“Property tax is the chief cause of the decline of the high street and a reduction in the tax burden would be very welcome. Supplementing rates with an online sales tax, something UKHospitality has pushed for, would provide a significant boost and the Government needs to consider this in the design of the Digital Services Tax. That tax will need to cover areas such as financial and professional services that have moved away from the high street in recent years. A new sales tax or increase in VAT for retail and hospitality would need to be pitched significantly lower than the current business rates charge to be helpful.
“Many businesses are also penalised by a rates hike having made a significant financial investment into their property. A tax holiday would be a good way to remove this disincentive to invest, although the 12-month limit is not long enough.”
Brigid Simmonds, chief executive of the British Beer & Pub Association, said: “As a member of the Government’s Future High Streets Forum, the BBPA has called consistently for the Government to help high streets and town centres. We were also delighted to give evidence to the Housing, Communities and Local Government Committee on the matter. The Great British High Street’s competition and the new fund for high streets announced in the Budget are both very welcome initiatives, but there is more to be done.
“As highlighted in the BBPA’s evidence to the Committee, the current business rates system penalises businesses like pubs for investing in their property, as improvements lead to rates rises. The Committee’s recommendation of exploring the introduction of a 12 month ‘holiday’ on these rates increases is most welcome. This would be a positive step forward in regenerating high streets and town centres across the UK if implemented.
“The report also recommends replacing business rates for bricks and mortar businesses with a sales tax or an increase in VAT. As always, the devil is in the detail as to whether this would be effective. In any case, a replacement of business rates would need to address the fact that pubs and high street businesses are unfairly taxed, whilst online retailers are not contributing enough. As the report notes, pubs alone pay 2.8% of the total business rates bill, despite accounting for just 0.5% of total rateable turnover. We welcome the call for the Government to come forward with views on how business rates could be reformed by October this year. Without doubt a full review is required.
“The Chancellor Phillip Hammond’s decision to cut business rates for high street and other small businesses by one third for the next two years in the Autumn Budget was most welcome, as was the announcement of the £675 million Future High Streets Fund. These actions, combined with a number of the recommendations outlined in the Housing, Communities and Local Government Committee’s report, are a welcome step towards securing the future of the high street and the pubs that serve them.”