‘Unfair business rates system tipping balance in favour of online retailers’

Pedestrians walk past a closing down sale in Wood Green, London Credit: Daniel Leal-Olivas/PA

The Government should urgently consider an online sales tax to help secure the future of the high street but local retailers must do more to offer the personal interaction that the likes of Amazon cannot, MPs have urged.

Dated policies and an unfair tax regime must be reformed to create an environment that will allow high streets and town centres to flourish in the future, a report published by the Housing, Communities and Local Government Committee (HCLG) has found.

Business rates are stacking the odds against high street retailers, with Amazon’s bill amounting to around 0.7% of its UK turnover while bricks-and-mortar stores are paying between 1.5% and 6.5%, it said.

The Government needs to go “further and faster” to “level the playing field” by considering a sales tax, an increase in VAT, an online sales tax, and “green taxes” on deliveries and packaging, the committee concluded, adding that each of the proposals had the potential for “real change” without requiring a complete overhaul of business tax.

However MPs also said high street retailers must accept that they need to adapt and do more to offer what online cannot, focusing more on personal interactions and convenience.

Local authorities must also “get to grips with the fact that their town centres need to change” and create areas that are the “intersection of human life and activity”, the HCLG report concludes.

With online sales currently at 20% and set to grow, the future for high streets and town centres is “increasingly bleak” with some formerly thriving shopping areas likely to become ghost towns unless the Government, councils, retailers, landlords and the local community act together to implement the recommendations, it warns.

Chairman Clive Betts said: “The growth of online shopping has profoundly changed retail in the UK, and the knock-on impact on high streets has been stark.

“It is likely that the heyday of the high street primarily as a retail hub is at an end. However, this need not be its death knell.

“Local authorities must get to grips with the fact that their town centres need to change; they need to innovate, setting out a long-term strategy for renewal, reconfiguring the town centre and finding new ways of using buildings and encouraging new independent retailers.

“Business rates must be made fair. They are currently stacking the odds against businesses with a high street presence and this must end.

“Tax reforms are needed to level the playing field between online and high street retailers, and we urge the Government to investigate all the options in this area, including an online sales tax.

“We must begin a period of renewal and regeneration, establishing high streets as focal points of our communities comprising green space and health, education and leisure services, as well as a core of retail.”

British Retail Consortium chief executive Helen Dickinson said: “The committee are spot on when they say retailers are paying more than their fair share of tax. In fact, retail accounts for 5% of the economy, pays 10% of all business tax and shoulders 25% of the UK’s Business Rates bill.

“This damaging and outdated Business Rates system, which drives up the cost of doing business, is a major factor in store closures as well as hindering the successful transformation of our high streets.”

Richard Watts, chairman of the Local Government Association’s resources board, said: “We agree with the committee that the business rates system needs to be modernised to ensure that sectors such as online businesses make a fair contribution.

“Councils can do more to support small businesses and boost high streets with the freedom and finance to set business rates discounts and reliefs locally.

“They also need more powers and flexibility, particularly in relation to planning, to help shape and deliver vibrant town centres.”

Federation of Small Businesses national chairman Mike Cherry said: “Currently the tax system favours big online companies over independent businesses based on the high street, which are already facing a tough trading environment.

“The broken business rates system penalises firms, regardless of their profits or ability to pay.

“The new business rate discount coming into play in six weeks’ time should give some relief for smaller firms.

“Long term, there needs to be a serious overhaul of the unfair tax that hits firms before they’ve had the chance to make their first pound of turnover, let alone profit.

“We welcome the report’s call for fast action to level the playing field.”

High Streets Minister Jake Berry said: “We know high streets are the backbone of our economy and a crucial part of our local communities, and we want to see them thrive – both now and in the future.

“That’s why the Government has stepped up, putting a plan for the high street at the centre of the Budget, backed by £675 million cash investment to ensure that local high streets are able to adapt and thrive for generations to come and establishing a High Streets Task Force to support local leadership.

“And we’re supporting small retailers too, slashing business rates by a third – building on more than £13 billion of rates relief since 2016.

“As the Chancellor made clear in the Budget, an online sales tax would be passed on to consumers.”