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Responding to Philip Hammond’s budget announcement to cut business rates for small retailers, Yoyo CEO Michael Rolph says this won’t be enough to save our ailing high streets. Replacing this outdated tax system with a fairer sales tax would help level the playing field between bricks and mortar and online shopping.
One of Yoyo’s fundamental aims is to help retailers drive footfall and boost sales on our high streets – and we believe this is achieved when they harness the right technology and customer data to deliver the most enhanced, personalised and rewarding in-store experiences.
However, a combination of increased costs and business rates, as well as the rise of online shopping, have created what experts have called a “perfect storm” for the high street in recent years – with retailers turning attention away from customer and experience to focus on a fight to survive.
In this sort of environment, it’s no surprise that the high street finds itself under increasing pressure and why – in this year alone – we’ve witnessed so many big-name casualties.
The consumer shift towards online shopping has, of course, had a dramatic impact on our high streets – according to the BRC, online retail now accounts for 16.8% of sales and is said to be growing by a massive 10% each year.
And in a report submitted to the Chancellor of the Exchequer, Philip Hammond, ahead of yesterday’s Budget, the BRC revealed that while total retail sales have increased by 1.5% year-on-year, non-food in-store sales have fallen by nearly twice that number (2.7%).
But this alone should not mean the end of the high street – not when you consider the BRC’s point that eight out of 10 of the top online retailers are still present on the high street. Any retailer worth their salt has made positive moves to address the consumer shift to online – investing heavily in technology to adapt to a new retail environment.
Coupled with the challenges online now presents, are the rises in rents, staff costs and, above all, business rates that high street retailers have faced in the past decade.
Business rates currently cost companies £31 billion a year and since 2010 have increased from 41.4% to an eye-watering 47.9%, according to accountant EY.
Not only has this squeeze placed huge pressure on high street stores, if anything it’s actually given even more of an advantage to online-only retailers, which have far cheaper cost infrastructures – usually renting an out-of-town warehouse space with a business model that charges for delivery.
In this week’s Budget announcement, Philip Hammond announced a £900 million business rates relief for small retailers over the next two years (from April 2019), as the Treasury looks to combat this “perfect storm” on the high street.
Around half a million small retailers, which have a rental value of £51,000 or less, will see their business rates cut by a third. In two much-quoted examples, this means a Sheffield pub with a rental value of £37,750 will see a £6,178 cut on its on business rates next year and a Birmingham newsagent with a rental rate of £14,250 will see a saving of £1,749.
At the same time, Philip Hammond has also set his sights on big tech companies by introducing a digital services tax.
Coming into force in 2020, the digital services tax will be subject to companies that are profitable and generate at least £500 million a year in global revenue.
The business rates cut is indeed a welcome immediate relief for small retailers, as well as many in the services and catering industries, but nothing has been addressed for the larger retail chains – many of which have been the biggest casualties this year.
But to be fair, even if Philip Hammond had chosen to cut business rates for the larger retailers, it would not have been a long-term fix. Fundamentally, the current business rate tax system is broken for the retail world we live in today.
What’s more, the new 2% digital services tax, which doesn’t come into effect until April 2020, isn’t going to close the costs gap between on and offline, with the focus placed more on digital marketplaces over online retailers.
If the government is really behind getting the high street back on track, it needs to replace business rates with something that takes into account the unfair costs advantage that still exists for online.
What’s required now is a fair sales tax that applies equally to both bricks and mortar and online retail.
This tax could be either be set to a consistent rate for all or could have some form of tiering based on the cost of goods sold – so if you’re an online retailer and you’re cost of goods is low, you would be expected to pay a higher sales tax.
At the same time, if you’re based on the high street paying high rents, but generating footfall and sales for the surrounding area, you’re sales tax rates contribution would be adjusted accordingly.
Business rate cuts are all well and good, but we need a lot more imagination to save our high streets. If they could be placed on a more level playing field in terms of underlying costs, it would enable retailers to spend more time improving in an area that online has long been winning – the customer experience.
Michael Rolph is CEO and co-founder of Yoyo