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Today, the new(ish) Chancellor of the Exchequer, Rishi Sunak, will stand up at the House of Commons Despatch Box to deliver the first Budget since October 2018 (and three months after Boris Johnson secured a thumping majority).
Ahead of the December General Election, here’s what Boris promised to do about our high streets in the Conservative Manifesto:
“We will cut the burden of tax on business by reducing business rates. This will be done via a fundamental review of the system. As a first step, we will further reduce business rates for retail businesses, as well as extending the discount to grassroots music venues, small cinemas and pubs.
“That means protecting your high street and community from excessive tax hikes and keeping town centres vibrant.”
Conservative Party Manifesto 2019
Considering Yoyo’s mission is to modernise the high street retail experience, we view this promise as good news (if kept!).
There’s no doubt the high street has taken a bashing in recent years, as online shopping grows.
But 82% of transactions continue to take place in physical stores (source: ONS) – and those high street retailers that are harnessing the right technology to deliver better customer experiences are seeing a healthy return on investment.
But of course, solving the high street challenge is not just about introducing fast, convenient and personalised experiences that customers have become so used to online.
A combination of increased costs and business rates have created what experts have called a “perfect storm” for the high street in recent years.
Business rates have cost companies £31 billion a year – and since 2010 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.
Online-only retailers have far cheaper cost infrastructures – usually renting an out-of-town warehouse space – with a business model that charges for delivery.
As a response, the previous Conservative government announced a £900 million business rates relief for small retailers last year, as the Treasury looked to combat this “perfect high street storm”.
Around half a million small retailers, which had a rental value of £51,000 or less, sawtheir business rates cut by a third.
In two much-quoted examples, this meant a Sheffield pub with a rental value of £37,750 would see a £6,178 cut on its on business rates in 2020, while a Birmingham newsagent with a rental rate of £14,250 would save £1,749.
This cut was indeed a welcome immediate relief for small retailers, as well as many in the services and catering industries.
However, little was addressed for the larger retail chains – many of which have been the biggest casualties in recent years.
And even if Philip Hammond, then Chancellor of the Exchequer when this announcement was made, 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.
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 cost 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.
The Tories’ promise to now cut business rates further is all well and good, but Yoyo thinks we need a lot more imagination to save our high streets.
Boris Johnson has said: “We will cut the burden of tax on business by reducing business rates. This will be done via a fundamental review of the system.
When (if?) this “fundamental review” is announced today, the government will need to think about how they can create a more level playing field in terms of the underlying costs of retailers.
This will enable them to spend more time improving in an area that online has long been winning – the customer experience.