The Government’s latest Budget unveiled a raft of changes intended to reinvigorate retail and even out the playing field between online Goliaths and high street chains.
But will the measures have a positive impact on the under-pressure retail sector? Retail Week takes a temperature check of the reaction to Philip Hammond’s Budget.
The level of tax that online giants pay – or in many circumstances, do not pay – has been an increasingly large bone of contention in recent years, especially when coupled with rates rises for bricks-and-mortar retailers.
The Government said that “the long-term answer to these challenges is reform of the global tax system”. In a bid to jumpstart this, Hammond unveiled a digital services tax on digital businesses that rely heavily on the participation of UK users for revenue.
The tax is aimed specifically at mature businesses that generate more than £500m in global revenue, and will impact search engines, social media platforms and online marketplaces such as Amazon and eBay.
The tax is expected to raise £1.5bn over four years and will come into effect from April 2020.
KPMG head of retail Paul Martin says, of all the measures outlined in the Budget, it is the one which “holds the greatest potential to rewrite how the retail game is played”.
“Online marketplaces have often been able to rise above the problems faced by traditional legacy players or independents,” he says.
Business leaders including Tesco boss Dave Lewis have called for online players such as Amazon to pay a greater level of tax based on their online revenues.
“The hope that the revenue raised from this tax might be passed to retailers through business rates concessions appears to have disappeared, and the tax itself won’t solve the problem of how to make the high street shopping experience more attractive to the consumer”
David Parker, Savills
However, Savills’ head of business rates David Parker is unconvinced that the digital services tax would have much impact on levelling the playing field between online and offline retailers.
“The Chancellor specifically says it’s not an online sales tax and it may not therefore be the solution that bricks-and-mortar retailers have been looking for,” says Parker.
“The hope that the revenue raised from this tax might be passed to retailers through business rates concessions appears to have disappeared, and the tax itself won’t solve the problem of how to make the high street shopping experience more attractive to the consumer.”
IMRG strategy and insight director Andy Mulcahy echoes this sentiment, and says chastising online operators will not relieve the struggles physical store operators are facing.
“We seem to have gone back to where we were a few years ago when the discussion used to be about online killing the high street,” he says.
“Online was seen as a bad guy while the high street was noble and getting attacked by online. Is [the tax] solving the problem? I’m not sure it is. If you want to have a high street where retail still plays a part then you need to find a way for online and retail to work together.”
The tax itself is expected to generate £400m per year – which is less than the Government plans to invest in fixing potholes on UK roads next year.
However, Boohoo chairman Peter Williams believes that, irrespective of the amount of money it will raise, introducing the tax is the right move.
“It is disgraceful that certain organisations have been able to arrange their tax affairs whereby they are paying minimal tax in the UK in proportion to the size of their commercial enterprise in the UK. Morally it is the right thing that they should pay their fair share, irrespective of how much it costs to fix potholes.”
Arguably the sector’s biggest bugbear, business rates, were addressed.
The Government will cut the rates bill by one third for businesses with a rateable value of less than £51,000 for two years from April 2019.
Hammond said the move would offer £8,000 worth of annual savings on average for 90% of independent businesses.
It is a move that will no doubt be welcomed by the independent retail sector – but many feel it is insufficient and offers no relief to the anchor tenants across the UK’s high streets, which are arguably the primary draw for many shoppers to shop offline.
“Rather than tinkering around the edges, struggling high streets require wholesale reform of business rates in order to thrive”
Helen Dickinson, BRC
BRC chief executive Helen Dickinson says: “While we welcome measures to assist smaller retailers, the majority of the UK’s 3.1 million retail workers are employed in businesses that will not benefit from today’s business rates announcement.
“Rather than tinkering around the edges, struggling high streets require wholesale reform of business rates in order to thrive. The issue remains that the business rates burden is simply too high.”
Hammerson chief executive David Atkins concurs.
“Big brands shoulder almost 70% of the rates burden while at the same time serve as a big draw to customers, significantly boost local and national economies, create thousands of jobs and add to the vibrancy and relevance of urban locations,” he says.
“It is in everyone’s interest that larger retailers are also given the chance to prosper by operating on a level playing field and the current business rates burden does not allow this.”
Meanwhile, Williams is unconvinced that the proposed reform gives independent players sufficient relief.
“Helping entrepreneurs to start up and get going is obviously a good thing, but if this is only a two-year help what happens after that? People need permanent help, not temporary help,” he says.
“It’s a positive for smaller retailers but the whole subject is overshadowed by the need for high street transformation,” he adds.
“The fundamental problem is there is too much real estate. There’s simply too much space and that problem has been around for a decade or more, and been exacerbated by the effect of online.”
Future of the high street
In acknowledgement of concern about the dwindling health of high streets, the Budget included the creation of a Future High Street fund.
The £675m initiative has been inspired by the initial findings of Timpson chairman Sir John Timpson’s high street review, which was launched over the summer.
The cash is designed to “support local areas to prepare long-term strategies for their high streets and town centres”, co-fund improvement and adaptation projects and fund a High Streets Taskforce – another recommendation from Timpson.
“The initiative has got to come locally. The Government can’t dictate change; it’s people who make that happen and the funding’s going to help a bit”
Sir John Timpson
Timpson says he hopes the fund will provide a launchpad to set town centres up for decades to come.
“We’ve heard all these horror stories for the last 12 or 18 months. There are a lot of good stories out there about towns that made things better. There’s an opportunity for a lot of town centres to get themselves right for the next 20 years.”
But he emphasises: “The initiative has got to come locally. The Government is there to help and clear obstructions out of the way. The Government can’t dictate change; it’s people who make that happen and the funding’s going to help a bit.”
He admits previous high street reviews, such as Bill Grimsey’s, had limited impact. “Nobody actually did anything about it, although he made some good points,” says Timpson.
He hopes that the new taskforce will provide focus and a way of sharing lessons and expertise. “We’re not looking for a quick fix. You can’t turn back what’s happened. Where this is going to work is local initiatives, but we can communicate to as many people who will listen what has worked.”
Full details of the fund will be unveiled later this year, and the taskforce will launch in early 2019.
However, at this early stage Trouva’s co-founder and chief technology officer Alex Loizou is unconvinced the allocated funds are sufficient for the scale of the task at hand.
“The £675m pledged to transform the high street is vague in that it also includes providing housing on the high street in an attempt to drive footfall,” he says.
“It’s the government’s responsibility to help small retailers take their experience to the next level; and one of the ways they should be doing this is through helping them invest in technology to deliver the very best omnichannel experiences that customers expect.
“It’s quite hard to even provide recommendations on how this money should be used, which is the problem with this approach. Instead of focusing on specific transformations, we’re creating funds with ambiguous high level mission statements.”
Grimsey believes that this new review will need local buy-in to be a genuine success.
“If this money is spent wisely and strategically this will make a big difference, but without strong local leadership and accountability there’s always the risk of it being used for pointless vanity projects,” he says.
“We’ve seen this in the past and I would encourage funding to be used to support long-term plans for change that have community buy-in. Money should not be wasted tinkering around at the edges.”
Revo chief executive Ed Cooke says that infrastructural changes may not make headlines, but they will be essential for the sustainability of the high street.
“The Chancellor has listened to our calls to set aside funding for infrastructure and small scale transport solutions,” he says.
“It’s not a sexy topic, but the economic and social benefits created by these small but critical interventions will help to unlock private investment, improve accessibility and help connect our town and city centres. We hope this funding is just the beginning as we seek to repurpose and reposition our urban centres for the future.”
However, Williams thinks that more radical transformation is needed if the local high street is to survive.
“There needs to be permanent adjustment of space given to retail, it should be taken away from retail and given to public realm.
“In my view they should put all the money into doing that because it is overdue and the whole landscape is changing. It doesn’t need to be the death of the high street, it’s just a different kind of high street.”