Wide reforms needed to secure thriving future for high streets and town centres in face of changing consumer behaviour – unfair business rates system tipping balance in favour of online retailers

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 has found. With online sales currently at 20%, and changing consumer behaviour meaning this is likely to continue growing, the future for high streets and town centres will become increasingly bleak. Some formerly thriving shopping areas are likely to become ghost towns and effectively close down altogether unless the Government, councils, retailers, landlords and the local community act together to implement the Committee’s recommendations.

The report sets out a bold vision for the high street based on locally led strategies, developed with local communities and businesses at the centre, and reflective of evolving commercial and economic patterns. The Committee calls on the Government to initiate reform in key planning and taxation areas, including the options of an online sales tax and reforms to business rates, to allow high streets to adapt to changing demand, and compete with online retailers such as Amazon on a level playing field.

The Committee finds that:

• High streets and town centres must adapt, transform and find a new focus in order to survive
• Business rates are stacking the odds against high street retailers. The Government must initiate reforms to provide meaningful relief to high street retailers, including giving consideration to proposals for an online sales tax to level the playing field
• Achieving large-scale structural change will require intervention led by the local authority, in collaboration with business and local communities, backed by funding and new powers from central government
• Local Plans are a key element of this. They must consider green space, leisure, arts and culture, health and social care services to create space that is the “intersection of human life and activity” 
• Retailers must accept the need to adapt and do more to offer what online cannot, focusing more on personal interactions and convenience
• Landlords need to recognise the retail property market has changed and be more receptive to negotiating lease terms with retailers in financial difficulty – The Government should consider providing a conciliation service to facilitate negotiations between the parties.

Chair of the Housing, Communities and Local Government Committee, Clive Betts MP commented:

“In recent years, high streets and town centres have faced extremely challenging times. We have seen the collapse of a number of well-known, national high street chains, with many more undergoing restructuring or being bought out. 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.

“Dated planning policy must be reformed to reflect the needs of modern high streets and town centres. 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. At a local and national level, government must create a framework that allows high streets and town centres to thrive. Local authorities must have the foresight to develop evolving strategies tailored to the needs of their local communities and drive the large-scale transformation needed. Central government must give them the powers, and back them financially, to allow them to put this into practice.”

Main findings

Locally driven solutions

The large-scale changes needed for high streets and town centres to survive must be developed and driven by local authorities, using the full range of their powers and backed by cross-sector collaboration. All local authorities should develop an overarching vision setting out the future direction of their towns and high streets, set out in detail in Local Plans. These must be living documents regularly updated to reflect changing trends, anticipating and reacting to the changing commercial environment.

However, given the significant financial pressures they already face, and their statutory obligations to provide other services, they will need dedicated central government funding, as well as private sector investment, if meaningful change is to be achieved.

Supported by Central Government

The Future High Streets Fund has taken the right approach, requiring bids to demonstrate local stakeholder support, strategic vision and structural change, as well as a focus on the high streets and town centres that are struggling the most. However, the level of funding – a total of £675 million with a maximum grant of £25 million per applicant - does not meet the scale of the challenge. The Government should enhance the next round of funding, potentially using revenue generated by reform of business taxation.

The Future High Streets Task Force, announced by the Government, must also provide valuable support directly to local areas. It must be staffed by experienced experts who can provide guidance on all aspects of transformation, including planning, the law and development, and act as a resource by collecting and disseminating data, best practice and case studies.

Business Rates made fair

The burden of business rates falls unfairly. High street retailers are paying more than their fair share of tax, while online retailers are not contributing enough. Amazon’s business rates amounted to around 0.7% of their UK turnover, while high street retailers are paying between 1.5% and 6.5%. Measures such as rate discounts and the move from RPI to CPI are welcome, however the Government needs to go further and faster to level the playing field.

This can only be achieved by reform of the tax system and the Government should conduct an assessment of proposed remedies proposed to the Committee over the course of the inquiry, including a sales tax, an increase in VAT, an online sales tax and ‘green taxes’ on deliveries and packaging.

Each of these proposals, if implemented at speed, has the potential for real change without requiring a complete overhaul of business taxation.

The revenue raised should be used to support high streets and town centres in the following ways:

• 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;
• 12-month holiday for high street retailers from rates increases which result from investments to improvements in property
• increase in the funding available to local areas through the Future High Streets Fund.

Planning reform

Planning powers are crucial in enabling local authorities to create the conditions where their town centres can thrive. The Government should ensure that these are fit-for-purpose and sufficiently responsive to adapt to changing circumstances, and undertake a comprehensive review of relevant planning focusing on the following elements:

• Compulsory Purchase Orders – an essential tool for local authorities, but the process is too cumbersome, expensive and time-consuming to effect change in a retail environment that it rapidly changing.
• ‘Town centre first’ policy – first developed in the ‘80s, the policy should be updated to reflect non-retail uses for centrally located buildings including health, education and leisure services.
• Use classes – The Government must consider whether use classes need to be updated and made more flexible.
• Permitted development rights - PDRs can undermine the strategic vision that has been developed at a local level. The Government should suspend any further extension of PDRs pending an evaluation of their impact on the high street.