Philip Hammond’s Budget on Monday earmarked £1.5bn to resuscitate the UK’s flagging high streets, finally giving relief to retailers hamstrung by punitive business rates.
The Chancellor acknowledged UK high streets faced pressure “as never before” - but will the measures provide any real respite? And how significant are other measures in the Budget, including his steps to tackle the US online giants?
Business rates reform
A £900m move by the Chancellor to tackle business rates will see 496,000 small businesses, with rateable value of less than £51,000, have a third wiped off their bill from April next year until the next revaluation in 2021.
“A big deal” is how James Lowman, CEO of the Association of Convenience Stores, describes the relief, which comes on top of previous government tinkering with rates relief to lessen the impact on smaller companies.
“Across the sector, this will come to about a £59m saving,” he says. A “typical” store of around 1,800 sq ft, on a suburban parade, paying £12,000 in rates, will save £4,000 a year.
“Let’s give credit where it’s due and welcome this significant reduction, which will help shops to invest, take on new services and improve their offer,” Lowman adds.
Do supermarket c-stores qualify?
In theory, the convenience stores of major mults could qualify for business rate relief - but there’s a catch.
“Any retailer that has an assessment of below £51,000 will benefit,” says Jerry Schurder, head of business rates at Gerald Eve. “The caveat is this relief is counted as state aid under the European rules. No business is allowed to receive more than €200,000 in state aid over a three-year period.”
The supermarkets are already likely to have claimed against that limit in other areas, according to ACS chief executive James Lowman.
Hammond also announced a £675m Future High Street Fund, which will aim to help local areas salvage struggling high streets, spearheaded by its recently created High Streets Taskforce, with details to follow later in the year on how the money will be spent.
Yet previous attempts, including the appointment of high street tsar Mary Portas by David Cameron, failed to stem the tide. And after more than 50,000 job losses this year alone as chains including Toys R Us, Poundworld and Maplin shut their doors, while Marks & Spencer and Debenhams are among those shedding stores to stave off disaster, there was still no help for larger retailers.
Indeed, medium and large premises face a £128m rise, according to real estate advisor Altus Group. While less than 10% of all retail properties in England have a rateable value over £51,000, they account for almost 70% of the total rateable value for the entire retail sector, it says.
John Webber, head of business rates at Colliers International, adds that the moves ignore the “bloodbath on the high street”.
“It beggars belief that whilst businesses are set to face a £600m rates bill rise in 2019, £200m of which will be paid by the retail sector, the Chancellor thinks it’s enough to purely offer a giveaway to businesses who in most cases already receive small business relief and to do nothing to help the big retail employers,” he says.
Tom Ironside, director of business and regulation at the BRC, which called for a two-year freeze on rates to allow for a fundamental re-design of the system, says it’s a “missed opportunity” that “failed to tackle the fundamental unfairness of business rates”.
The Chancellor is finally attempting to redress the tax imbalance between online and physical retailers, but by committing to a small tax on Amazon rather than the widely called for ‘Amazon tax’.
Tesco CEO Dave Lewis has been among those calling for a 2% levy on goods sold online, raising a potential £1.25bn a year, to help equal the retail playing field. However, the new “digital services tax” is more modest in scope and scale than the mooted ‘Amazon tax’.
Nonetheless, industry commentators mostly welcomed the tax, particularly given the complications of taking measures against the sprawling business structures of the global tech elite without international agreements. Aimed squarely at the internet giants, the proposals deliberately look to exempt general online retail activity, to the relief of retail industry bodies such as the BRC.
The government plans to levy a 2% tax on revenues from UK users of social media platforms, search engines and online marketplaces.
But it’s not a sales tax, Hammond stressed. It’s on revenues earned from intermediating online sales rather than conducting them. It will apply to those with such global revenues of £500m, suggesting players with smaller marketplace offers, as part of a wider business, will be exempt.
Taking effect in April 2020, the Treasury estimates it will raise £1.5bn by 2025, though it admitted “high uncertainty” about the levels of revenues to be included in such a levy.
However, one online player likely to be pulled into the tax is FTSE 100 food delivery firm Just Eat, as its business model is a marketplace linking restaurants with consumers - and it has global sales of £546m last year.
Even if the immediate impact of the tax is limited, Shore Capital analyst Greg Lawless thinks it represents an important symbolic shift in the regulatory treatment of online retail. “We see this as round two in the rebalancing of the free fiscal lunch that many global technology companies have enjoyed.”
Duty hikes ‘spare’ British goods
Duty on beer, spirits and most cider was frozen- a sop to British pubs and British producers - with the Chancellor singling out wine, where duty rose in line with RPI (3.1%). According to the latest WSTA figures, the price of a bottle of still wine will rise by 7p, and a bottle of sparkling by 9p. The move was met with dismay from many in the wine trade, as suppliers have arguably struggled harder than their counterparts in beer and cider due to the Brexit vote and its effect on currency.
Many suppliers have already had to raise cost prices since the referendum, resulting in some big delistings for major brands.
“The clear conclusion is that MPs don’t understand the economics of the industry,” says one industry source. “They have no understanding of how low the margins are.”
The WSTA adds the duty hike will cost the trade £90m over the next year, and could affect the industry’s ability to negotiate solid deals after Brexit.
“It forces British businesses to compete on an ever-more uneven playing field, which is grossly unhelpful, particularly when final preparations are being made to leave the EU - potentially without a deal,” says WSTA CEO Miles Beale.
Smokers were targeted, with tobacco duty continuing to rise by inflation plus another 2% as part of the government’s efforts to reduce the smoking population from 15% to 12% by 2022.
Meanwhile, fuel duty was frozen again - for the ninth successive year - at 57.95p per litre.
Minimum wage increase
The national living wage (NLW), the minimum amount legally paid hourly to workers aged 25 and over, will rise by 4.9% from £7.83 to £8.21 next April, ahead of inflation, as the government moves towards its target of £9 for over-25s by 2025.
On current forecasts the Low Payment Commission estimates the NLW will reach £8.62 in April 2020 - welcome news for low-income families but “less helpful for people-focused businesses” in low-margin areas, says Shore Capital.
The ACS says it will continue to work with the commission to highlight the impact of wage increases, with concerns it could lead to businesses “reducing staff hours and overall job numbers to stay afloat”.