Government meddling continues to do harm to Britain’s high streets

By Charles Amos, Local Coordinator for Sussex

High streets up and down the country are experiencing difficult times and have been for a while now. If we’re being honest, one of the main reasons for this is the increase in online shopping. Many consumers have welcomed its advantages, at the unfortunate expense of the high street. Nonetheless, successive governments have catalysed the decline of high streets by two deeply damaging measures. Firstly via business rates and secondly though hidden costs and regulations which have only made high streets more uncompetitive.

With the advent of online shopping, which currently accounts for one in every five pounds spent, a competitive high street is vital for its survival. Business rates only hinder this. The very nature of the tax is flawed, being a fixed lump sum, unlike corporation tax which varies with profit. This only pushes more fixed costs onto entrepreneurs, who no doubt already struggle with large bills. This has two main effects on competitiveness.

The first is to raise the prices of goods, as firms attempt to pass on the burden of business rates, amounting to £24.8 billion in 2018/19. This is where the high street faces the most critical blow from the tax system. Due to high streets being located in town centres, the rateable value is usually very large. As a proportion of turnover the burden is far larger than for online retailers. Amazon for example only pays £63.4 million in business rates, far lower than Next’s business rate bill of around £100 million, despite Amazon having double the turnover. Amazon’s main real estate is in the form of warehouses, which are predominantly in low rateable areas, compared to Next’s which will more than likely be in high rateable locations.

The second effect is to reduce profits and therefore investment. This stifles innovation on the high street and leads to lower levels of productivity (and consequently wages). Unlike large corporations, which can raise capital on the bond market, small firms mostly use retained profits to finance expansion, meaning they really suffer when profits are dealt a blow. This reduces the number of independent shops on the high street, further compounding the decline.

This is most clear in the restaurant and pub sector. Licensing places a major cost on them. This is crucial since catering establishments will increasingly make up more of the high street, as the sector moves away from providing goods to providing services, dispensing food and drink being the most obvious.

A worrying example of the increasing burden of licensing costs can be seen in West Sussex County Council’s recent decision to increase the cost of a licence for putting tables and chairs out on the pavement from £200 to £520. Just like business rates, this fee is fixed; meaning that to put ten tables out on the public pavement would cost the same as just putting one table out. Yet again, this is hitting smaller businesses the hardest. This licence fee increase will likely reduce the number of seats put out on the pavements (some businesses may ignore the fee, thus risking a fine and potentially prosecution). The upshot is the likelihood of less al fresco dining, making the high street less attractive. Indeed I have already nicknamed it the “Al Fresco Fee”. This is the opposite of the approach that the high street needs.

It is clear to see that local and national government meddling continues to do harm to Britain’s high streets. The answer is not more regulation and taxes such as the Digital Services Tax, due to be imposed by April 2020. The sensible alternative is to level the playing field for high streets, by cutting business rates and rolling back licensing and regulation. High streets would stand a fighting chance against the online giants and they would not be discriminated against by the tax system. Ultimately that is what consumers want.