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UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE
To be published as HC 168 -i
House of COMMONS
TAKEN BEFORE the
Business, Innovation and Skills Committee
UK Retail Sector
Tuesday 21 May 2013
shane brennan and jonathan james
edward cooke and mark williams
Evidence heard in Public Questions 1 - 102
USE OF THE TRANSCRIPT
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Taken before the Business, Innovation and Skills Select Committee
on Tuesday 21 May 2013
Mr Adrian Bailey (Chair)
Mr Robin Walker
Examination of Witness
Witness: Helen Dickinson, Director General, British Retail Consortium, gave evidence.
Q1 Chair: Good morning and welcome. Thank you for agreeing to address the Committee today and help us with our inquiry. Could I ask if you could move slightly to the centre?
Helen Dickinson: I was a bit worried about the microphone, but I will move this way.
Chair: I think we can hear you. I will ask you to introduce yourself for voice transcription purposes before we start with the questions.
Helen Dickinson: My name is Helen Dickinson. I am the Director General of the British Retail Consortium.
Q2 Chair: Thanks very much. I will just start with a very general question. The retail sector and, indeed, your organisation cover a wide variety of businesses, from small shops to multiples. Major shopping centres are often in competition with each other. What do you see as the major challenges facing the different sorts of businesses and how do you think your organisation provides support for them?
Helen Dickinson: The major challenge facing the whole industry is one of a changing consumer. This is all about the way that people interact with shopping as an activity. Over the last five to 10 years or so we have seen a real acceleration of the impact that technology has had on the way that people shop. This has put the consumer firmly in control. It has given much more visibility over the prices of what they buy and the different options available to them in terms of how they buy it.
From a BRC point of view, we look to advance vibrant and responsible retailing, and we look at that across three aspects. Firstly, that is from the point of view of people and careers in the industry. There are just under 3 million people who work in retail, and those are jobs where there is great opportunity for career progression and development. Secondly, we look at it from the point of view of community and the role that retail plays in society. Then thirdly we look at it from a competitive point of view, so making sure that the opportunities for innovation and growth are there.
Q3 Chair: How do you reconcile maybe conflicting interests between the larger stores and the small, independent ones?
Helen Dickinson: From an industry point of view, it is really important that we do not see it as large versus small, food versus non-food or online versus high street. From a consumer point of view, they will shop in the place where they feel that their needs are being met. That gives opportunities for all types of retailers, from the large multiples to independents, to pure plays, and to community stores right across the industry.
Q4 Ann McKechin: Good morning. Perhaps I can press you a little bit further about this issue of online shopping. A number of the submissions to the Committee’s Inquiry argued that online sales from traditional retail should be seen as complementary. I think that is your argument too. How do you think high street retail can benefit from ecommerce and mcommerce? Do you think that sufficient numbers of companies are actually making the best use of the benefits?
Helen Dickinson: This is a very fast-moving area, and what we are seeing is a huge structural change within all parts of the industry, whether that is from some of the biggest players or many of the smaller ones. Perhaps before coming back to your question, it is important to look how big online and m-commerce are in the context of the industry. Online sales are about 10% of retail sales currently; sales through mobile are less than 1% of retail sales. Both of those channels, though, have an influence on the way that people shop. More and more people are crossing different channels in making their customer journey to an ultimate purchasing decision.
From an independent point of view on a high street, there is an opportunity for them to look in a different way at what it is that they are offering their customers. That may well be a convenient shop, and in that instance consumers are still looking for convenience. On things like e-commerce and m-commerce, there are new business models emerging that will support many smaller businesses. Those are things like My High Street, for example, which is a new marketplace. It is an online market place that looks at individual town centres and then gives people in those local town centres-so individual traders-the opportunity to showcase what it is that they are offering through a different channel as well as providing something locally that is convenient and in the physical space.
Q5 Ann McKechin: What specific actions do you think BIS as a Department can introduce to ensure the high street can benefit from electronic forms of shopping? Obviously, very large companies are already adapting quickly, but I think many of the shops in our high street are smaller retailers, and the concern is whether they are going to be able to benefit or whether they are just going to be left out.
Helen Dickinson: From a Government point of view over the last few years, it has been interesting that we have seen an increasing focus on the sector. We have the BIS retail strategy, which came out at the end of last year; we have the UKTI Retail Industry International Action Plan. These really highlight the interest in the opportunity that is there. Certainly from an international point of view, what e-commerce does is put everybody on a level playing field because it is available and open to everybody. The UK is a leading light if you look across the globe in terms of how e-commerce has developed in this country versus others. We have a higher spend per head through e-commerce channels here than any other country.
Q6 Ann McKechin: Can I just press you on that point? Do you think the Government has actually given sufficient support in spreading the benefits that we have in being further ahead on online shopping than many other Western nations in terms of international trade?
Helen Dickinson: International is a real opportunity to push further, because of that expertise that actually sits here. There are a number of things that are already in progress. For example, there are trade agreements outside the EU because there are lots of duty costs that are pretty complex, particularly for a smaller business, to understand. More support could be offered to help smaller businesses understand what those different regulations are across borders and actually understand the local requirements if they did want to set up and invest directly in those markets.
Q7 Ann McKechin: Obviously businesses are still going to be primarily based here in the UK but operating online. Do you think UKTI has actually changed the way it provides the service to make sure that these people can get to that advice?
Helen Dickinson: That has shifted over the last couple of years. There is definitely now much more recognition that UK retail as an export is an opportunity. That is both from the point of view of exporting physical goods through e-commerce channels and UK retail businesses investing directly overseas. The UKTI Action Plan identifies lots of areas where more focus is needed in order to leverage that opportunity. To answer your question, we are not quite there yet, but the opportunities are all on the table and the awareness is there.
Q8 Chair: Just before we go on, picking up this export potential issue and the UKTI strategy, there is no doubt that the British retail brand is recognised internationally as being a world leader. However, it is not something that the public commonly perceives as a potential export and source of earnings for the country. In very broad terms, where do you think the opportunities arise and in what particular countries do you think there is the most potential?
Helen Dickinson: We have to look differently from a European point of view and outside Europe. Within the EU, making sure or continuing to push for a true, single European market, both from a physical presence and digital point of view, really does give opportunity for UK retailers. There are many UK retailers that are operating in Eastern Europe, but also in Germany, France and all European countries. That looks on the face of it an easier opportunity for retail businesses because the perception is that the requirements of consumers in those countries are similar to the UK. Not necessarily understanding how consumer preferences differ across different markets is something that many retailers over the years have fallen foul of. They may well be closer to home, and that provides logistics/supply chain advantages, but it still leads to the need to understand local preferences.
There is both a European opportunity and, further afield, if we look at the developing nations-countries like India and China-there is a huge amount of investment that is already going into those countries from particularly a brand point of view, but also more broadly across retail. The differences in terms of local regulatory requirements are huge. From talking to a number of retail businesses, what they say when they are thinking about going into those overseas markets is they do not know what they do not know. It is almost like you are starting with a blank piece of paper. That sort of support that UKTI is suggesting through the Action Plan, about trade missions and giving guidance on what those local requirements are, is really important.
Q9 Chair: We went to Brazil last year, and Burberry was opening in Sao Paulo. They outlined some of the difficulties. Do you as an organisation work closely with UKTI to try to identify potential markets and obstacles that need to be removed in order for those markets to be exploited?
Helen Dickinson: I am sure there is more that we could do. We certainly worked closely with UKTI in the thinking that was behind the International Action Plan.
Chair: Thank you. We may explore this further with the companies themselves.
Q10 Mike Crockart: I have a very quick supplementary on this precise subject. You do talk about there being a blank piece of paper, but of course there are many larger companies, with the dominant position we already have in economies, that have already filled in the bit of paper. The experience that I have found in talking to small companies in my constituency is when they manage to get on a trade mission, whether by accident or design, they actually find out more from the other large companies that are on that trade mission than they ever found out from UKTI. Is there some way of formalising that by putting in some sort of mentoring scheme that we could actually get up and running and would help smaller companies far more?
Helen Dickinson: That is definitely something that could be explored further. At the BRC, through our member groups, we put people from different businesses together. One of the things that I have heard back from talking to the chief execs about what it is they get from the BRC, having the opportunity for people in their business to share experience, share best practice and just talk to others who have faced similar issues or done something before them is really very helpful.
Q11 Nadhim Zahawi: I am just following on from some of the questions you had earlier. Obviously retailing is in a state of flux because you have m-tailing and e-tailing. We will get to questions about business rates later on in the session, but I have a more general point on taxation. Is your view that the Government is doing good enough, is not doing enough or could do more on a more level playing field? Obviously some e-tailers and bricks-and-mortar retailers have different corporation tax rates that allow them to scale, get to a certain size where they use loss leaders, to crowd out some of the smaller retailers who are under a different regime. I just want to get your take. There is obviously so much in the news on different corporations. Without attacking anyone specifically, because I think that is unwise for Select Committees to do if we are trying to encourage corporations to invest in the UK, where are we on that scale? Do we need to do more to level the playing field? Do we need to get better and modernise some of the rules around taxation?
Helen Dickinson: From a medium term basis, that is absolutely something that does need to be looked at. I am sure the reduction in headline corporation tax is very welcome to every business, and that has obviously been beneficial across the piece. Over the last few years or so we have seen a real shift to lower corporation tax, but that has put more burden on other taxes-people taxes and property taxes, which comes back to business rates-and if you think of retail as an industry in its entirety, it is generally a property-intensive, people-intensive industry. That has shifted some of the burden to retail. If you put that in the context of an industry whose structure is changing and dealing with the move to a much more digital economy, it absolutely raises the question of whether, in the round, the tax system is-
Nadhim Zahawi: Catching up.
Helen Dickinson: Catching up for a 21st century digital economy. That is where you get to what a level playing field actually looks like in a different world from the one that was in place when those systems and processes were put in place.
Q12 Nadhim Zahawi: Presumably because of our success in embracing the digital economy or e-tailing, we are a valuable market to anyone who may be in that global space. Can we use that to help with some of our indigenous businesses? Are there any thoughts from your organisation on that?
Helen Dickinson: That is one that requires further thought. We need to ensure that we are not stifling in any way some of the innovation that is coming through.
Q13 Nadhim Zahawi: Where do you fall on that?
Helen Dickinson: I am agreeing with you in that it absolutely needs to be considered further. I do not know what the answer is though.
Q14 Nadhim Zahawi: What is the role of the BIS Retail Policy Forum? The Department says that it meets three times a year. Is this in your view sufficient to develop a coherent strategy between interested parties?
Helen Dickinson: It is an opportunity to really highlight what is on the top of the agenda at any particular time, as well as think about some of the long-term issues. There is plenty of other day-to-day contact that is going on on a more regular basis, so we are not reliant on that forum just for exchanging views.
Q15 Nadhim Zahawi: Do you think interaction is sufficient with the BIS Department?
Helen Dickinson: I think the interaction is sufficient. We have a good relationship. Going back to one of the earlier questions, the retail strategy, along with the UKTI Action Plan, has put a lot of focus on a number of areas where there is an opportunity to make some changes, for example lessening some of the burden of regulation. Having identified those issues, now we need to focus on making faster progress on taking them forward.
Q16 Nadhim Zahawi: The Department has acknowledged that it does not provide e-tail specific business support schemes. Should it? If yes, what form should those schemes take?
Helen Dickinson: I am afraid I do not know the answer to that question. There is always an opportunity to do more. I could sit here and say I would love to have the whole of BIS just focussed on the industry, which I am sure would be completely inappropriate.
Q17 Nadhim Zahawi: The thrust of my questioning is if you look at the automotive sector, we really focussed on it; we created forums and platforms to get the industry engaged with Government-and look at where we have ended up. It is a big export success story and a great repatriation of supply-chain manufacturing to the UK. There is a really positive outlook for the industry. Retail is in that state of flux that I think needs that level of interaction. Just thinking back to some of those three meetings a year that you have, can you think of any significant material outcomes from those meetings about which you would say, "Right, that’s what we achieved in that meeting"? Can you name one thing that came out?
Helen Dickinson: I would have to come back to you on that because I am afraid I have only been in-role for four months, so I cannot comment on the history of the outcomes. I think, though, it is an interesting point in the context of looking at the BIS industrial strategy. Retail was not recognised as a priority sector within the context of that. What we do have through the Retail Action Plan is a level of priority being put on it. I do agree that there is plenty out there. There is no silver bullet, but there are a lot of individual things that if taken together would make a big difference.
Q18 Nadhim Zahawi: So it is lots of tactical stuff rather than a strategic view.
Helen Dickinson: That comes back to the fact that this is a very fragmented industry. It is quite different from automotive in the sense that there are around 200,000 retail businesses in this country. It is different from the pharma sector or the automotive sector in that sense. The sorts of things that will help the industry as a whole are less big or groundbreaking things like that.
Q19 Mike Crockart: One of my colleagues is going to go into Portas in a bit more detail in a moment. On the much higher, strategic level, though, we obviously have a large number of initiatives out there now to try to help retail on the high street. There are 27 Portas Pilots and 330 Town Teams, BIDs, the Future High Streets Forum and a High Street Renewal Award scheme; there is a plethora of help available. I would just be interested in your take on which of those is actually most successful. Have you done any work looking at those?
Helen Dickinson: The first thing I would say, perhaps, before coming back to the question, is that for the future of high streets and town centres in this country we need to recognise that they need some help in entering a new phase. What we had before has gone forever and the whole thrust absolutely has to be on reinventing town centres and high streets that are fit for purpose in the future. That, for example, will include other sectors beyond retail, whether that is leisure, care and support in the community as well as shops. That is not to say that retail does not have a fundamental part to play.
Coming back to your question in terms of the things that are working well, certainly from the experience that we have seen on the ground, BIDs are a great concept. Having that local input to what needs to be done on a local basis is absolutely key. One of the recommendations that was in the Portas Review was around extending the scope of BIDs to give them greater powers and also to include landlords not just on a voluntary basis as it is at the moment. The creation of super-BIDs to give that local focus and support is one thing.
Another area is around the use classes of property. That is having the flexibility to change use classes more easily. Again, certainly for the chief execs that I am talking to, one of the frustrations is about not just how difficult it is but the length of time that is taken to get property decisions taken on a local basis. It hinders them in terms of giving that support where they want to invest. There has been a consultation on temporary change of use for property. Within the budget there was a plan to do a consultation on making change of use more straightforward between commercial, retail and residential. Both those two things-firstly the BIDs and secondly the planning-would make a big difference.
Q20 Mike Crockart: It is quite a variety of different schemes. Is that just a reflection of the fact that, as you have said already, retail is so wide and so different it therefore needs different intervention in different areas? Is it all just a bit too confusing and leaving people not knowing what they are best trying to follow?
Helen Dickinson: The answer to that is probably both. It does require intervention at many different levels. The BIDs and the change of use classes is a national level intervention. At local level things like car parking and accessibility to local areas is a key thing that gets mentioned to me time and time again. How can local councils be encouraged not to see charges for car parking as revenue generators but see parking as an opportunity to generate footfall into a local area? Then when you get further into the local level, because there are so many differences about what is needed between one high street and another, you then have to put a diverse bunch of stakeholders together to create a vision, plan and a viewpoint on what it is that that particular local community will need. There is not a onesizefitsall answer to that question.
Q21 Mr Walker: You have already touched on business rates as one of the big issues affecting the sector. You have highlighted business rate multiplier reform as one of the areas in which you would like to see the Government act. Apart from shifting from RPI to CPI, what other reforms would you like to see introduced to help the sector?
Helen Dickinson: If you delve into and look at the cost base of UK retail plc and how that has changed over the last five years or so, what you see is that market-related costs such as rent have fallen over that period, whereas centrally driven costs have continued to rise. Now we are looking at a situation where business rates are becoming much more of a driver to the economic decision of opening a store as opposed to a tax that is expected on the back of performing well at that individual store level.
To explain that a bit more clearly, when a retailer is looking at whether they should or should not open in a particular place, they are effectively running a profit and loss account for that store and looking at the individual costs and the expected revenue in order to make that decision as to whether it is economically viable to open it. Business rates have become a bigger and bigger part of that decision-making process, to the point where it is actually tipping people to take a "don’t open" decision as opposed to an "open" decision. That therefore leads to a conclusion that, on business rates as a whole, something bigger potentially needs to be done to help address the vacancy rate across the country, where about one in eight stores in town centres is vacant.
Q22 Mr Walker: It is a pretty crucial point if you think business rates are providing a real disincentive for people starting up in the retail business. Do you think the sector as a whole is bearing an unfair burden of business rates? I know that the proportion the sector represents of the economy is much smaller than the proportion of business rates that it pays. Is there an extent to which we ought to be looking at the whole system of business rates in order to see if we can relieve pressure on the sector?
Helen Dickinson: Yes is the answer to that. We need to take into account the Treasury’s need to balance its books in the current economic climate. What we perhaps need to bring more effectively into the equation is looking at a closer link to how well a particular store is trading. At the moment there is no link between business rates and that. We also need to perhaps look at it in a different way. If there are about 300,000 stores across the whole of the country and the vacancy rate is 12%, if that was moved by 1% then that is about 3,000 stores. If between five and 10 people are employed in each store, that is 15,000 to 30,000 jobs. Then you have a knock-on effect from a Treasury point of view of corporation tax and national insurance from that particular store. That is before you get into the beneficial impact on the local economy. My point there is that perhaps we need to look at it in a different way. I agree with you though.
Q23 Mr Walker: You have picked on performance as being one of the things potentially to look at in that respect. One of the things the Government has already been doing is shifting the burden of business rates from the smallest businesses to the larger ones. Obviously you represent both ends of the spectrum. Is that something that you see as helpful from the perspective of the retail sector as a whole?
Helen Dickinson: It comes back to what a level playing field actually looks like. We welcome the reliefs that were given, particularly for small businesses, because I think that really helps in the early start-up phases. We need to be careful, though, of thinking small versus big, and think of it from the point of view of what it is we can do to incentivise the industry as a whole, irrespective of the size of business, to continue to invest at local level.
Q24 Mr Walker: What do you think the impact is going to be of the delay in introducing rates revaluation from 2015 to 2017 and rates reform over that period?
Helen Dickinson: Again, if you look at it across the industry, there are winners and losers in the fact that it was delayed. From a town centre point of view, it has meant that that is where market rates have fallen more significantly, so the delay is putting more burden in that space.
Q25 Mr Walker: Finally on business rates, one of the issues that I often get from local businesses is concerns about the valuation system and the length of time that it takes to appeal in that system. Have you been making representations to the Government in that area?
Helen Dickinson: I would have to check and come back to you as to whether we have or not. From my experience, I would completely agree that it is tied up into this "anything to do with property", whether it is planning applications, change of use, or business rate revaluations-that is just an area where there is a huge amount of complexity and time taken that is putting undue burden on business and stopping them from getting on doing what they want to do.
Q26 Mr Walker: You mentioned the issue of accessibility earlier, and parking is clearly a massive issue for some of our city centre high streets particularly, and areas such as that. How do you think parking league tables would help to improve the accessibility of town centres?
Helen Dickinson: It would just give more visibility to everybody and show those that are at the bottom of the table that there is a better place for them to be.
Q27 Mr Walker: Do you think there are other measures on the parking and accessibility front that the Government ought to be looking at?
Helen Dickinson: The proposal around league tables is probably top of the list.
Q28 Chair: Just picking up that parking issue, do you think that by having league tables and so on it might be a mechanism by which local authorities actually try to integrate their thinking with local retail development? My experience is that often local authorities just take decisions like this unilaterally without really any long-term consideration or consultation with bodies that might be affected.
Helen Dickinson: I agree with that. Part of the decision-making process should include a look at what it is that will drive footfall and people into a particular centre. As you say, if you just look at parking in isolation as what can be charged and how much revenue that will generate, that is a very narrow economic assessment that is being made as opposed to a broader one that takes in the broader economic benefit of encouraging more people in way beyond the revenue generated from parking. There was one example I heard about where the parking charges were halved and the number coming in more than doubled, so in fact the amount that was raised actually went up as opposed to down and they got the benefit of increasing numbers of people actually shopping in that area.
Q29 Chair: The British Council of Shopping Centres argues that town centres should have a single owner/manager. Would you support this approach?
Helen Dickinson: It is important that there is expertise at a local level in helping the various stakeholders work out what is best for that particular town centre. What Portas and the other related activity has done has really highlighted the problem. There is a huge amount of goodwill out there in lots of different communities, and it is really giving them the tools and the expertise to actually help them to think about what is best for that particular centre in the future. That may well benefit from having the support of an expert in town-centre management.
Q30 Chair: I was going to say, going back to the previous question about integrating parking with the broader strategy, it would presumably help that.
Helen Dickinson: Yes.
Q31 Rebecca Harris: Can I ask you about regulation? You appear to argue that the Red Tape Challenge has been a bit of a disappointment for your sector. What deregulatory measures do you think would have the biggest impact for your sector?
Helen Dickinson: There are two areas. If we look at things like "one-in, two-out", we would recommend that is looked at on a sector-by-sector basis. Certainly at the moment there seems to be a bit of delay between identifying a piece of legislation that could be removed and actually removing it. Therefore, one thing is about speed. The other is making sure from an industry point of view that we are getting the benefit of "one-in, two-out". If you think about it from a retailer’s perspective, part of the challenge comes from the fact that we have 200,000 businesses and they are processing millions and millions of transactions every day. Any piece of regulation potentially does have a big impact on the way that the sector actually works and requires quite a lot of change in systems and processes in putting it in place.
Therefore, the first thing is recognising some of the complexities where changes are made, but looking at those changes on a sector-by-sector basis. The other recommendation that we would have is if you look at things like Primary Authorities, the feedback we have had is that Primary Authorities work really well and have done a great job in helping those larger retailers that work across many different local authorities to have consistency in implementation. However, there are some areas like age-related sales, and that moves from things like alcohol and cigarettes to things like knives and all sorts of other areas; apparently there are about 20 pieces of legislation around that. These could also be included within the Primary Authority scheme, so that is about using a mechanism that already exists and extending it to other areas like age-related sales.
Q32 Rebecca Harris: You have also answered the second question I was going to ask you. It was about how you would like to see the Primary Authority scheme expanded. Is there anything you want to add on that?
Helen Dickinson: No.
Q33 Paul Blomfield: I would like to explore what the skills needs are and where the responsibility for fulfilling them lies, what the expectations of the sector are and what the role of the sector is. In your evidence to us, you talk about the commitment of the sector to apprenticeships. I think you would probably recognise that not all but some retail apprenticeships have actually tarnished the entire apprenticeship brand and have led the Government to take action on the re-branding of short-term in-house training in customer service. Could you flesh out a bit more what you think the good practice in the sector is and the commitment of the sector to apprenticeships?
Helen Dickinson: If we think about it from a general point of view to start with, the retail industry employs about 2.9 million people. Many of those are entry-level jobs, so the need for training, whatever sort of training it is, is absolutely key for the industry. We invest more than manufacturers in training our people. People are the biggest asset of many retail businesses, so the success of schemes like the apprenticeship scheme is absolutely key. Many retailers have put in place apprenticeship schemes and are very keen to make sure that they work as well as they can.
The challenge or the feedback that we get is that often they are quite complex in terms of implementation and they change quite regularly. If you are a business that employs a significant number of people, then any particular change to those requirements can be quite difficult in terms of the implementation and systems that are required to put those changes in place. It is really important that employers, as suggested in the Richard Review, are included in determining what the best way to implement any particular changes might be.
Q34 Paul Blomfield: That is interesting because I would have thought that there was an engagement with employers in the relevant Sector Skills Council, but your view is that the voice is not heard.
Helen Dickinson: The feedback I have is that they would like to be more involved.
Q35 Paul Blomfield: Can I ask about the ambition in relation to the levels of skills that we are giving people working in retail? I remember when we were doing our Inquiry on apprenticeships there was quite a striking difference between the UK retail sector, where level two is the norm, and the German retail sector, where level three was the norm. I wondered if you thought we were sufficiently ambitious. One of the areas of difference was actually in product knowledge. It seemed that a lot of UK apprenticeship training in retail was focussed on general customer relations and customer service. That is all very important, but actually it was weak on product knowledge and the areas where that extra support might be provided.
Helen Dickinson: Certainly if we go back to some of the structural changes that are happening in the industry, there is a real strong aspiration to actually broaden that beyond perhaps where it looked like it was when you had your other Inquiry. The sorts of skills that will be required in future within the industry are shifting from where they are at the moment. The need to make sure that we are offering the breadth of what is available is really key to the future of the industry.
Q36 Paul Blomfield: Could you flesh that out a little bit in terms of the way you think the skills needs are changing?
Helen Dickinson: Just again going back to feedback I have had in terms of people coming in to work, whether it is basic employability, STEM skills or IT skills, the entry-level-type job base is much broader than stacking shelves and working in shops. There are opportunities within retail that sit right across from supply chain to e-commerce, to finance, to analysing data. It is a very broad base of different types of career opportunity.
Q37 Paul Blomfield: Just specifically on IT, it is an interesting area because I remember having conversations with some people in the sector recently talking about how you keep up with the pace of change. In a sense, it is very difficult for pre-entry training to deal with that in that you could develop a curriculum at school, college or even at university level that is right at the point of starting the course and out of date by the point of completion. Where does the responsibility lie for actually training people to keep up with that change? How is the sector coping with that?
Helen Dickinson: Particularly as retailers continue to work out and develop their business model as the environment in which they are operating changes, they absolutely recognise the need for them to undertake training in-house to keep those skills up to date. In fact, many of those skills that are specific to individual retail businesses are sources of potential competitive advantage between one business and another if they get that training done well.
Q38 Mr Walker: I just want to pick up on Paul’s point about the skills base and employment in the industry. There is a narrative about retail that says the high street is struggling-we have seen some big chains go under; we have seen shops moving towards a higher technology basis; we have seen the move online-which suggests that over time there are going to be fewer people employed by the sector than there have been in the past. I was quite surprised to get a written answer to a parliamentary question recently that showed that, over the last two and a half to three years, the actual numbers employed both in the retail and the wholesale sector have been increasing. Do you think that is a trend that is sustainable? With all these changes we are talking about in the skills base and in technology, in 10 years’ time will we be able to look at a retail sector that is still the biggest employer as a sector in the UK?
Helen Dickinson: That is a very interesting question. I am not sure I know the answer to that, but I would definitely say it comes back to the point about what the greatest asset of any retail business is. The reason why retailers have continued to invest in people even during the downturn is because they absolutely recognise the importance of that-it sounds awful calling people an asset, but they are an asset to their business. There are two schools of thought in the answer to your question. One is that a more digital retail economy will involve fewer people, but the other argument is one that says, actually, in a more digital retail economy, the need to differentiate on customer service, for example, and those IT skills we were talking about earlier are absolutely key. That will require the continued need for very significant numbers of individual jobs.
Q39 Mr Walker: So you think there is potential that it could employ more people in the future.
Helen Dickinson: Yes, there is potential. Absolutely, I would agree Robin.
Q40 Chair: I have a couple of tangential questions on skills. It always impresses me when I go abroad and I go to a foreign supermarket and the checkout assistant is able to speak to me in fluent English. I think to myself, "If you went into your local Tesco or whatever, would you get a comparable experience if you were a tourist in this country?" Obviously the nature of our tourist market is rather different from the tourist markets of some of the Mediterranean countries particularly. However, I do think there is an issue in terms of skills in our retail sector appropriate to encouraging tourism in this country.
Tangential to that, I understand that the Government is at this moment trying to negotiate a change in the visa regime for high-value Chinese tourists. At the moment, the European market by virtue of its Schengen Agreement is cleaning up on their purchasing power. Whilst it may be a niche market, it is potentially a financially significant market for retailers in this country. Do you look at reinforcing the skills base that might attract some tourists?
Helen Dickinson: I am not sure I understand the question. Are we talking about the extent to which retailers are thinking about the sorts of skills that they have to deal with not just UK consumers but overseas consumers?
Helen Dickinson: I would say that they definitely do. It depends on the extent to which their business is dependent on that tourist trade. From a Chinese point of view, particularly some of the more branded and expensive end of the market is very key to that segment. I remember talking to the chief executive of a big, branded watch retail business, and the interesting thing he said is that they invest very specifically in training their staff around how to deal with Chinese visitors, particularly because the way they interact is slightly different from what the staff had been used to. So, yes, they do invest in that if overseas consumers are a big part of their business.
From a visa point of view, the other interesting thing that he said-because I think there is a perception that Chinese visitors will just come to London-is that they have stalls around the country and they are investing in this training for all their customer-facing staff right across the UK because it is not just a London-centric issue. The slightly more complicated process to get a visa to come to the UK versus the rest of Europe is, from an opportunity point of view for his business and many others like it, a very big issue. It is not just one that relates to London and the South East.
Q41 Chair: Moving on from that, I have a final question unless any of my colleagues have a burning question they want to ask. Are you signalling "yes", Robin, or just waving your pen? BIS has a retail strategy, but DCLG has responsibility for planning along with local authorities. Do you find this a problem?
Helen Dickinson: If I look across the whole of retail and the interaction that we have, we have interaction with many different Government Departments, certainly from a food-sector point of view with DEFRA and the Department of Health, for example. The need to think across and to work across different Government Departments is part of the day job.
Q42 Katy Clark: I want to ask a supplementary about your organisation. Obviously, the big challenge is the internet, and you already mentioned the change to a more digital economy. To what extent have you developed views as to how you think that needs to be regulated or looked at? It must be a massive challenge for your members.
Helen Dickinson: It is and this is one that we will continue to look at. It is emerging in our thinking as to what those things need to be. I cannot answer your question now, but I absolutely agree that we will need to continue to look at it and it will become more of a focus as we go forward. That is things like having consistency of regulation from a consumer-rights point of view, because from a consumer perspective it does not matter which channel they are actually using.
Q43 Julie Elliott: I wanted to expand a bit on the Schengen stuff. You have said that you do not think retailers think this is just a London problem. How wide is this? Do you think it is capital cities around the UK or are you saying that this is going to be an issue for people trying to purchase things in all of our town centres? You were saying it was not just a problem for retailers in London, which I found very surprising.
Helen Dickinson: I was not trying to say it is not a London problem. I was saying it is an opportunity for other parts of the UK as well as for London. If it were easier for Chinese visitors to get a visa such that we had more Chinese visitors in this country, then they would not just be coming to London. They would be going to other parts of the UK as well. That was really brought home to me by the chief executive who has a national business. He is saying he does training on looking after Chinese countries and that he does that right across his store portfolio.
Q44 Julie Elliott: Is that mainly the likes of Edinburgh and the big capital places?
Helen Dickinson: No, this is somebody who has over 200 stores. It is not just in the cities.
Q45 Chair: Do you know if these issues are being considered by the UKTI in its strategy?
Helen Dickinson: I would have to check and come back to you, but I do not think so because I think UKTI is looking outwards as opposed to inwards.
Chair: There is an argument that it should be looking inwards as well. I think perhaps we might explore that further with other bodies, but if you could give us your perspective in a written form, we would be very happy to have it.
I think that concludes our questions. It may well be that in retrospect we think of questions that we should have asked but did not. We will submit those in a written form. Equally, you might feel that there was more information that you would have liked to give us on something or indeed to answer a question that we were neglectful enough not to ask you. Please feel free to submit any supplementary written evidence to that you have given today.
Helen Dickenson: That is very kind, thank you.
Chair: That is very helpful indeed. I realise you have only been in post four months and you have had a pretty widespread range of questions to answer. We very much appreciate the contribution you have made. Thanks very much.
Examination of Witnesses
Witnesses: Jonathan James, Chairman, Association of Convenience Stores, and Shane Brennan, Public Affairs Director, Association of Convenience Stores, gave evidence.
Q46 Chair: Can I welcome you? I assume you have been sitting there listening to the previous contributor. Before I invite questions I had better just make a declaration of interest myself. I am a Labour and Co-operative Member of Parliament with a long previous employment history with the Co-operative movement. Can I just invite you to introduce yourselves for voice transcription purposes? Then I understand that you have asked to make an opening statement. I am quite happy to allow you to make an opening statement, but please keep it brief.
Jonathan James: Good morning, Chairman. My name is Jonathan James. I am the Chairman of the Association of Convenience Stores.
Shane Brennan: I am Shane Brennan. I am Public Affairs Director of the Association of Convenience Stores.
Q47 Chair: Who wishes to make the opening statement? It is you, Jonathan.
Jonathan James: Good morning. I would like to thank the Committee for the opportunity to give evidence today as part of this important Inquiry. As I have just said, my name is Jonathan James and I am an independent retailer running two stores, one in Cambridgeshire and one in Norfolk. I am also the Chairman of the Association of Convenience Stores.
ACS is the trade association representing local grocery stores in the UK. All together, we represent over 33,500 shops across the United Kingdom. Our membership includes some of the big chains such as the Cooperative Group. However, the majority of our members are small businesses either trading independently or under a common national brand like SPAR, Londis, Costcutter, Booker Premier or in my case Budgens. I am accompanied today by my colleague Shane Brennan, the ACS Public Affairs Director. Shane manages our representation across a wide range of political and policy issues.
Firstly, unlike many parts of the retail sector, the convenience sector is in growth. In 2012 the sector grew by 4.6% to £33.9 billion. It also provides jobs for over 370,000 people. We are currently benefiting from a long-term trend that sees people moving away from complete reliance on the weekly shop and preferring to shop more often. There are demographic factors behind this. There is the rise in single-person households, with increasing numbers of old and young people living alone. Also, consumer attitudes are changing. On the one hand, growing numbers of more affluent people are cash rich and time poor and, on the other, less affluent people are choosing to live day by day and managing their budget by buying only what they need when they need it. I therefore represent a sector where there are opportunities.
My concern is that the growth and opportunity available to our industry is not evenly distributed. The significant majority of growth we have seen has been taken up by the major multiple chains. Unfortunately, the number of independent stores in the market has experienced ongoing long-term decline. This means that there is growing disparity of opportunity, which has been made worse by the economic downturn. This needs to be addressed through effective policy intervention.
That is where BIS is so important. We have collaborated with the Department on its retail strategy and we very much support it. Its focus on reducing the burden of regulation, sharing knowledge and harnessing localism to deliver business-friendly policy are good, important intentions. However, we are concerned that it is limited in scope and intent. It sits only within the remit of BIS and yet many of the big issues facing the retail sector are the responsibility of other Government Departments. We believe that strategy that makes a real difference has to cover controversial issues such as business rates, town-centre versus outoftown planning and resisting temptation to impose further regulatory burden in politically sensitive areas such as alcohol licensing.
Finally, I am sure you will want to talk about the point and value of the Mary Portas Review. We are delighted by the energy and the enthusiasm that was created by the Town Teams initiative. There were over 300 applications and thousands of people engaged in trying to find solutions to local problems, myself included. The frustration we have is that the Town Team initiative was one of 28 policy recommendations. These other recommendations were targeted at issues such as business rates, car parking charges and planning policy. If they have not been taken forward that is not a failure of the Portas report but of the work that has been done since by Government and others to take on her recommendations.
One of the reasons for this is that the issues she highlighted are not simple to solve, but they must be taken on. The Local Growth Minister, Mark Prisk MP, who is responsible for taking on the policy recommendations made in the Portas Review, has set up the new Future High Streets Forum. We are optimistic that this forum is an opportunity for delivering on these bigger policy challenges. Thank you again for the opportunity to give evidence to you. Shane and I both look forward to your questions.
Chair: Thank you. I am just going to invite Katy Clark to open the session with a question that perhaps is not covered by some of the issues that you raised there. We will go on to those immediately afterwards.
Q48 Katy Clark: Along with a number of other members of the Committee, I represent a Scottish constituency. Obviously a lot of the responsibilities in relation to retail, whether it is business rates or issues to do with town centre regeneration, are devolved. I just wondered whether you had noticed a difference in policy in relation to what is happening in Scotland and elsewhere. Is there anything that has worked in Scotland that you think might work down here? How would you compare and contrast the differences, given that you will have members in both areas?
Shane Brennan: I will take that one. Most of the issues are actually devolved, so you are absolutely right. There are different ministerial priorities in different areas. They are covering the same space: we have a Portas Review; the Scottish Government has a High Street Review. There is a small business rate relief scheme in England and Wales; there is a small business rate relief scheme in Scotland. There is a range of other policy interventions.
Certainly in terms of something like planning policy, the emerging Scottish Planning Policy Framework is potentially more robust than the one that we had in NPPF in terms of how it deals with high street issues. However, they have a legacy in Scotland of being less robust on high-street issues in terms of planning development than in England and Wales. There is a slight element of catch-up there, but catch-up in the right way. The rate reliefs in Scotland are potentially slightly better and more generous than they are in England and Wales, but there is a fundamental issue around small business rate relief and how well it targets the retail sector, because it of course applies across a broad base of businesses. In terms of retail, business rate relief is quite broad and thin rather than targeted at specific potential needs.
I do not think there is a particular winner or loser between England and Scotland in terms of how they tackle this issue, but certainly in both areas it is definitely a priority that we acknowledge.
Jonathan James: It is important to say that ACS has an excellent working relationship with the SGF, our colleagues up there, and we very regularly are in contact. We liaise very closely with them.
Q49 Chair: We will be going to Scotland shortly and we may examine that issue further. Just picking up the point that you made about regulation, the retail sector was one of the first to go through the Red Tape Challenge. What impact did you see on your sector?
Shane Brennan: I will take that one. The Red Tape Challenge was an interesting exercise because the intention was absolutely the right one. In doing it in the format that it was done, which was essentially putting every piece of legislation that was relevant to retail on a website and asking people to comment on which ones should be removed and which should not, they essentially showed a specific problem. It is not often the regulation intent that is the problem; it is the effective way in which it is enforced. We have seen 250-odd regulations being removed from the statutory book, but the vast majority of those were completely irrelevant-things like regulation on trading with Czechoslovakia, which obviously was not having any impact as it stood.
Some of the other areas were relatively uncontroversial things like changing the age restriction on Christmas crackers. These things are fine and good, but they are not transformational in terms of the impact or burden of regulation on the sector. We learnt that the problem of regulation is more of an institutional problem than it is a specific regulation problem. It is about how those regulations are enforced. We were very clear, and the business retail strategy is absolutely well targeted, in saying it should look at the way regulations are enforced. It should look at issues like Primary Authority and understanding how we can get the enforcement entities, whether those are national regulatory bodies or local authorities, thinking in a more business-friendly way about how they approach regulatory challenges to reduce that burden through how they are interpreted rather than necessarily specific regulations. The Red Tape Challenge showed that it is hard to find specific regulations that should be removed, because they are there for very important reasons.
Q50 Chair: That is interesting because you have reflected one or two comments I have had in other sectors of industry as well. You argue for an "ongoing review of retail regulations". Which areas do you think should be reviewed?
Shane Brennan: We represent convenience stores. The regulations that bear most heavily on our sector are product regulations-alcohol issues, tobacco issues and other issues-and those are the areas where there is an active, ongoing process of new regulations being considered all the time. That is the area where the hardest questions have to be asked about what an appropriate balance of regulatory burden is. I am sure Jonathan might have something to say about this, but these are the areas that retailers spend most of their time trying to find ways of complying with. It is a case in point: those are examples of areas that do need to be regulated. How do we challenge ourselves to be thinking that we are doing these things in the most business-friendly way possible? It is that ongoing conversation both at the national and local level about how those regulations are brought in in the most businessfriendly way.
Jonathan James: It is important to say as an independent retailer I do not have a compliance manager. I do not have somebody constantly monitoring the regulation. Often it is not until you fall foul of a regulation, be it a new one or an old one, that you realise the regulation actually existed in the first place. Unlike our larger grocery colleagues, who have people constantly monitoring and keeping up with it, we do not have that advantage. Through the ASC and other bodies we can hopefully monitor it, but as a retailer your job is there to run your shop and it is not that easy to keep up with regulation. We have a good working relationship with the various authorities, particularly in our area, so it is more of a partnership rather than somebody coming into your shop trying to trip you up on falling foul of another regulation you did not know existed.
Q51 Chair: When we interviewed the Minister on the last annual report, we highlighted the abolition of the regulation concerning the disposal of German enemy property. Presumably it was not a regulation you had too much problem with yourselves.
Jonathan James: No.
Q52 Julie Elliott: You have already mentioned Primary Authority and I understand you are in favour of an expansion of that to deal with some of the problems and inconsistency around enforcement of regulations. In which areas should the Primary Authority be expanded?
Shane Brennan: From the point of view of the convenience store sector, it has to cover alcohol policy. If you look at the compliance manuals that retailers will have in their business in the convenience sector, the biggest regulatory challenge they face is how to comply with alcohol regulations, whether that is licensing compliance or underage-sales prevention. If you are going to have a compliance mechanism in place that is valuable to the independent retailer, if it does not cover alcohol it is covering all these smaller issues rather than the main one. For us, Primary Authority is absolutely the right idea; it potentially has a huge benefit for independent retailers, of which there are many thousands in the market. However, unless it is a top-to-bottom compliance manual you are going to have to have more than one and it becomes a very difficult thing to see the value in retailers taking it up. We know there are ongoing discussions about bringing alcohol into it, but it has to happen for it to become a relevant thing for our association.
Q53 Julie Elliott: Who do you think should take lead responsibility for all this? Should it be BIS or the Department of Communities and Local Government?
Shane Brennan: In terms of alcohol, the tension is between the Home Office and BIS, because alcohol policy and licensing is under the remit of the Home Office. This brings into focus one of the issues we have in retail, which is we have a lot of different Government Departments that have some degree of interest or stake in our business. There is tension there around whether it should be BIS or the Home Office. I think it should be BIS because this is about better regulation; it is about a way of working and BIS is best placed to champion that way of working across a range of different regulations across different Government Departments rather than one specific Department.
Q54 Ann McKechin: Mr James, you mentioned that your association is working with Government and with BIS. Can I ask if you are a member of their Retail Policy Forum?
Jonathan James: Yes, we are.
Q55 Ann McKechin: The Department says that that meets three times a year. Do you believe that is sufficient to develop the coherent strategy you referred to in your opening presentation?
Shane Brennan: I would just like to jump in because Jonathan does not sit on the Retail Policy Forum; I do. The Retail Policy Forum does not have the intention of delivering the business strategy in its entirety. As Helen said in your previous evidence, there is a range of different meetings and contact points between us and BIS to deliver on strategy. We are meeting on a regular basis on a range of different specific areas. The Retail Policy Forum is a useful staging post in the year to go over a helicopter view of the broad things Government is trying to deliver, what is happening in the retail sector, how they come together and in setting off another train of work. It is useful to that degree, but it does not have the ambition, and I do not think it should have the ambition, of trying to be the sole ownership point for the entirety of business activity around retail.
Q56 Ann McKechin: The Department has acknowledged to us that it does not provide retail-specific business support schemes. Should it, or should this be more a function of LEPs in terms of actually making sure that there is some form of advice system? Both of you have mentioned this issue about the burden of regulation and how as small businesses you are actually going to cope with it. I just wondered whether you think more needs to be done at either a local or national level providing advice.
Jonathan James: I suppose it is how it filters down to our membership. Many of our members are shopkeepers and it is getting that buy-in from them. That is where somebody like the Association can obviously work in conjunction with the Department. We are probably uniquely placed from that point of view in that the BRC have much easier communication channels to the shop floor. ACS getting involved is obviously very key to anything such as this.
Shane Brennan: Helen was answering this question earlier as well. Specific initiatives are not necessarily the answer here. There are 50,000 convenience stores, and of them there are tens of thousands of individual owners out there. It is a very broadly based thing. Specific initiatives to try to intervene in the way they do business to try to help them are not necessarily going to work. It has not worked historically and I do not think it should now. If there are initiatives we need they are about taking away some of the burdens and looking at costs. We talked about business rates and things-those are sorts of initiatives that we should see Government trying to take some leadership on rather than necessarily tinkering and trying to get involved because I do not think that translates particularly for the independent retailers. It just does not get to them.
Q57 Mr Walker: Like everybody else who has submitted evidence, you have highlighted business rates as a particular concern. You have also set out that you want to recommend "new innovative ways to encourage or incentivise local authorities to provide rate relief to a wider group of retail businesses". Can you give examples of how you think that could work in practice?
Shane Brennan: Absolutely. Obviously the Localism Act came into force and gave very wide-ranging powers to local authorities to grant discretionary rate relief to any business they chose. That could be a big, small or any business that they felt was necessary in the area. The problem with that is there is no money for local authorities, and at a time when their budgets are massively squeezed, it is very hard to see a case for the Executive signing off on significant amounts of investment in rate relief when they are trying to fund central care services, etc.
We think the Government should be focussed on how we can find ways to help local authorities to make that first step towards granting greater amounts of discretionary rate relief. How might we look at the first couple of years, particularly at the moment, when the economy is down? How can we potentially underwrite discretionary rate relief investments in the first couple of years, with a view to that being paid back over time? From 2014, we have the retention of local business rates, which is a potential game changer in terms of the relationship between local authorities and their business rate base, but I do not think it is going to happen immediately unless there are some ways of trying to kick start that. Some form of underwriting discretionary rate relief in the first couple of years because there is that potential to retain rate relief in years four, five and six to me sounds like an area where we should really be thinking very hard about whether we can do something to really get some proper relief targeted for the businesses that need it most on the ground.
Q58 Mr Walker: If you were underwriting discretionary rate relief, particularly if you were doing it for the first couple of years for new businesses-we have the New Homes Bonus; we could have a New Shops Bonus or something along those lines-wouldn’t that actually potentially penalise a lot of your members and help out new people starting up to compete with them?
Shane Brennan: I do not think it should be just for new businesses. It might be in some cases that it is to fill in empty spaces. That might be what is needed in some areas. In other areas it is about helping businesses make investments. One of the issues is that we have an opportunity sector, as Jonathan outlined; we have growth, but the investment is coming from the major chains, which are potentially able to make some long-term investments at this point in the economic cycle. Independent retailers are trying to keep their head above water, but if they do not make the investments this year or next year they are going to be at a disadvantage in three or four years’ time. If we want to make the investments and create the jobs now, that is where we should be targeting. We should be targeting new businesses but also existing businesses, to help them to grow, invest and provide a better service.
Jonathan James: Through the Association I am reading various reports that would say business rates have gone up 2.6% or whatever. Actually, when we take it down to grassroots level, it is very easy for those figures to get lost in reality. If you take one of my stores, two years ago I was actually physically paying £56,000 a year rates. This year it is £63,000 a year rates on one shop. That is a staggering figure that every week has to be found, but if we look at the significance, in the largest recession we have had in living memory suddenly I have to find another £7,000 for absolutely no better service and nothing different. That £7,000 has to come from somewhere. The concern is that very much figures and words get lost in the reality of a business trying to keep its head above water and actually being hit at that sort of level. To find £1,200 or £1,300 a week every week to pay a cost like that is a staggering sum of money.
Q59 Mr Walker: Absolutely. That is something that all of us will recognise from our constituencies with businesses that will have come to see us. Do you think in that respect the valuation system and process that is currently used is fundamentally flawed? Are there any suggestions that you would have for changes to that?
Jonathan James: There certainly needs to be a fairer way of looking at the entire thing. I used to be a petrol station operator, and you would sell X amount of fuel but you have different ways that fuel is sold. Some will be sold on bunkered and some will be sold on cards, etc, so you are getting different margins for types of fuel. That needs to be reflected in rates. It is exactly the same with the shop to find that sort of money. Is there a fairer way rather than looking at the property and valuing it often as a postcode property? What I am paying in certain areas is not what my colleagues would be paying in another area. There certainly needs to be a fairer way to be looking at it.
Shane Brennan: However, we do not have the obvious answer here today of what that should be. The worry we have is that because it is so difficult and potentially so complicated we are not even looking at the issue. I think we should be looking at the issue; there is a short tem/long term. In the short term, how do we find help now to get out there to the people that need it most? We have the delay now in the revaluation to 2017 and that is four years. If we do not use those four years to look at the system, understand it better and then look at potential new options, then we are really going to fail the retail sector, because that is what needs to happen.
Q60 Mr Walker: You said in your evidence that you think the delay in the rate revaluation until 2017 was inadequate and it is likely to have little impact on the sector. Why would the sector benefit more from having a revaluation?
Shane Brennan: What was inadequate was that it was portrayed as this was what was needed to make a difference to the rates of the retail sector. This was the initiative the Government could do to make a real difference to the high street. That is inadequate. That is not the reason. There might be other reasons why we need to delay the revaluation, but it has been done now so we do not need to rehearse the arguments about it. Now that we have four years we need to think about how we do valuation in 2017 and whether it can be different in a way that is fairer and more equitable, and take our time to study that properly.
Mr Walker: It would be very useful to have written evidence from the bodies that have been giving evidence today if there any suggestions as to what you think could be useful reforms to the valuation system that would make a real difference to the people you represent.
Q61 Paul Blomfield: You have argued in your evidence that the future success of the high street depends on effective planning policy. I am interested to know what you think constitutes effective planning policy. In particular, thinking about the success of the high street, are we looking at greater freedoms within town centres or restrictions on out-of-town developments?
Shane Brennan: The answer to that is you need both. You need to make it incredibly attractive to make the investments that are going to regenerate retail spaces that are out of date. That is to potentially make them smaller, make them more focussed and make them more fit for purpose; that is a clunky phrase, but it is true. The problem we have had for 15 or 20 years, though, is that every time we want to do that kind of work to drive that investment into the town centres where it is most economically and socially beneficial, it has been undermined by the agenda to drive development out of town by the development industry.
Still today we have a growing pipeline, where over 70% of that pipeline is located out of town. Much as the national policy tells us we want a town-centre-first approach, the reality on the ground has always been that it is more out of town that it is in town. Unless you have developers, councils and communities all with the same objective, which is how we find the right location to regenerate our town centres, we are not going to achieve the change on the high street we want to achieve. That is a stated political priority of governments at national and local level almost unanimously. There are very few arguing against that.
Q62 Paul Blomfield: I am interested in how you can actually move the consensus on that. I represent the city of Sheffield, where over 20 years we have had the enormous challenge of sustaining a city centre with the Meadowhall development a few miles away. Every time the Council seeks to constrain or look critically at developments at Meadowhall, the sector comes down on them like a tonne of bricks. How do you actually shift that debate?
Shane Brennan: Government has to lead it. It is not a very trendy or of-the-moment statement around localism and local empowerment, but in reality you do not have local empowerment if the local council is overwhelmed by the power of those that are coming against it. You have to have a line in the sand. The Government and Ministers who oversee policy have to ultimately control that. The fact is we do not see call-ins. We have a new National Planning Policy Framework coming, which has exactly the right words in it, but unless that is backed up by interventions on the right examples, particularly in the first phase, it is not going to stick in terms of changing the direction on the ground. That is my fear for what is happening at the moment in terms of planning.
Q63 Paul Blomfield: Specifically, to perhaps both of you, do you feel that the Government is giving the commitment that you are looking for now?
Shane Brennan: I think they have a cultural aversion to the idea of getting too involved.
Q64 Paul Blomfield: Is that another way of saying no?
Shane Brennan: They believe that, if they let the policy go and let local authorities interpret it for themselves, there will be right outcomes in the end. The problem is what happens in the meantime. We also often hear Ministers talking about the ability to fail in that. The problem is that, once you have built a big out-of-town supermarket in a market town, you cannot un-build it. That failure is 20 years and potentially forever. Jonathan has a real life example.
Jonathan James: On Wednesday in my home town a prospective developer had put in for a 41,000 square foot out-of-town supermarket, 1.5 kilometres from the town centre, completely contravening local and national planning town-centre-first policy. It failed on three sequential tests; it failed on impact on the town centre, and the Council unanimously waved it through. The application took 418 days from start to finish. As a retailer in a town centre with 57 other businesses, our lives were basically put on hold for that duration until we could find out exactly what was happening. It has now been passed, and obviously there is going to be huge reluctance for anybody, for want of a better term, to rearrange the deck chairs on the Titanic. Why would you want to invest in a town centre when you know in X amount of years a huge out-of-town superstore is going to come and effectively bypass that town? The Sword of Damocles is another term that can be used for exactly the same sort of thing.
The National Planning Policy Framework is there and it is very robust in its wording, but it does tend to be without teeth if there are no ministerial call-ins to follow it up. The Government has the benefit of hindsight and experience; a local council, with what is probably the biggest development that has happened in 20 years in our town, is obviously lured by potential jobs-although they do not see it as job displacement; they see it as job creation. They are lured by investment, but the investment is out of town, which is going to suck investment from the town centre. It is a very specific problem, and as Shane quite rightly said, the problem we have as a sector is that because members of planning committees in particular use shops, they all think they are experts on it. It is very scientific: where you put a supermarket, for example, or an outoftown planning application for a retail park, everybody needs to know exactly the implications and impact of putting it there. It is a very specific thing.
Shane Brennan: Unfortunately it becomes a very negative debate about what we want to restrict. Restricting, though, is probably the first part of it. What matters then is what you do to free up the opportunity for investment in locations where it is needed. Ideally we would be talking about that, but unfortunately because on the ground there is still so much of this tidal wave of applications-it is a grocery thing; it is very different in non-food-they are still pushing forward with these applications. Applications might not get built. Jonathan’s store might not get built because we know that there are changes in the financial decisions being made, but not necessarily the development pipeline. Once we have set that line, what can we do with these centres? How can we use planning to completely change them to make them fit for the next 20 or 30 years? That is the conversation we should be having at a local level, not fighting off out-of-town.
Q65 Paul Blomfield: Specifically following up on that, Portas recommended relaxation of the use class restriction. I just wondered how you saw both the benefits of that but also the risks associated with it.
Shane Brennan: I think that we should be restricting use classes, but in the context of a plan of action for the local area. Basically, we fear blanket use-class restrictions, particularly if you say things like retail to residential, which was something that was mooted in the budget. Basically you just have a free-for-all on allowing retailers to convert their shops into houses. If you do that on a nationwide basis, it is not going to be the areas that need regeneration that are going to get the new houses. It is going to be the villages and the areas where you are going to get a lot more money for that bricks and mortar as a house than you would as a shop. We need to say, "Looking at this town centre, how does it look in the future in terms of our vision for that centre?" Once we have that vision, we get rid of all the regulatory burdens to allow those businesses to then make those changes they want to make to be able to fit with that vision. It is in the context of a managed plan for that area, rather than just a blanket free-for-all, which would potentially just have negative consequences.
Q66 Julie Elliott: You state that the trends in retail development continue to move away from investing in town centres and that the town-centre-first policy is not stopping this. You talked about this a little bit. What more can be done to promote town centre development and which Government Department should take the lead on this? Should it be DCLG, BIS or, indeed, local councils?
Shane Brennan: National policy should be led by DCLG probably, although we need a leader and it does not really matter who it is from a national policy perspective. However, every local area is of course different. Local authorities are going to have to be agents for themselves in trying to achieve that change. There are national policy considerations that have to be led from somewhere in Government, probably DCLG because that is where it currently sits. Then at local-authority level there needs to be some proactive economic planning-it sounds very 1970s-not just physical town spatial planning. Think about those town centres: how do we think about the rates? How do we get local authorities thinking about investing in those areas a bit like a business and saying, "Right, we need investment here. How do we make the right amount of investment in this particular location to make the town centre more attractive through discounts or incentives in that particular area? How do we look at car parking charges? Are the car parking charges not actually helping this business to attract new customers?"-as in the town centre as a business. Ultimately, in answer to your question, local authorities are going to have to do it with locally specific interventions. There are still things to be done on the policy framework that underpins that at a national level.
Q67 Julie Elliott: How can BIS deliver a retail strategy if they do not have any influence or control over the planning process?
Shane Brennan: BIS can do other things. BIS can look at the issues around regulatory burdens and the culture of regulatory intervention; they can look at the knowledge exchange, something that we as an organisation have benefited a lot from, in terms of bringing academic learning into our sector to understand a bit better the way that you can be an effective community retailer. That is something we have done through working with BIS. BIS has a role in making LEPs work, if those are going to be relevant to retail. Certainly, the work BIS is doing alongside the Gloucestershire LEP is an important way to learn how we might use the LEP framework to try to take an area-wide view so that local authorities are working within specific interventions for a particular centre but also thinking about how those centres interrelate in a particular economic area. That is a learning process, but BIS needs to be very involved because BIS created the LEP framework.
Q68 Julie Elliott: Can you expand a bit on that? In my area they are not involved in retail, so what are they doing in Gloucestershire that is particularly helping? Is there something we can learn?
Shane Brennan: They are going through a process whereby they are actually gathering evidence in a much more sophisticated way about the retail economy in the Gloucestershire area, and understanding how that all works together. They are looking at what specific area-wide interventions they can do. I can follow up in a bit more detail around Gloucestershire LEP rather than trying to give you everything today, because it is not an area that I am a huge expert in.
Q69 Mike Crockart: Two of the recommendations of the Portas Review deal with parking and access. That is something that you have already mentioned in your evidence. Are you in favour of the specific recommendation of producing a league table for parking? Do you think that this form of naming and shaming will make local authorities change?
Shane Brennan: The answer is I am not sure. To be top of the league table, you would have to give free parking, and there are lots and lots of locations that provide free parking. There will be a lot of people at the top. Therefore, if it is going to have any benefit, it is going to be at the negative end-the naming and shaming. I do not think it is as simple as giving free parking and, therefore, you have a town-centre-friendly parking scheme. If you have lots of free parking in a town centre with lots of office development, you end up blocking all those car parking spaces and then there is no one to come in the shop. You have to take an area-specific decision around parking. It is about culture and thinking differently about what parking is there for.
Jonathan James: Very refreshingly, I saw a statement by a local council leader who said that, while he was in charge of that council, car parks would always be viewed as an asset rather than as a cash cow. I believe the BRC touched upon it earlier as well. A car park in the right location is very much a generator for a busy, good footfall. Equally, being brutally honest, the consumer sees it as a stealth tax to use a town centre; if you start doing that, obviously that is extremely restrictive in how it goes. There is a mindset that needs to happen with councils so they see it more as the asset that it actually is to generate growth and drive the local economy that comes through from the town centre, rather than just a relatively short-term view of taking the cash that it generates.
Q70 Mike Crockart: The other related recommendation talked about accessibility and making sure that was a key factor for successful town centres. More generally on accessibility, how do you think that can be improved and what would the benefit be for the smaller stores?
Shane Brennan: It goes back to thinking about your local authority as a business. There was a good question in the last session about whether you bring things under one common ownership as a way of doing it. Certainly, we do need some form of common management to think across the piece of what the different elements are that are going to make this area successful, and having a plan for that. Access is critical, and in lots of parts of the country access is about car-borne access; it is about car parking, where there is huge discrimination between the accessibility of out-of-town retail developments and in-town retail developments. You also have to think more long term as well about other accessibility points. It is worth asking whether you can get buses into the relevant centres, particularly the parts of the community who need that access, and about other ways, like cycle lanes and things. You have to have a co-ordinated plan for the area that includes access as part of that, and having restructuring as part of that thinking.
Jonathan James: It needs a more joined-up approach. If you have the pedestrianisation of a lot of town centres, it becomes no surprise that, if the shops there sell white goods and bulky goods, people are going to struggle to pick them up. On a local basis, we had a local electrical store close the minute they put double yellow lines outside the store. In terms of accessibility and pedestrianisation-or semi-pedestrianisation, as it is sometimes, where a town will close on a Saturday to allow people to walk-as Shane says, particularly for market towns in rural areas, the car is not a luxury; it is an absolute necessity. People need accessibility through that vehicle to gain access to the town centres.
Q71 Mr Walker: Representing a market city, I suppose, in Worcester, that has a pedestrianised centre, I definitely recognise some of the issues you are discussing there. We have had a discussion focussed around town centres versus out-of-town and that side of things. There is another element of this, and in the Association of Convenience Stores you are particularly well placed to speak about it. This is the suburban parades, or what I might call "the secondary high streets" within a city like the one that I represent, which seem to be suffering from many more empty shops and much more of the pressures than the high street itself in the city centre. I just wonder if you have any views as to the policies that would make a difference to those areas and the extent to which the suburban parades are sustainable, with all the changes that are taking place in the retail sector.
Shane Brennan: I think you are absolutely right. The vast majority of them do not trade in town centres, and that is important to flag. The first thing to say is that they suffer the same sorts of issues that town centres do. The problem with them is that they are often completely invisible in the planning process. If there is coherent economic and spatial planning for town centres, it rarely extends to those smaller secondary areas, but they are vital to the coherence of our neighbourhoods. People having access to places they can walk to has huge social benefits, as well as potential economic benefits as well.
However, the things you need to do to tackle that are very similar. They are about the cost of property, and about being able to invest and making investments in the properties to improve them. A lot of them are very out of date and need significant structural change. There are also some issues about access. The fact is that a double-yellow line on that suburban parade is as fatal as the high car-parking charges in a town centre. It is probably quite micro, but if it is not joined up and we are not thinking about those sorts of decisions in a business-friendly way for those sorts of locations, then that is going to potentially create a huge barrier.
Jonathan James: Picking up on what the BRC said earlier about high streets and secondary parades, we are all undergoing a very significant change, and we all know the economic factors that are making these things happen, and currently it is happening relatively quickly. Footfall is absolutely key to all of this. Any high street, any out-of-town centre or any secondary parade needs footfall, and with forward economic planning, we need to be able to ensure there is something-an anchor store within a high street, or an anchor store in a parade such as that-to ensure that people have a reason to visit that. It is quite worrying when that anchor store is seen to go.
Shane Brennan: Or anchor service. Where are our doctors’ surgeries? Where are our libraries, where we have them? Where are our other services? What are the reasons that people do not go to places? We are going to have centres for our communities in the future, because that has huge benefits in terms of the character of the area and the social benefits to that particular location. I think we have lost sight of that, somewhere along the way, and we have to make sure that that is part of our thinking going forward.
Chair: That concludes our questioning. I will repeat what I told the previous speaker. If you feel there is a question we should have asked you but did not and you would like to reply to, please feel free to send us supplementary evidence. Similarly, of course, if in retrospect we think there are one or two issues that we did not explore fully, we may write to you, and we would be grateful for a reply. I thank you very much for your contribution; that is very helpful. We will welcome our next panel, if they are there.
Examination of Witnesses
Witnesses: Edward Cooke, Director of Policy and Public Affairs, British Council of Shopping Centres, and Mark Williams, Chairman, Distressed Town Centre Taskforce, gave evidence.
Q72 Chair: Welcome. I do appreciate you coming today to assist us with our Inquiry. You may note that members come in and out; please do not take that as a reflection of your contribution. It is just that there is business in the House, and the nature of things means that members cannot always be here all the time. Could I just ask you to introduce yourselves for voice transcription purposes?
Edward Cooke: My name is Edward Cooke and I am the Director of Policy at the British Council of Shopping Centres.
Mark Williams: I am Mark Williams. I am a partner of Hark Group, an asset management business, but more importantly I am Chairman of the Distressed Retail Property Taskforce.
Q73 Chair: Thanks very much. First of all, I will open with a fairly general question to the BCSC. Your evidence highlights the significant changes that will take place in the demand for retail space. However, you suggest that there are opportunities and advantages to be found in this. Can you just outline the pros and cons?
Edward Cooke: Certainly through the research that BCSC has undertaken, we are noting the structural change in the retail market, both in the way that consumers purchase goods and subsequently the way that retailers are responding. Our recent research concluded that we believe around 25% of all retail sales will be through online channels by 2020, which is a fairly significant jump from where we are at the moment. This will be driven principally by mobiles, tablets and transactions through those devices, which were in the order of 8.2% in the last quarter of last year. Clearly the threat that is presented through this structural change is an over-supply of retail space. Subsequently, what do you do with it? With forwardthinking investors, developers and local authorities, we do believe that there are opportunities for new entrants to the markets to take up some of that space. However, quite radical thinking is going to be required in order to match supply with demand in lots of towns and cities across the country. Certainly we are seeing that there is a polarised market in retail that is reflected in towns and cities. The destination places and the prime centres continue to perform relatively well. Those in the secondary and tertiary markets have suffered the most as a result of economic conditions over the last five years and structural changes in the way that consumers purchase goods.
Q74 Chair: Mark, is there anything you wish to add to that?
Mark Williams: We are in the middle of our research, but it would be a bit dull if we did not give you some indication of where it was leading. Effectively the view is that the UK, having benefited from 25 years of boom of retail development, is probably between 20% and 30% over-supplied in terms of retail floor space. The crucial issue is how to de-commission retail floor space in order to create smaller but vibrant town centres in a lot of the distressed locations that we are looking at.
Q75 Chair: There is something I do not think has been raised so far in the questioning but I have come across fairly recently. I believe there are some e-retailers now that are actually opening up stores, in effect, so that people can view the products that are online. Do you think there is much potential here?
Mark Williams: Omni-channel is the growth market, which is the relationship between e-retailing and bricks and mortar. The reality is, though, that there has been flat-line sales growth over the last five years, and there is no forecast of significant upturns in total sales. Therefore, what we are looking at in terms of town centres or retail property in general is that there is still a trend towards expenditure going through the internet, which is having an impact in terms of the cost rising, and declining profitability of the town centre. Yes, a lot of retailers are using "click and collect"-I think that is the phrase-and accessibility comes into that. However, we still cannot get away from the fact that declining sales are affecting the town centres.
Edward Cooke: Just to add to that, I think there are two effects. One is a showroom effect, which perhaps you are alluding to. There are brands taking space; for example, PayPal in the States are starting to take space for very little purpose other than to market their brand. Very little transaction goes through that store, which is the point Mark is making. Then there is the "click and collect" dynamic, which is driven because of consumer need but also because of logistical blockages. Increasingly, retailers are offering pick-up points within their stores, and sales from online are therefore driving in-store sales. Some of our big members are reporting that 70% of people that purchase online who pick up in store go on to buy something else in the store, so there is a complementarity there that is really important. Then you have the pure play online retailers like Amazon and Boden, which are using local stores or lockers in shopping centres as pick-up points, for people who do not want the inconvenience of going home and finding that the delivery man has appeared and disappeared, because they came at midday when you were at work.
Q76 Paul Blomfield: Can I start off by asking about the Retail Policy Forum that BIS run? Are you a member?
Edward Cooke: BCSC is not on the Retail Policy Forum. We have had conversations with BIS about it in the past, but because our organisation represents property investors, developers and managers of shopping centres, as well as the retail sector, there was a sense that that dynamic would not necessarily have worked in the form that the group is in at the moment.
Q77 Paul Blomfield: Looking from the outside then, I wonder if you have a view on whether it can deliver real results?
Edward Cooke: I think any engagement with the Government and the private sector on policy that is going to affect the performance of those businesses is a positive thing. Whether or not it has a kind of advisory capacity, or whether it has ownership of particular initiatives, is something I have never been too clear about. The advisory role seems to work perfectly well. I am unclear on how much the group actually runs its own initiatives. We do sit on the Future High Streets Forum, which is the DCLG group set up in response to the Portas Review. Hopefully that will have some really positive, tangible outputs as it develops.
Q78 Paul Blomfield: What has your experience been of that so far?
Edward Cooke: It has only met once.
Paul Blomfield: Over what period?
Edward Cooke: It was announced at the beginning of the year and met a month ago. It has a strategy board, but it has three task and finish groups-working groups, if you like-meeting over the next few weeks.
Q79 Paul Blomfield: Looking at BIS’s contribution from a different perspective, the Department has acknowledged that it does not provide retail-specific business support schemes. Do you think they should?
Edward Cooke: As a sector, clearly it employs 3 million people, with sales of over £300 billion, and 10% of GDP, so it should be taken as seriously as other sectors that might have more specific support.
Q80 Paul Blomfield: If there were to be more specific support, what form do you think that might usefully take?
Edward Cooke: From our perspective, the biggest issue that members face, both on the retail side and the owner-investor side, is around the business rates system. In a changing retail climate, where more and more sales are online, it does not feel right that property tax at that level is increasing by inflation every year. I think something fundamental has to be done with the rates system in the first instance.
Q81 Paul Blomfield: Every discussion we have seems to come back to rates, and I understand where you are coming from. Nevertheless, are there other parts of sector-specific support that you think might be provided?
Edward Cooke: There are things like a more flexible planning system, and the delivery of a national planning policy framework. On use class order, the noises the Government has made are broadly positive. We are waiting to see what the consultation will look like later on this year, with regard to the ease with which you might be able to convert retail to other, more economically productive uses. Again, the narrative in the NPPF, from our perspective, is spot on. It was not, but it has evolved and is much, much better. However, how that is implemented locally is still open to debate.
The third thing for the retail sector is accepting that a career in retail is a profession. It is not something that you do to go somewhere else. 18% of all retail jobs are managerial positions. Raising the profile of the value of a career in retail is something that I think they should really get behind.
Q82 Paul Blomfield: Going back to the NPPF narrative being right, you probably heard earlier the observation that it was not matched with ministerial or Government commitment. Would that be your view?
Edward Cooke: There has been a little bit more of that recently. I think there have been a couple of call-ins from the Secretary of State over the last six months, in Margate and Rushden Lakes. It is essentially now down to local implementation. What pressure could the DCLG put on local authorities to insure that they have planned for retail investment in town centres and are making decisions in accordance with that plan? I think that is the question. From our perspective, more pressure could be put on local authorities to make sure that they are keeping up with national planning policy.
Mark Williams: Could I answer a bit more simply? Localism is a great idea, and we certainly support much stronger local authority leadership as to what they want to do in their town centre. That has to be a good thing, and our report will be very much pushing in that direction. Localism making decisions that impact locally is great. Local decisions that impact other boroughs are not so good. The sad fact is that out-of-town applications do not neatly sit around the boundaries of one particular local authority. It has been suggested that North Korean democracy is at play when one local authority can make a decision that impacts five others. That does not seem to be right, and I think that is where the natural bias of the current Government for localism, which we support, has gone slightly awry, in terms of applications that impact a range of local authorities.
Whether the decision should be for or against is not a matter for what we are looking at. What we are looking at is that there is a proper assessment of the impact that such a consent would have on other local authorities, and that there is a transparent process put in place as part of that inquiry to explain how that impact is going to be dealt with. Again, that will vary on a case-by-case basis.
Q83 Mike Crockart: I do not know if you were in the room when the British Retail Consortium was giving their evidence, but I have basically the exact same question to you that I asked them. There is a huge range of projects, pilots and types of help that is going on for the retail sector: we have talked about 27 Portas Pilots, 330 Town Teams, there are BIDs, the Future High Street Forum, and High Street Renewal Award scheme. There is a whole plethora of help. Do you have any views on which are most successful?
Mark Williams: As a Chairman of one of these, the Portas Pilots and the Portas initiative has been fantastic in raising the profile, and enthusiasm not just amongst the Portas Pilots but around 300 other applicants is fantastic, which suggests that people are both concerned and they want to do something about it. Most of the Portas work is very much focussed on a bottomup approach. My specific taskforce is focussed very much on the physical barriers to town-centre regeneration and is very much looking at the strategic aspect of it, so what are the key blockages to allow rejuvenation to take place? The focus is not so much on the major cities, because they have gone through, pretty much, a major rejuvenation and, in some respects, are causing an impact on the surrounding suburban towns and districts. So, from our perspective, there possibly are too many initiatives going around. We are very much focussed on the strategic review of the remodelling of town centres and how that should go about.
Q84 Mike Crockart: Would it be your view that there should be fewer schemes? Is this causing confusion amongst retailers?
Mark Williams: I do not have a view as to whether there should be more or less. Clearly, there are a lot of applicants for the bottomup initiatives, but on their own that will not solve the problem. The fundamental issue is we have too much retail floor space, so how do we make vibrant town centres district centres? A lot of the places that are either in your boroughs or bordering on your boroughs are distressed. How do we make them more vibrant? There was a discussion about long parades of secondary retail. How do we shrink them and put relevant uses back in? That will require local authorities to decide what they want to do for their local area and then, potentially and probably, the use of compulsory purchase powers in order to assemble land to then allow that remodelling to take place, which the private sector is very supportive of in terms of the whole initiative.
Edward Cooke: From my perspective, there is a lot of useful activity happening within the Pilots, within town and city centre management and the 330 applicants. The learnings that can be taken from all that really positive activity will, hopefully, have a catalytic effect and a positive effect on town centre vitality. However, Mark is absolutely right: it is necessary activity, but it is not sufficient if we are going to address the issue of changing structural needs in retail. So if the move from Government were to concentrate on the tactical in order that they could forget the strategic, then BCSC’s perspective is very much-and we will be saying this through the Future High Streets Forum-you cannot forget the issues of business rates, how the planning system is or is not working, and the way that consumers are changing their requirement for retail and other uses in town centres.
Q85 Mike Crockart: It is a struggle, because there are arguments pushing in opposite directions, in that we are arguing localism is going too far, but equally every individual set of circumstances needs a local solution. Looking at my constituency as an example, I have one of the out-of-town city centres, which has a 24hour Tesco and a massive retail outlet within half a mile. Equally, I have a semirural village that has just put a BID together from which they have quite deliberately excluded the Tesco on the outskirts because it would have had too great an impact on the decisionmaking of the management of that. Surely each individual set of circumstances does need an entirely local solution, and therefore we do need all these different types of schemes to enable them to do that.
Mark Williams: First of all, the reference to localism versus call-in relates to major applications that cut across different local authority boundaries, so that is the only comment I am making in relation to that. That is, you cannot have one local authority making a decision that impacts five or six.
If you are then looking at issues that relate to the specifics of a town centre within the localism debate, then absolutely the view as to what that town should look like-what type of usage should be there, what kind of future-should come from the local authority. It should not come from a property developer or an outside influence. However, they may respond as part of the facilitator to deliver that and deliver against what that local authority requires. In that sense, the decisions will vary. The initiatives are good, because clearly local people want to see improvements to their town centre. That has come out loud and clear through the Portas Pilots, through the Portas BIDs, the various television programmes, etc. Whatever one may think, the fact is there is enthusiasm via the public for seeing an improvement to their town centres, which is great.
Q86 Mike Crockart: Do you have a view on the optimum size of a local authority making these types of decisions? There are vastly different sizes of local authorities. In Scotland, we have unitary authorities, and I believe that Edinburgh is probably too big to be making these types of decisions, because it is very much drawn towards the city centre rather than the slightly out of town areas.
Mark Williams: You have to have an informed debate. Historically, we had great impact studies that showed how we had the capacity to build lots of floor space. Clearly any impact study that now suggests that we should be building more floor space is flawed, because the fundamentals are we need less not more. So now the debate is about where we want to place it and what other uses there are. There is a big debate about residential. A lot of the small initiatives are fantastic, but you are not going to get Barratts or Taylor Wimpey or whatever to build three flat conversions above a former Woolworths store. However, if you look at a size in a distressed area and assemble the land through CPO and provide three or four acres, then you will get residential development through the private sector or through public support. So I think it is down to the vision and then the scale of the implementation.
Edward Cooke: I think other groups that might have broader oversight of economic development in an area could be brought into that consultation process as well, like Local Enterprise Partnerships, and work with the local planning authority to make those kinds of decisions. A duty to cooperate is supposed to be a duty to cooperate. Whether or not it is working in practice, maybe it is too early, but some of our members certainly are concerned about decisions that are being made on planning applications without due consideration to neighbouring constituencies, and another fiscal driver of that is the rates retention model that we now have. The easy decision to make is to consent more space in order to try to accrue that 50% uplift in business rates. The hard decision to make is to plan positively for investment in your town centre in order to achieve the same outcome, but it will take much longer.
Q87 Ann McKechin: BCSC stated they were in favour of a strategy of single ownership for town centres along similar lines to shopping centres. What would you say the benefits of that approach are?
Edward Cooke: What we have been saying is that, certainly in some places worthy of being tested, trying to apply a model that is similar to the shopping centre model that has the benefits of single ownership in a high street could address the issue of disparate ownership through a more collaborative approach to asset managing a town centre. The owners of the assets on the high street pool together resources-they are either encouraged to do so through some kind of equity share arrangement or are required to do so through CPO powers-and then they have a shared interest in creating and achieving that vision because they would, hopefully, see an uplift in rental income and capital value from each other.
Q88 Ann McKechin: And standardise the type of lease offers that are made to tenants.
Edward Cooke: Those kinds of things would obviously need to be discussed. Different people will have different types of freehold ownership and will have different occupiers paying a different level of rent. It is very much at the concept stage, but the concept is pooling disparate owners’ assets into a vehicle and sharing the risk and the rewards.
Q89 Ann McKechin: Have you any examples of anyone trying to facilitate that type of approach?
Edward Cooke: There are lots of examples of single ownership of high streets, especially, I suppose, in London, in the classic example of Regent Street, Shaftesbury Avenue-
Ann McKechin: These are Crown Estate, yes.
Edward Cooke: Yes, Crown Estate on Regent Street, Shaftesbury Avenue, east of Regent Street. There are lots of examples of single ownership of high streets, especially in London, but less of this concept of already having a very disparate ownership model and pooling individual owners’ assets into one fund. That is normally done through acquisition rather than through that kind of collaborative approach.
Mark Williams: It might be helpful to look at the problem, which is multiple ownership-and again we are talking about distressed locations-probably by people who had no intention to be great big property developers. They might be private investors who bought a single shop at the time. Sadly, the value of that may well have fallen considerably. The issue is how you collect together enough land to deliver the vision in terms of rejuvenation. The nature of the ownership is, ultimately, less important than the assembly. We have seen in the major cities the use of significant CPO powers to bring about rejuvenation in Manchester, Liverpool, Birmingham, etc. We now have to apply that same philosophy to much smaller locations in order to bring about that change.
Q90 Ann McKechin: Obviously the banks are very often the major creditors here. Has there been any discussion amongst the major banks about the fact that they are obviously holding a lot of commercial property that is unoccupied?
Mark Williams: When my taskforce was set up, one of the three Portas recommendations was to focus on banks’ indebtedness to real estate, and there is no two ways about it: there has been a lot of indebtedness into property. However, it has not come through in the research that the banks’ indebtedness is a blockage to seeing rejuvenation. Those values have fallen and, whether people like it or not, they are now less. The issue is about multiple ownership. That is a much bigger problem, and there is certainly a willingness in the private sector to provide ideas and support to finance these. One of them is the issue about infrastructure funds, because if you are going to remodel a town centre the infrastructure funds from the Government are not propertyrelated; they are related to all the public-sector works. The reality is if you rejuvenate these, then you can look at the issue of employment, you can look at the issue of construction, and a payback period of 50 years then becomes more sensible to see your remodelling. Of course, that is how London and many of the cities got developed-through effectively what is now the modern day equivalent of an infrastructure.
Q91 Ann McKechin: Has there been any discussion that you are aware of from the Government side with, for example, the major property companies in the retail sector about these types of initiatives and whether they should start looking at it?
Mark Williams: My taskforce has, obviously, Government observers on it, as well as representatives of the key banks, as well as most of the big professional organisations involved in property investment development and the retailers. There is unanimous support coming through in terms of trying to bring about these kinds of initiatives. There is no opposition from a very diverse group of people, which has to be a positive, to trying to see how, through the use of infrastructure funds, we can bring about this change.
Q92 Mr Walker: You mentioned your taskforce, and obviously you are taking part in this industryled taskforce. You say there is unanimous support for the initiatives. Can you just set out what are the key priorities that the taskforce is trying to address?
Mark Williams: The objective is to identify the propertyrelated barriers to rejuvenating town centres. From that, we have undertaken research across England but not Scotland, with apologies, because it was not part of the Portas Review. That said, the lessons are just as applicable, so I think that is irrelevant. We are now in the process of sampling some 27 towns by interviewing local authorities, property owners, occupiers, as well as other stakeholders such as house-builders etc. to test out the views and some of the issues about, for example, the financing. The idea is then to come through with clear recommendations on what we see as the barriers to rejuvenation, what the general trends are, but I have already indicated that we see the nature of local authority leadership taking a strong view as to what they want in their town centre; the issues about multiple ownership, and therefore that is acting as a barrier to that rejuvenation; and the private sector support-so saying we are not going to scream from the rooftops about local authorities threatening CPO. We think the private sector cannot do it on its own, because the nature of assembling land in lots of quite small locations takes too long, is too expensive and we therefore need the intervention of a local authority to kick start that and then go through the normal tendering processes that you would expect. Also, we look at both public sector finance through prudential borrowing as one route, and there are local authorities that have intervened in their town centre, or by looking at infrastructure funds or going out to the private sector in the way you can finance things at the present time.
Q93 Mr Walker: On the financing front, you have also mentioned in your written evidence tax increment financing. Can you just expand on the role you feel that can play?
Edward Cooke: We have been arguing for some time that tax increment financing funded by the private sector for local infrastructure would get some of the new schemes or at least the redevelopment of town centres across the viability gap that exists at the moment. Very often, the viability gap from a scheme being successful or unsuccessful is equivalent to the amount of public infrastructure that is required as part of that development agreement. So creating a new revenue stream through an uplift in the business rate to pay back either debt or equity, whatever source of capital is used to fund that public infrastructure, which is obviously then handed over to the local authority, is a way of getting construction going, and getting the rejuvenation and redevelopment of town centres going again.
The barrier to all of this is that if it were private-sector led, there would need to be some kind of identification of the level of capital used for public infrastructure on the Government’s balance sheet. As a result, because of the deficit reduction targets, that is not something that is acceptable to Treasury. We would argue that there is no risk to the public sector. The risk of the rate not being accrued and the risk of the construction costs overrunning would fall entirely to the developer, so we do not really understand that logic, apart from definitions of "securitisation" and the Eurostat guidance on classification, of why that should be the case. We think that it would show a really positive approach from Government if it were to reconsider a private-sector led equivalent to TIF.
Q94 Mr Walker: To be clear, what you are saying is that you can have a higher set of business rates in order to achieve this. In a situation where you are saying there is overcapacity in terms of retail space available and in which businesses are more flexible and more able to move, perhaps, than they used to be in the past, is there not a risk in creating a body of property that is paying a higher tax rate and is therefore less attractive over the long term for people to stay in it?
Edward Cooke: The way the formula is calculated does assume that there is an increase in the land value and, subsequently, the rents that are paid and the rates that are accrued. So it is a more economically productive property investment that should be more attractive to retailers and should allow for that uplift that can be used for the investment. The displacement aspect I think you are talking about does need to be taken into account, of course, in any calculation of what could be generated. That formula would be worked out, of course, and it is not as simple as you assume that the uplift would be whatever-5%, 6%, 7%. You would need to take into account what impact that has had on another area in proximity.
Q95 Mr Walker: Have you looked into whether any of these types of schemes could be eligible for regional growth funding? Have there been any bids to Regional Growth Fund for schemes of this sort in the retail sector?
Edward Cooke: I will have to go and have a look. From the last time that I looked, I am not aware that the retail sector has qualified for much regional growth funding, but it is perhaps something that our sector should be more active in pursuing. I will come back to the Committee with some more thoughts on that.
Q96 Mr Walker: In terms of the makeup of your taskforce, you mentioned you had Government officials in attendance. Where do they come from-which Department?
Mark Williams: They come from BIS, from Treasury and DCLG.
Q97 Mr Walker: All three, so it is probably quite healthy. Just in terms of this funding issue, I guess one of the other areas is we have the Heseltine growth review setting out more challenge funds-more funds that local authorities and businesses together can bid for-of which the Regional Growth Fund is just one model. Do you think there is an opportunity for LEPs and BIDs and retailled groups to play more of a role in going after some of that money as well?
Edward Cooke: Certainly what we have seen over the last few years is that the old model of retail property development, where the private sector bears most of the burden, most of the risk and is able to generate capital from debt markets or other sources, is no longer fit for purpose. So joint ventures between the public sector and the private sector that enable this kind of activity have to be the way forward, probably, in more than the medium term.
Mark Williams: I think you also have to realise that, first of all, we are not talking about just retail; we are talking about town centres, so a multitude of uses go into that, including residential. Property development has not necessarily been the most profitable exercise, looking back, in any event, and it is one of the reasons the banks are in the mess that they got into. It has been well publicised by Grosvenor themselves that Liverpool, for example, lost a lot of money, and that is on a major city centre project, so the payback period for these kinds of projects cannot just be measured on a rent-and-yield equation. It has to be looked at in terms of job creation, the additional local authority income that comes from it through construction and the payback period over a longer period of time rather than the fiveyear private-sector model. The model does not work and the private sector acknowledges that. They will not be able to come up with solutions that remodel, off their own balance sheet, these town centres.
Q98 Katy Clark: A couple of final questions. You are critical of the Government’s decision to delay the revaluation of business rates. In your opinion, what is the Government’s motivation for the delay?
Mark Williams: It is political. I cannot see any other possible answer, because the rating system, for all its faults, on a fiveyear annual revaluation allows for fairness to come into it. You now have this ridiculous situation where the most distressed towns, like Bromsgrove, are supporting Bond Street, Walsall supporting the West End. We have not yet come across someone who has benefited. I, working in an office in London, am a beneficiary of this. I did not ask for this delay of the revaluation. We are not aware the City of London asked for the delay in the revaluation. I am not even aware the supermarkets, who are beneficiaries, asked for it. It has impacted the sector that theoretically it was supposed to help and in quite a catastrophic way. In many cases, you cannot let space for £1 because of the level of rates in many of the distressed towns that we are looking at, so it is not even a question of the landlord dropping the rent. They can drop it to nothing and they still cannot let it, so clearly rates have got to a position where it is unfair. Now, we have to live with that, because arguably the property sector got itself into a mess by pushing rents up to their peak in 2008, so they have to take some responsibility, but having a fiveyear annual revaluation is supposed to iron it out. The delay by a further two years has a very big impact.
Q99 Katy Clark: When you say it is political, what do you mean? What are they scared of?
Mark Williams: Ultimately, rates do not raise more revenue, so the revaluation simply rebalances it, but what it would mean is that the UBR would have to rise, because I think the Government’s own work shows that the UBR would go up and that, in the year of an election, I guess is politically sensitive. I say that because we cannot fathom any other reason why there would be a revaluation, unless someone wants to volunteer an answer now.
Q100 Katy Clark: You also question the Government’s figures underlying the delay. Can you give us your assessment of who you think are the winners and losers?
Edward Cooke: The biggest issue the BCSC had with this was that the point about redistribution is essentially it is those that have done less well subsidising those that do relatively well without any, as far as we could tell, encouragement from those that had done relatively well for the change. We are very supportive of the Portas Review, but the analysis that we have done shows that 13 of the 15 Portas Pilots that we were able to get rental information from will be worse off. So it is a question of giving an amount of money with one hand and taking away a much greater amount of money with another. I would give you Stockport as an example: £100,000 Portas Pilot BID money; £1.5 million impact, negative impact, of revaluation from 2015, so there is an inherent contradiction there. Clearly, retail in secondary locations will lose; retail in primary locations like the West End will benefit, as we understand, and so will the supermarkets.
The figures we dispute, because there is insufficient data for the VOA to come up with the assumptions that they have. Indeed, in their own piece of work that looked a bit cobbled together they make that same claim. The figures are not sufficiently well tested. The sample size is not sufficiently robust for it to be credible, but the way the Government has interpreted those figures suggests that this was absolutely the right thing to do and there are, overall, 800,000 winners. Well, we know that there are 400,000, roughly, that you cannot possibly make that claim on because there is such limited evidence, which the VOA says. I suppose the emphasis that the DCLG put on the figures for such a huge change, we felt, was very misleading.
Q101 Mr Walker: You have raised serious concerns about the delay to revaluation, which I completely understand. A lot of the businesses that have contacted me about the revaluation process have complained that the snapshot was obviously taken at the height of the market in 2008 and that we have moved way beyond the need to have a revaluation every four or five years. We should be able to be looking at a much more regular valuation process, but the cycle of revaluation is broken and therefore the whole system needs to be looked at. Would you accept that basic comment?
Edward Cooke: I would accept that entirely. Lots of the commentary in the market was about more frequent revaluations in order to address that issue of significant changes over a fiveyear period, so for Government to do quite the opposite, again, it is not obvious to anybody where this advice or this lobby or this encouragement has come from, and Government has yet to identify the key drivers of this change, so it is a bit of a mystery to everyone. I totally agree with you that the fiveyear quinquennial review should be shorter and we also think that using September’s RPI as a means of uprating the next year’s business rate has some perverse consequences, as we have seen over the last three years, with 4.6%, 5.6%, 2.6% inflation. We have been calling for a cap at 2% at least for the next two years, until the end of the parliamentary term, to give some certainty to business. So the revaluation needs to be looked at, the way that business rates are uplifted needs to be looked at, the whole system for retail needs to be considered, and I am sure that is something this Committee will hear a number of times over the next few weeks.
Mark Williams: I think you have to realise that, whilst it is important we have that debate on the five years, since 2008 what is new and will not go away is the impact of the internet. Of course, the internet does not pay rates, so Amazon, which is the world’s biggest online retailer, pays no rates, whereas a lot of the retailers you have heard from pay a huge amount in rates. That is now their biggest tax. Whether it is employees’ National Insurance, Corporation Tax, rates is now the largest tax that retailers pay. That is a huge disincentive to invest in bricks and mortar as opposed to, again, diverting to the internet.
Q102 Mr Walker: Is the Amazon point not an argument for shifting the balance of rates away from shops and towards warehousing?
Mark Williams: Certainly if you did turnover on warehousing, then Dunfermline, which has 1 million square feet of Amazon, would be a huge beneficiary in the uplift in rates, but I suspect that is a much more complicated debate.
Chair: Thank you. That is very helpful. We may write if there are any further issues that we feel need clarification and, of course, if you feel that there is any additional information or answers to questions that we should have asked but did not, please feel free to write to us with supplementary evidence. Thank you. That is extremely helpful.