It is a pleasure to serve under your chairmanship, Sir Alan. Like other hon. Members I am grateful to my hon. Friend Richard Harrington for securing the debate, which comes at an opportune time, two weeks before the Chancellor is to deliver the Budget.
The retail sector, as we have heard, is a vital component of the UK economy. At present, the sector faces challenges, which it is important for us to address. I shall concentrate my remarks on the high street, which some pundits have written off, but which I passionately believe still has an important role, not just as an engine of economic growth but as a focus for communities and leisure activities. I shall comment particularly on business rates and the unfair burden that retailers must carry, paying 28% of all business rates despite accounting for only 5% of the economy.
Lowestoft, in my constituency, is a Portas pilot town. The town team is putting in place a range of initiatives to create the sense of place that we need to get back to. They include mentoring small businesses, the introduction of town rangers, the hosting of musical and cultural events and the creation of a voucher discount scheme for those who shop in the town centre. Such initiatives provide high streets and towns with an opportunity, but it is important for traders and retailers to be able to compete on a level playing field with out-of-town stores and internet operators. Sadly, at present, the business rates burden means that they cannot do that. In the past two years business rates have increased in line with the retail prices index, by 4.6% and 5.6%. The increase in 2012 meant that retailers had to find a further £350 million in taxes when trading conditions were particularly challenging. At a time of falling disposable income and low levels of bank lending to small businesses, business rates are unsustainable.
I urge the Government to consider various measures, and I will be interested in the comments of my right hon. Friend the Minister. First, the Government should review the mechanism for increasing business rates annually. Instead of making increases in line with RPI based on a particular month, in which there may be a spike in inflation, they should use an annual average consumer prices index rate, subject to a 2% cap, in line with the Government’s inflation target.
Secondly, the Government have decided, as we know, to defer the revaluation that was due in April, with the new list that was due to come into operation in 2015. I question the merit of keeping a rating list based on rental values from April 2008, when the property market was at an artificially unsustainable level. The Government have said that the reason for the delay is that the result of a revaluation would be more losers than winners, and that the centre of London would benefit to the tune of £440 million, which might not be palatable to the rest of the country. However, the evidence that I have seen shows that retailers in many provincial towns will be penalised by the delaying of the review. I urge the Government to introduce measures to reduce that burden.
My third point is that there is a need to address the inherent unfairness of the current system, which favours out of town development at the expense of town centre shops. Out of town car parks are not subject to business rates, as long as they are free for customers’ use. As those locations compete with the town centre, where shoppers must invariably pay for their parking, the financial incentives are effectively the wrong way round. Consideration should be given to raising business rates on out-of-town developments and investing the money in town centre regeneration schemes.
Fourthly, the Localism Act 2011 introduced welcome new powers for local authorities to provide discretionary rate relief, which can be used to incentivise new investment in the high street and in shopping parades. However, to ensure widespread take-up of the relief, more funding is needed for councils to deliver it. It is important that the Government develop a mechanism for local authorities to fund discretionary rate relief through those new powers.
Finally, I urge the Government to conduct a full review of the means by which business rates are set. The rise of the internet means that retailers who trade from high street and mall shops are unfairly penalised when competing against rivals that sell exclusively online. Let me provide the example of a book retailer. A national bookshop company may have a chain of shops for which it is paying rents in excess of £100 to £150 per square foot, on which its rates are based. In contrast, their internet competitor will have one—albeit very large—warehouse in the middle of the country, where the rent may be to the order of £4 to £5 per square foot. It is important that business taxation properly reflects the underlying profitability of a business.
I know that the Treasury—whatever parties may be in power—rather likes business rates. They are easy to collect, difficult to avoid and highly productive, generating 5% of the UK’s tax bill. However, I submit that the system is no longer fit for purpose. If we carry on as we are, the future of British retailers is at best uncertain, and I urge the Minister and the Government to carry out a full root-and-branch reform.