Analysis: How retail property leaders are voting for change

The Chancellor’s Budget in March was the current Government’s last chance to announce any large policy changes before the general election next month. It used the opportunity to formally launch a review into business rates that it labelled the “most wide-ranging review in a generation”. 

The news of the review was not new in itself, but many within the retail property sector breathed a sigh of relief when it was formally launched, taking it as a sign that action, and hopefully reform, was finally beginning. 

“It’s positive that the Government recognises that business rates are a problem,” says the British Council of Shopping Centres (BCSC) head of policy and public affairs Ed Cooke. “The terms of the review give us a chance to see what a whole new system might look like.”

This is something the industry has been calling for en mass for a long time. “Regardless of the party or parties elected in May, reform of the business rates system remains the most pressing issue, particularly for the retail industry, which is such a significant contributor to the business rates system,” says Hammerson chief executive and BCSC president David Atkins. 

There are several difficulties with the present system, not least the infrequent nature of revaluation that is serving to exacerbate the difference between the level of business rates and the economic reality of the market. 

“Revaluing every five years maintains the disconnect between economic performance and amount of tax paid. The tax no longer links to the value of the property. The system doesn’t work in the new economic paradigm,” says Cooke. “We are calling for a property tax based on the value of the property, revalued more frequently,” he says. “And we also want cross-party consensus that a review will take place.”

One of the challenges will be creating a new system that is reactive and competitive in such a changing market. 

“I hope it leads to a new system that is internationally competitive and more responsive to changing economic conditions, rather than, as we see at the moment, artificially uprated year on year based on inflation,” says Atkins.  The review is just the beginning, and ensuring it achieves the level of change the industry is calling for is something Cooke is very keen to monitor. 

“The challenge now will be to ensure that, in a period of big vote-winning promises, business rates reform is not only delivered but is radical enough to make a difference to millions of businesses,” he says. 

Rebuilding the UK high street 

But Cooke and the BCSC are calling for more than just a review of the business rates system.  “Another key recommendation we’re making is that all political parties need to see town centre redevelopment as critical national infrastructure,” he says. 

One of the major challenges when considering any redevelopment is viability, but there could be a way around that, according to Cooke. “We also want government to open up opportunities for infrastructure funds to be allocated to redevelop towns and cities,” he says. “We’re not asking for the government to allocate more money, but we are asking that more of the existing capital out there should be used for supporting redevelopments of town centres.” 

This would mean town centre redevelopment should feature in the Government’s National Infrastructure Plan priorities, which currently cover things such as roads, rail and communications. Cooke also wants aspects such as creating the digital infrastructure needed to support modern retail to be covered by the funding. 

It is hoped that this would then encourage Local Enterprise Partnerships and local authorities to access public sources of funding for town centre investment – providing much needed capital to deliver regeneration. The industry can also work with private companies for funding in this area. 

“I hope it leads to a system that is internationally competitive and more responsive to economic conditions”

David Atkins, Hammerson

It is hoped this release of capital would spark regeneration across the UK, not just in certain hotspots. Stockton-on-Tees is one example that the BCSC highlights as a successful town centre redevelopment that brought about wider regeneration. But allowing funding to be dictated at a local level is important, according to Atkins. 

Manchester City Council is leading a regeneration of the city, including securing and managing a range of external funding streams.

“Further devolution of fiscal powers across regions or cities should be welcomed,” says Atkins.  “If the Government is using Manchester as a trailblazer, I hope they quickly review that trial and move to encourage or allow other major cities across the UK similar powers. I think that’s one of the quickest ways to accelerate a number of regeneration projects that create significant jobs.”

The fragmentation of politics

British politics has become more fragmented in recent years as parties that had previously been considered marginal are now offering viable candidates for MPs across the country. This is illustrated by the TV leaders’ debate, which this year featured seven candidates compared with 2010’s three. For the property sector this means it is difficult to predict the precise make-up of the next government and its specific intentions towards the sector. So the plea from industry is around stability and certainty, as well as specific policy.  “Some form of clarity around the election winner is essential,” says Atkins. “Elections create the ability for people to defer investment decisions, so clarity around the election as quickly as possible thereafter is vital. There remains the risk that it may take some days or weeks before a clear winning government emerges,” he says. 

“Then that government needs to provide certainty and clarity to business; we’ve seen a number of years of economic growth coming through in the UK, so whichever party or parties win the election we hope they continue to focus on and stimulate that level of economic growth going forward.”

Other retail leaders are not as open to a change in government. A survey of 35 retail chairmen by recruitment firm Korn Ferry revealed 84% believe the coalition Government is doing well or reasonably well. That is the highest figure since the survey began five years ago and up from 32% just two years ago. 

Korn Ferry head of retail Sally Elliott believes retail bosses have been won over by the coalition because of the stability it has brought to the economy. She says: “The chairmen just want the economy to be really well managed because consumers are happy and spending and a strong economy means we have good conditions to do business.

“They don’t like the uncertainty of the election, the EU referendum and anything that might dampen consumer confidence.”

Maintaining growth and inspiring confidence are the key requirements for any government that is formed in May, which may be challenging in the ever-changing economic environment. 

The retail industry is changing too, as is the role of the store. “Trying to understand the role the store now plays in a sale in a digital world is increasingly challenging. But one thing is certain, the tax system and the planning system are not responsive enough to fast-moving changes in consumer purchasing behaviour and retailing – they’re not keeping up with the pace of change,” sums up Cooke.