TAC0092

Written evidence submitted by the Association of Convenience Stores

ACS (the Association of Convenience Stores) welcomes the opportunity to submit evidence to the House of Commons Treasury Select Committee and its inquiry considering the implications for tax policy following Covid-19. ACS represents 33,500 local shops and petrol forecourts including Co-op, McColls, BP and thousands of independent retailers, many of which trade under brands such as Spar, Nisa and Costcutter. Further information about ACS is available at Annex A [not published].

Impact of Covid-19

Covid-19 has reaffirmed the value of local shops in supplying essential products and services to communities that would otherwise lack provision. The convenience sector provides groceries and services within all types of rural (37%), suburban (26%) and urban (37%) communities[1]. Local shops often trade in isolated locations (38%) providing the only shopping option for the local community and shops trading in residential areas can serve significant populations, most typically from small parades (42%)[2].

The impact of Covid-19 on individual stores varies greatly depending on trading location. Many rural and neighbourhood stores have seen uplifts in sales but the outbreak is proving particularly challenging for stores in city centres, high streets, petrol forecourts and transport hubs more reliant on passing trade. Some stores in these locations are experiencing significant sales declines and require policy support to retain business viability and jobs within these exceptional times.

Business Rates

 

Covid-19 Business Rates Relief

The introduction of the business rates relief holiday for one year has been essential to supporting retailers to continue trading during Covid-19 and manage additional operating costs. We urge the Government to consider a tapered removal of Covid-19 business rates support to prevent sudden spikes in business costs.

Incentivise Investment

The business rates system needs to be reformed to incentivise investment. We recommend that the Government considers introducing a scheme delaying increases in business rates bills for two years, similar to the Scottish Government’s Business Growth Accelerator Relief.

Currently when retailers invest in new services or facilities to improve their properties and offer to the local community, they receive higher business rates bills. This is specifically a problem where stores are extended or for internal plant and machinery items including CCTV, fire safety and air conditioning units[3]. Higher business rates bills can deter investments, reducing economic activity and preventing the positive benefits of store improvements from being realised, such as increased energy efficiency or reduced crime.

Protect Reliefs

The business rates system has several associated relief schemes in place, indicating the maturity of the tax to account for different property characteristics and uses. We welcome the extension of small business rate relief scheme to premises with a rateable value up to £50,000. Small business rate relief is essential to many local shop owners; 72% of independent convenience stores benefit from some form of relief and 59% indicate the primary benefit is the ability to continue trading[4].

 

Policies on business rate reliefs should be maintained at the national level and where possible issue automatically based on rateable value thresholds. Reliefs should also remain not subject to local or national business conditions. Non property-based criteria for access to reliefs would also undermine business planning by enabling eligibility for reliefs to vary suddenly.

 

Account for the Digital Economy

 

Covid-19 has accelerated the well-documented rise of online retailing: reform is required to both improve the parity in tax revenue between traditional bricks and mortar retail businesses and online retailers and support the viability of high streets and local parades. Recent Select Committee reports from MHCLG[5] and HMT have highlighted two possible options worth exploring further[6].

 

An online sales levy could be applied to the sale of physical goods sold online that do not interact with physical retail space. It is estimated that a 2% levy on physical goods sold online would raise £1.5billion that could be used to offset the burden of business rates on physical retail premises[7]. The levy would include a sales threshold to exempt small online retail businesses.

Alternatively, a new turnover-based rating methodology for the warehouses of online retailers could be introduced. This could replicate the receipts and expenditure and fair maintainable trade methodologies used for petrol forecourts and ATMs. Applying a similar rating methodology to online warehouses would better reflect the value of these premises in the context of a changing retail market and economy.

Employment Taxation

The convenience sector is comprised of 46,000 local shops, employing over 365,000 people in communities across the country[8]. Convenience retailers supply high quality opportunities at the lower-paid end of the labour market, providing local, secure employment with genuine flexibility for both employers and employees. Employment costs are escalating rapidly and policy interventions are needed to enable retailers to continue providing quality jobs based on employment contracts.  

National Living Wage

The predominant cause of escalating employment costs for retailers is the National Living Wage and its target to reach two-thirds of median earnings by 2024. Figure B[9] demonstrates the impact the rising rate has on convenience retailers and how they are responding to rising wage costs by reducing paid working hours in their business on taking on more hour themselves. The scale of the economic challenge posed by Covid-19 requires a careful assessment of this target, which is ‘subject to sustained economic growth’. Extending the target beyond 2024 is therefore worthy of consideration.

Figure B: Most Common Retailer Responses to NLW Increases

 

2016

2017

2018

2019

2020

One

Reduced working hours (74%)

Reduced working hours (78%)

Reduced working hours (75%)

Reduced working hours (72%)

Increased retailer working hours (64%)

Two

Reduced staff numbers (67%)

Take less profits (78%)

Increased retailer working hours (60%)

Take less profits (64%)

Take less profits (56%)

Three

Increased retailer working hours (65%)

Increased retailer working hours (65%)

Take less profits (54%)

Increased retailer working hours (52%)

Reduced working hours (48%)

 

Employment Allowance & Employer NICs

The Government cannot continue to make commitments that significantly increase businesses’ employment costs without offering some concessions to help mitigate them. The 2020 Budget usefully increased the Employment Allowance from £3,000 to £4,000 for 2020/21 but this is now subject to state aid rules and retailers with a Class 1 secondary National Insurance liability of £100,000 or more in the preceding tax year are now ineligible[10]. As a per business allowance it does not allow retailers to recoup much of the costs associated with a rise in the National Living Wage.

Changes to employer NICs would deliver more meaningful savings and help manage the total cost of employment for retailers. Raising the starting point for payment of secondary thresholds would enable many local shops to support employment opportunities. Figure C shows the impact of the Employment Allowance change and suggested Employer NICs policy, assuming employment levels and productivity remain the same.

 

Figure C: Modelling Employer NICs Reform

 

Excise Duties & Illicit Trade

Convenience retailers collect a significant amount of excise duties on behalf of the Government, mainly from the tobacco-related (21% of sales) and alcohol (15%) categories[11]. However, continual increases in duty rates have driven a significant minority of consumers towards black market products. HMRC statistics put the tax gap at £2.8bn for excise duties. The percentage tax gap, the tax gap pound value as a proportion of theoretical liability, is 14% (£1.5bn) for tobacco and 7.5% (£0.6bn) for alcohol[12].

We believe both greater enforcement against the illicit trade and further freezes in excise duties are required to reduce these significant tax gaps. Specifically, HMRC should review its approach to enforcement and sanctions to tackle the illicit and non-duty paid trade. We would support HMRC removing retailers’ ability to trade by removing alcohol licences where they are found to be wilfully selling illicit or non-duty paid products. This is an effective but underused sanction which we know would deter businesses in our sector from engaging in the illicit alcohol and tobacco trade.

We also encourage HMRC to extend the offences of Restricted Premises Orders (RPO) and Restricted Sales Orders (RSO) to include illicit tobacco offences. This would be a more effective way for dealing with low volume and low value illicit tobacco offences instead of fines or written or verbal warnings by prohibiting a venue from selling tobacco products for a period of up to 12 months.

 

September 2020

 

 

 

 


[1] ACS Local Shop Report 2019

[2] ACS Local Shop Report 2019

[3] How non-domestic (business) properties are valued Valuation Office Agency

[4] ACS Voice of Local Shops Survey: August 2019

[5] High Streets and Town Centres in 2030 House of Commons Ministry of Housing, Communities and Local Government Select Committee. February 2019.

[6] Impact of Business Rates on Business House of Commons Treasury Select Committee. October 2019.

[7] Online retailers should pay new sales tax to support the high street, Tesco CEO says Telegraph. 13 May 2019.

[8] ACS Local Shop Report 2019

[9] ACS National Living Wage Surveys: 2016 - 2020

[10] The Employment Allowance (Excluded Persons) Regulations 2020

[11] ACS Local Shop Report 2019

[12] Measuring tax gaps 2020 edition HMRC