Written Evidence submitted by Revo [SHS 026]

Supporting our High Streets after Covid-19

Revo’s response to the Housing, Communities and Local Government Committee Inquiry

August 2020

The high street is the economic heart of our towns and cities. It is a meeting place for social interaction, part of what binds communities together and plays a vital but often unseen role in our happiness, wellbeing, a sense of security and a sense of identity. Covid-19 has caused severe economic and social consequences to our high streets and town centres with footfall volumes falling by 89%[1] during the height of lockdown.

For the UK’s high streets Covid-19 is a crisis that starts with the consumer. Consumers have been forced to stay local, minimise travel and shop sustainably. They see the world through a prism of risk. Digital transformation may be exponential and physical retail space is oversupplied, but for the reasons above alone, the role of physical retail space in our high streets remains important.

About Revo:

Revo is the membership organisation supporting the whole of the retail property market. Our unique community includes private and publicly listed retailers and owners of retail property, as well as local councils, advisors and consultants who provide services to our industry.

Retail generates approximately £20 billion in taxes and contributes 5% of the UK’s total Gross Value Added (GVA) annually. Retail property is the largest asset class in commercial property valued at £321 billion. Well over 3 million people from apprentices to Board Directors are directly employed across all corners of the country in retail and retail property.

Our members and the wider retail property and placemaking community are experts in creating places in which people wish to live, work and enjoy their leisure time, and we are keen to work with government to deliver our shared objectives and overcome the barriers presented from the pandemic.

Revo welcomes the Housing, Communities and Local Government Committee call for evidence into supporting out high streets and town centres during and after this global pandemic (Covid-19).

Section A: The likely long-term consequences of the Covid-19 outbreak on the future of the high street:

Covid-19 has placed huge strain on retailers operating from physical stores as they have had to endure months of uncertain trading, together with the added costs of Covid–19 safety measures for public health. Covid-19 has, at the same time, accelerated the growth of e-commerce and has fast-tracked consumer behaviour[2] an estimated five years during lockdown.

It is very difficult to predict with any degree of certainty what the long-term consequences of Covid-19 on the high street may be as Covid-19 is still with us.  However, it is clear how hard the retail, hospitality and leisure industries have been hit. The UKHospitality Tracker notes that in Q2 of 2020 the hospitality sector saw sales fall by 87% i.e. equivalent to nearly £30 billion in lost revenue. Similarly, the leisure and entertainment sector were down -68%[3]. The high street was already facing significant challenges, but Covid-19 has made these challenges more significant and the response more urgent.

In terms of the retail sector, Revo sees the key likely long-term consequences being:

1. Evolution of space: the purpose of space is to serve a need and as that need changes, the use of space must change also. Consumers have been liberated by online purchasing and the market must provide a meaningful reason for visiting the high street.

For the longer term, examples are already in place showing[4] how retail space can be creatively reimagined to serve community needs. The need to reimagine retail space is reiterated in a study by Revo and Lambert Smith Hampton[5] that concluded that town centres and high streets must ‘diversify or die’. These places will endure and remain a key part of our everyday lives but in the future will need to be able to adapt in order to be more mixed-use urban centres, offering a mix of homes, workspace, leisure, hospitality as well as retail, for example, multi-purpose locations used for pop-ups and local markets to boost short term use of space. Space must be flexible, for example, libraries could be refocussed as worker community hubs and a worker ecosystem could develop.

The future of retail is about restating the purpose of a place to make it engaging for the consumer. A new research study of 154 towns[6] showed that district centres saw a smaller fall in visitors during Covid-19 compared to cities, as high streets continue to evolve from retail focus to multifunctional hubs.

2. The uneven playing field between online and physical retail space has been exacerbated throughout lockdown as consumers have been forced to shop online for all but essential retail. In 2019, 85%[7] of retail sales still touched a physical store on a customer’s path to purchase, highlighting the importance of our physical centres at that time. However, its role has changed as the technology has blurred the borders between online and offline retail[8]. Business rates reform should recognize the growth of online sales, the disproportionate burden that the current rates system places on physical retail and the financial capital barriers this creates for success and future investment in our high Streets.

3. Higher unemployment. Modern office jobs have proved to be portable during lockdown and this may in turn accelerate the displacement of human functions to alternative intelligence as part of a digital revolution. Unemployment increases in April to June 2020[9] were at their greatest since May to July 2009.

Unemployment numbers will increase as the government’s coronavirus job retention scheme ends altogether, with significant levels of national unemployment being forecast over the medium term [10]. Younger employees are particularly affected, with an IFS study[11] in April 2020 finding that employees aged under 25 are about two and a half times as likely to work in a sector that could be heavily affected by this pandemic.

4. Mental health has suffered because of the financial and health pressures of the pandemic. A mental health survey conducted by MMC agency[12] in July 2020 showed that 54% of business owners said their mental health had worsened during the pandemic with two out of three explaining their worries were about cash flow and/or cancelled work.

Conversely, the important role of the physical environment on mental health and wellbeing has been highlighted by Covid-19 and on reopening, there was a surge of people to shared physical space, reinforcing our understanding of the psychological value of high streets. But how we engage with space has changed; a successful space must deliver an experience that outweighs risk. Retailers must communicate a safe space for consumers to enjoy.

5. A RICS study[13] showed a drop in investor interest on the high streets with a net balance of 46% of respondents reporting a fall in investor enquiries during Q2 of 2020.

6. Big cities, London’s West End in particular, are likely to see a significant drop in office-based workers from the increase of remote working.  A study by Instant Offices[14] data showed that 70% of finance directors are planning to move part of their on-site workforce into remote roles after Covid-19, to cut costs. Furthermore, a RICS study found that 93% of respondents anticipated that businesses will look to reduce their office space in the next two years. Working patterns are likely to include an element of home working/ flexible working for many office-based employees. Conversely, there are potential benefits to local centres as more of the formerly dormitory locations experience additional footfall during the week, with increased remote working.

7. Decline in the use of public transport. [15]There has been a material decline in the use of public transport since the beginning of lock down, apparently due to distrust. Passenger capacity on the London underground is around 15%[16] of normal capacity which is far below what London needs to be able to function properly. This has had material implications for the wider town/city centre eco-system, with closures impacting the overall footfall and trade in other businesses and services. For example, the Upper Crust[17] outlets have been forced to cut up to 5,000 jobs as it struggles with the reduction in passenger travel. The travails of Pret a Manager[18] are well known as its city centre locations adapt to survive due to the knock-on effect of fewer city-based office workers.

8. Ethical retailing and sustainability have increased in our decision making and that is anticipated to continue as we return to a new normal. The carbon impacts of the delivery and packaging aspects of online retail mean it is arguably more detrimental to the environment than physical retail. Internet Retailing[19] believes the pandemic has made people think more about what they are buying, where it comes from and what it does to the world. Research by GlobalWebIndex[20] found that interest in sustainable shopping has in fact grown over the lockdown period, with 45% of people thinking it will be more important than before to reduce personal usage of single plastic. A study by PwC[21] on consumer sentiment post Covid-19 found brands that value its workers and the environment will be favoured.

9. A report into the New Consumer Reality post Covid-19 by CACI[22] identified a new consumer drive for value. More than ever there is a drive for value, consumers will seek value for money in all their purchases because of the financial impact of the pandemic.

10. Data collection. New technology and better methods of collecting consumer data have increased in prominence as it has become essential to know what consumers think, how they behave, where they go, why they do what they want to do and how they feel for physical retail space to remain purposeful and successful. For example, intercept surveys can create data sets to demonstrate how people are using places. Town centre and high streets should be using local data to aid their recovery and understand their position and purpose. The High Streets Task Force[23] has published guidance for a counting regime that can provide basic data to help places monitor their recovery process and understand how and if their function and attractiveness may be changing as a result of Covid -19.

Section B: How councils, central government, and other stakeholders are and can help mitigate the impact of Covid-19 on the high streets and town centres:

11. All stakeholders engaged in the high street must collaborate to adapt to consumer expectation and boost consumer confidence and as a result support economic regeneration and long-term investment. This is critical in the short to medium term, to get the sector through the aftermath of the pandemic. Achieving the structural change to retail will require intervention led by local authorities and significant private sector investment working together with Government financial support.

Councils:

12. The need for strong leadership in local government is vital. Local government recognizes its proactive role in catalyzing adaptation and boosting and enabling local business which draws in the public e.g. short term uses such as markets, events, cultural uses as well as creating/improving public spaces and public realm.

13. With an understanding of particular local need, councils should be enabled to drive high street and town centre regeneration with a focus on involving a broad cross section of interests to ensure genuine local needs are met - and vanity projects avoided.

14. BIDs and town centre partnerships should be encouraged and enabled to engage with local government to mitigate the impact of Covid-19. For example, Bristol City Centre BID[24] worked with Bristol Waste to disinfect high contact areas within the city centre and Stratford BID[25] worked to match staff made redundant from the hospitality sector with vacancies at grocery retailers. These examples have helped to reduce unemployment whilst at the same time actively helping to address some of the immediate impacts of the pandemic.

Central government:

15. Introduce a fiscal support mechanism like the Property Bounceback Grant. Enforced business closures have left many businesses with no revenue and no means to pay rent. Analysis[26] commissioned by Revo, BRC, UKHospitality, BPF and UK Active found that if government support covered 50% of unpaid rent across retail, hospitality, and leisure sectors in just six months, it would cost £1.75 billion. However, the total return to the Treasury, in terms of tax revenue from economic activity, would be almost £7 billion and 375,000 jobs would be saved with a return on investment of almost 400%.
16. The ‘Eat out to Help Out’[27] scheme was created to encourage people to spend money on the high streets and local businesses/restaurants. So far, the scheme has been successful in encouraging people into hospitality. It was used 10.5 million times in the first week and arguably more importantly, it helped to build public confidence in returning to public places, improve morale and spend in an environment of economic uncertainty. Consideration should be given to an extension over the months leading up to Christmas to continue the message that coming out to eat is safe and encouraged as the darker winter months draw in.

17. However, far greater publicity is needed to improve consumer engagement with our high streets and town centres. This can be done by for example adopting an advertising campaign as powerful as the campaign at the start of lockdown, improving confidence in public transport, innovative use of public space, engagement with social media and free city Wifi , encouraging and enabling reimagined uses for vacant premises to lead genuine town centre regeneration.

18. The reduced VAT rates introduced by the government have allowed restaurants/bars to retain the difference between the VAT charged and the VAT payable in order to recover losses caused by the lockdown and some have allowed the benefit to be passed to customers.

19. The government must reverse the decision to end the tax-free shopping scheme as this makes the UK uncompetitive against other EU countries, at a time when tourists should be thinking of the UK as their preferred shopping destination. The expectation of the return of international visitors in 2021 has kept tourist locations such as our major cities and historic towns alive. However, the end to tax free shopping will severely damage this hope, leading to thousands of job losses in hotels, restaurants, tourist sites, airlines that rely on international visitors, not with the potential for over 70,000[28] redundant retail jobs across the UK as a direct result of this loss of international sales.

20. Planning reform should enable community valued activity, for example: encouraging brands and products into town centres that lack them, encouraging enterprising uses for empty shop frontages, and rewarding innovation.

21. Improve the skills of the workforce to ensure people are ready for a changing economy, for example through skills compacts that bring together all stakeholders involved in education and training. [29]A more qualified workforce will attract businesses that provide high-skilled job opportunities, improve national confidence and boost the economy.

Section C: Assess the governments previous and current measures to bolster the high streets; including the effect of the business rate holiday during the Covid-19 outbreak and the impact of its ending:

22. The High Streets Task Force, Future High Streets Fund and the [30]£3.6 billion Towns Fund are progressive government initiatives. Additional funding of £6.1 million through the BID network to help high streets survive this pandemic is also a material step forward. [31] The expertise within and guidance from The High Streets Task Force will be integral to the transformation and redefining of our high streets. The High Streets Task force[32]  is currently working to help places identify what they need to do now, as well how to plan and build capacity for recovery from Covid-19 which is a welcome positive initiative. Each of these initiatives are proactive in supporting reopening, gathering case studies of good practice and successful management strategies in response to the pandemic to share with businesses and in so doing cascade the opportunity for enhanced performance.

The other commendable current government measures to support the high streets to be highlighted are:

23. The Reopening High Streets Safely Fund of £50m to be shared across councils in England to support the safe reopening of high streets and other commercial areas. It is too early to access the outputs of this fund.

24. The ‘Everyone In’ campaign to provide shelter to rough sleepers during the pandemic, has had a highly positive effect on the high streets where there has been less homelessness seen but the homelessness problem still remains to be resolved long term. It is estimated the money raised has been able to help 15,000 vulnerable people. MHCLG[33] provided a £6 million emergency fund to organisations affected by Covid-19 who work directly with people who have experienced homelessness.

25. The Coronavirus Job Retention Scheme to allow employers to continue employee employment. [34]HM Revenue and Customs reported in June 2020 the CJRS was taken up by 9.4 million employees, saving millions of jobs from redundancy - particularly helpful to the arts and entertainment sector with data provided by ONS[35] stating 46% of this sector’s workforce was furloughed. However, the gradual winding down of the scheme will see mass unemployment as many sectors are still unable to open and function at normal capacity because of the social distancing measures that must be in place.[36]. Whether the government commitment to pay a business £1,000 for every furloughed employee they keep on until the end of January 2021 to encourage job retention is sufficient to achieve its objective, is yet to be seen.

26. Business Rates Holiday. The British Retail Consortium stated the ‘business rates holiday’ acted like a ‘vital shot in the arm’ for a sector facing enormous uncertainty[37]. Whilst the business rates holiday has saved many industries it is only temporarily with the cliff edge of April 2021 likely to cause numerous businesses to fail with the return to the extraordinarily high levels of business rates at 100%. Revo welcomes the current fundamental review of business rates being undertaken by the government and will be responding to this.  However urgent action is needed to mitigate the ongoing impacts of Covid-19 and Revo is calling on the government to extend the business rates holiday for the retail sector to ease its recovery.

27. Business Rates relief to support local business was introduced in the 2020 Budget.  Available to shops, pubs, cafes with a ratable value (RV) below £51,000 the government committed to increase the discount from a third to 50% in 2020-2021. In response to Covid-19 the government made a one-year expansion to the relief to include hospitality and leisure and provide 100% relief to all eligible properties in this sector. Whilst helpful to businesses with a RV less than £51,000, this has failed to recognize the volume of properties with a threshold above £51,000, for example, more than 70%[38] of hospitality businesses sit above this threshold, whilst nevertheless SMEs, are unable to access the relief. The ceiling should therefore be extended. #Raisethebar[39] is one example. This is a collective national campaign led by Croydon BID designed to lobby the government to raise the eligibility threshold for businesses to receive the £25,000 government grant from a ratable value of £51,000 to £150,000.

Section D: Assess the progress made on implementing the recommendations of the previous committee’s report of February 2019:

28. The recommendations made by the House of Commons Housing, Communities and Local Government Committee in February 2019 have been stymied by disruptions including Brexit, the general election and more recently. Covid-19. This is recognised as an additional factor in what is inevitably a slow speed of change due to a combination of policy and ownership challenges that delay any fundamental reform[40]. [41]One thing that is certain is that the high street landscape has now irrevocably changed and there is no point clinging on to a sentimental vision of the past.

29. One particular recommendation in the committee’s report of 2019[42] that may need to be revisited after Covid-19 is the move to more activity-based town centres and high streets. This may be more difficult under any longer-term social distancing measures, particularly for the arts, culture, leisure and entertainment sectors. The process of town centre transformation should be kept under close review until we have a better understanding of how long this virus will last. There needs to be more research into what consumers want/need next, rather than trying to preserve an idea of the past.

30. As indicated, Revo very much welcomes the fundamental review of Business Rates. This is a vitally important review that Revo and others have been campaigning for over many years. [43]This demand for change of the current tax system has been supported in many studies, for example  the  most recent Grimsey review noted a number of radical Government actions required to save the high streets, principally the fundamental reform of the business rates system with the Treasury encouraged to be bold and ambitious in its review to make effective long-term changes.[44] In 2020 it was noted by KPMG that if online sales continue to grow at their current rate, they could account for 50% of all retail sales by 2025 which accentuates the need for a review of the business rates system to be responsive to a digital economy.

31. Revo is glad to support the government consultation on the supporting our high streets after Covid-19 and would be pleased to provide further details, to assist government.

Contact for further information: Miss Hannah Burt

September 2020