Shaping the Future of Scottish RetailRetail industry recommendations to the Scottish Government for its 2018-19 Budget

2 // SRC - Shaping the Future of Scottish Retail

A SNAPSHOT

250,300 retail jobs in Scotland

1/5 in scotland, retail accounts for a fifth of all business rates

Retail is a dynamic industry and accounted for

13% of all new businesses formed in Scotland last year

Retail : THE Largest private sector employer in Scotland

donated by retailers to good causes in ScotlanD

£10m

5,077 retailers pay

£12 M Scottish rates surcharge

CONTENTS

Foreword 4

economic overview 6

CHIEF RECOMMENDATIONS 7

detailed recommendations 7

Retail Strategy for Scotland 7

Business Rates 8

ScottishIncomeTax 10

CouncilTax 11

ValueAddedTax(VAT) 11

NewDevolvedTaxes 11

ApprenticeshipLevy 11

Land&BuildingsTransactionTax 12

Fees,Charges&Levies 12

DepositReturnScheme(DRS) 12

Regulation 13

Infrastructure 13

WindfallConsequentials 14

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TheretailindustryisacutelyawareofthedelicatebalancingactfacingtheFinanceSecretaryinthisyear’sBudget.TheeconomyisbeingbuffetedbycurrencyvolatilityandpoliticaluncertaintyincludingoverthelikelyoutcomeandimplicationsofBrexit. DifficultdecisionsaretheorderofthedayforScotland’s businessesandGovernmentalike.

Scotland’sretailersencounterthesechallengesandtheirconsequenceseveryday.Datafromourindustryspeaksofthefragiletradingenvironmentweface.Acceleratingfoodandrawmaterialspriceinflationhasbroughtanendtoaneardecadelongperiodoffallingconsumerprices,butthefallinthevalueofSterling andtheimpactoffierce,technologyenabledcompetitionmeansthatretailers’marginsareactuallydepresseddespiteoftenmodestlyincreasedpricesfor thecustomer.

Theseissues,likethecontinuingdeclineinthenumberofshopsinScotland,arejustthemostvisiblesymptomsoftheprofoundchangethatthetraditionalwesternmodelofretailisundergoing.Thescopeofthesechallengesareglobalandindustrywide.Theyarestructural,notcircumstantialortransitory.This,asweexplainedearlierthisyearinourpublication‘What’s Next - The Future of Scottish Retail’,istherealissue.

Therealityisourindustryisgoingthroughanunavoidableprocessoftransition. Astechnologyenablesbothcustomersandnewmarketentrantstoconducttheirretailbusinessinamoreeffectiveandefficientmanner,theindustryasawhole mustevolverapidlyinordertosurvive.Irrespectiveofgovernmentpolicyor individualretailerstrategies,thisprocessofchangeisnowunstoppable,withthepowertoarbitrateitspaceinthehandsoftheconsumerandglobaltechnologycompanies,notpoliticiansorretailleaders.Inresponse,overthenextdecade theindustrywillfundamentallychange,becomingmoreautomatedandmoreproductive,butultimatelyemployingsignificantlyfewerpeoplefrommanyfewerphysicalretaillocations.

Whatcanbeinfluencedisthemannerinwhichthisprocesstakesplace.Afailure tostemtheflowoffinancialandregulatoryburdensfallingonretailers,especiallythosedistincttoScotland,willinevitablyencourageadeeper,fasterandmoreattritionalreductioninScottishretailjobsandstores.Theconsequence,of hollowedouttowncentresandsignificantlyreducedemployment,isnotintheinterestofgovernmentorretail.

Ofparticular,specificconcernisthatthiswouldmeanthelossofthousandsofentrylevelroleswhichgiveyoungpeoplefromlessacademicoradvantagedbackgroundstheopportunitytogetintoemploymentwithineasyreachoftheirhomeandgain theopportunitytobuildasuccessfulcareer.

FOREWORD

RetailersacrossScotlandbadlywanttoavoidthatoutcome.WewanttoworkwithGovernmenttodeveloptherightpolicyenvironmenttoencouragegrowth,productivity,andinnovationinScotland.That’swhywearekeentomakeasuccessoutoftheproposedretailindustrystrategythattheSRCandtheScottishGovernmentarecurrentlyscoping.

Ultimately,thefiscalenvironmentiscrucial.Asubstantiallyreformedbusiness ratessystemthatadaptstothechangingretailworldwillbefundamentaltothis. Iunderstandthatthisisrepetition,buttheretrulyisnowayaroundthiscentralfact.

Overthenextdecadetherevenuesfrombusinessratesfromretailwillfall.Ifthegovernmentwantsthatfalltobeofamanagednaturetheyneedtotakeswiftanddecisiveactiontoreducethecounter-productivelyhighshareofthetotalbusinessratesburdenbornebyretail.Otherwisetherevenuefallwillbemoresevereastheeconomiccaseforretainingshopsbecomeslessandlesssustainableandretailersthushavenochoicebuttocloseunitsandshedjobsatafasterpacethanwouldotherwisebenecessary.

Overall,theretailindustrylooksforalong-termstrategiceconomicvisionwhichwillencourageinvestment,anddelivereconomicgrowth.DeliveringthatenvironmentistherightthingforScotland,andtherightthingfortheScottishretailindustry,and soIcommendtherecommendationsinthispapertotheFinanceSecretaryashe determineshistaxandspendingplans.

ANDREW MURPHY SRCChairman

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ECONOMIC OVERVIEW

ThelongtermtrendtowardsagrowingandwealthierpopulationpresentsgenuineopportunitiesfortheretailindustryinScotland.Retailcontinuestobethelargestprivatesectoremployer,with252,000colleagues,aswellasoneofitsmost dynamicsectors1.However,thisisachallengingtimeforScotland’sretailers. Retailsalesgrowthhasbeenanaemicforthepastthreeyears,againstabackdropofprofoundstructural,economicandregulatorychangefortheindustryaggravatedmorerecentlybyalackofclarityoverwhatBrexitwilllooklike.

TheSRC’sScottishRetailSalesMonitorhasfalleninnineofthepasttwelvemonths,andthemostrecentofficialScottishGDPdatafoundtheretailsectorcontracting forasecondsuccessivequarter.

Retailersarerespondingbyseekingtobecomeproductivethroughinvestingin thefuture.Thatincludesinvestinginnewtechnology,ahigherskilledworkforce, andrevampedlogisticscapabilities.Yetthisinvestmentishavingtotakeplaceat atimewhenpublicpolicycostsaregrowing.

Consumerspending,themainstayofScotland’seconomyandareliablesourceofeconomicgrowth,facesheadwindsinthemonthsaheadashouseholdfinancescontendwithhigheroverallinflation,weakerearningsgrowth,anddomesticcostpressures.ThismayhaveimplicationsforVATreceiptswhicharesoontobedevolved.Competitionandinnovationwithinthesectorhasdeliveredsubstantialbenefitsforconsumersandhashelpedkeepdownthecostofliving,andourShopPriceIndexhasrecordedfouryearsoffallingshopprices.However,theeraofsustainedfallingpricesattillsiscomingtoanend,asretailersfinditincreasinglydifficulttoabsorbamixtureofrisingglobalfoodcommodityprices,fluctuationsintheexchangeratesincetheBrexitvote,andchangesinpublicpolicycosts.

Areasofdiscretionaryspendarebeingaffectedthemost,withsalesofnon-fooditemsstrugglingwhilstgroceriesandonlinesalesperformbetter.TheshopvacancyrateinScotland–whichhasmoreshopsperheadofpopulationthanintherestoftheUK-nudgedupagaininthemostrecentquarterto9.3%,upfrom7.5%ayearearlier.Officialdatashowsanetdeclineof1,700shopsinScotlandand10,000fewerretailjobsoverthepastsevenyears.

1.13%ofallnewfirmsformedarefromretail

DAVID LONSDALE SRC Director

SRC - Shaping the Future of Scottish Retail 7

CHIEF RECOMMENDATIONS

Theretailindustry’schiefrecommendationsfortheScottishGovernment’s upcomingBudget:

• Deliverontherecentwelcomecommitmenttoco-produceaScottish Retail Strategy

• Bolsterconsumerconfidencebyrulingoutincreasesinincometaxrates,andconsideracceleratingimplementationofazero-rateincometaxband

• CapitaliseontheBarclayRatesReviewtorecastbusinessratesforthedecadeahead,toensureratesbetterflexwitheconomicconditionsanddelivera medium-termplantosubstantiallylowertheratesburden

• BuildontherecentincreaseinthethresholdfortheLargeBusinessRatesSupplementbysettingoutatimetablefortherestorationofparitywithEngland

• Introduceamoratoriumonneworadditionalratesleviesduringtheremainder ofthecurrentparliamentaryterm

• Ensurelevy-payersbenefitdirectlyfromthemootedFlexibleWorkforceDevelopmentFund,increasethesizeoftheFundandtieitsfuturefunding growthtotheprojectedoverallincreaseindevolvedreceiptsfromtheApprenticeshipLevy

DETAILED RECOMMENDATIONS

TheSRCsharestheScottishGovernment’saimofmakingScotlandthemostcompetitivepartoftheUKtodobusiness,howeverthatgoalhasyettobeachieved.ThisiswhytheSRCwantstoseeaboldandambitiousBudgetwhichusesthesubstantialflexibilities2providedtoachievethecompetitivenessgoal.Ourdetailedrecommendationsare:

Retail Strategy for Scotland

TheSRCisdelightedthattheScottishGovernmentandtheEconomySecretary inparticularhaslistenedtoourrepresentationsandthatheandhisofficialsarepreparedtoworkwithustodevelopaScottishretailstrategy.

Theretailindustryisundergoingseismicchangeagainstachallengingbackdrop drivenbychangesinshoppinghabits,newtechnology,stiffcompetition,andburgeoningcosts3.Thesechangesarealreadyhavingprofoundimplicationsfor firms’businessmodelsandinvestmentplans,jobsandproductivity.

2£191millionunderspendcarriedforwardinto2017-18–ScottishGovernment’sprovisionalbudgetoutturn,22June2017

3ThecumulativeimpactofrecentUKpublicpolicyhasforexamplemeantretailersrespondingtotheNationalLivingWageandhigheremployerpensioncontributions,overandabovetheApprenticeshipLevyandrisesinbusinessrates

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Thechangeswillalsohaveprofoundimplicationstoofordevolvedpublicpolicy,particularlyforemploymentprospectsinmorevulnerablecommunitiesmore reliantonretailjobs,forourtowncentresandforfuturerevenuesfromtaxessuch asbusinessrates.

Thecommitmenttodevelopingajointstrategyisreallypositiveandwelcomeandshouldhopefullyresultinamorestrategicandcoherentapproachtowardspublicpolicywhichnurturesthegrowthoftheindustryoverthedecadeahead.Thestrategyoughttoincludeaclearroad-mapsettingouttheintendedregulatoryandtaxchangesthatarelikelytoimpactontheindustryoverthedecade.Thiswillbeofbenefittoretailandthecustomersitserves,butalsoitssubstantialsupplychainandtheothersectorsittouches.

RetailisthelargestprivatesectoremployerinScotland,andaccountsforafifthofbusinessrates4.WithhalfofVATreceipts–approximately£5billion–settobedevolvedtoHolyroodineighteenmonths’time,bothgovernmentandretailershave asharedinterestinimprovingtheconditionsfortheindustrytoflourishandsucceed.

Business Rates

AccordingtotheOECDcommercialpropertytaxesherearethehighestintheOECD5.TaxrevenuesfrombusinessratesinScotlandhaveleaptby35%overthepastsixyears6andfirmshavefacedrisesintheheadlinepoundageratefrom40.7pto46.6pinthe£overthesameperiod7.Retailisapropertyintensiveindustrybutisbecominglessso,duringthepastsevenyearstherehasbeenanetreductionof1,700shopsinScotland(7%ofthetotal)whichultimatelymeanslesstaxrevenuesforgovernment.Ashighlightedpreviously8,retailersarekeentoseefundamentalreformofScotland’s£2.7billion9annualbusinessratessysteminordertosupportinvestment,businessgrowthandreviveourhighstreetswhere1outofevery10premisesisvacant.Keepingtaxesdownandpredictablehelpsretailersfundtheirinvestmentplans,asretainedprofitsareacrucialsourceoffinancinginvestmentintentions.WeengagedextensivelywiththeBarclayRatesReviewandwanttoseeMinistersnowrecastbusinessratesforthedecadeaheadanddeliverasystemwhichismodern,sustainable,coherentandcompetitive.Afundamentallyreformedratessystemwhichflexeswitheconomicandtradingconditionsandleadstoasubstantiallylowertaxburdenwouldincreaseretailers’confidenceaboutinvestinginnewandrefurbishedshoppremisesandhelprevivehighstreetsandtowncentres.Attheheartofthisagendashouldbeamedium-termplantosubstantiallylowertheratesburden (justashasbeenpledgedondevolvedairpassengerduty).

4SPICebriefing‘Non-domesticratesandthe2017revaluation’,16March2017

5CommercialpropertytaxesintheUKarethehighestinOECD:https://data.oecd.org/tax/tax-on-property.htm

6SPICeonlocalgovernmentfinances,Table5,26June2017

7SPICE‘Nondomesticratesandthe2017revaluation’,Table2,p11;16March2017

8TheSRCpublished‘BusinessRates:FundamentalReform’inFebruary2015and‘Holyrood2016:BusinessRates’inAugust2015. TheFebruarypublicationincludedindependentresearchshowing69%ofMSPsagreedbusinessratesareinneedofreform.

9Upfrom£2.07billionin2010-11

SRC - Shaping the Future of Scottish Retail 9

TherearealsoanumberofshortertermmeasureswhichMinistersshouldpursue.

TopofthelistshouldberestoringpoundagerateparitywithEnglandformediumsizedandlargerfirmsbyscrappingtheannualratessurchargeintroducedlastyear,andwhichaffects1inevery10firms.ThisdoublingoftheLargeBusinessRatesSupplement–whichappliestotheentirerateablevalue–isemblematicofthe manyproblemswithratesasawhole,withlittleregardpaidtotradingconditionsorthechangesaffectingindustry,noconsultationoreconomicimpactanalysisunderpinningit.MakingScotlandamoreexpensivelocationtodobusinessthanelsewhereintheUKistheveryantithesisofthegovernment’sstatedaim.

Makingitmoreexpensivetooperateonourhighstreetsisalsoatoddswiththe TownCentresActionPlan,underminessupportforthefundingofBusinessImprovementDistrictsthroughlevies,andraisesthehurdleforattractingincreasinglymobilecommercialinvestment.RetailaccountsforafifthofbusinessratesbutalmostaquarteroftheSupplement.TheFinanceSecretaryhasatleastacknowledgedourconcernsbyliftingthesupplementthresholdin2017-18,whichremovedsomemodest-sizedpremisesfromthisScotland-onlysurcharge.ThismovewaswelcomeanddidimplicitlyacknowledgeaproblemwiththedoublingoftheSupplement.Yetitremainsfarfromclearwhy21,578premises–including5,077shops10(thesurchargecostsshops£12millionextraeachyear)–inScotlandshouldpaymoreinratesthanfirmsincomparablepremiseselsewhereintheUK,particularlywhenmanyhaveoptionsoverwheretoinvestelsewhereintheUKorabroadorindeedonline.Ministersshouldgofurtherand–asadvocatedbyBarclay–setoutaclear timetableforrestoringthelevelplayingfieldwithEnglandontheLargeBusinessRatesSupplement,ideallyrestoringparitybySpring2019.

ThecommitmenttocontinuetoatleastmatchtheheadlinebusinesspoundageratewiththatwhichexitsinEnglandissensible,buttoooftenthisiscircumventedthroughadhocorsupplementaryleviessuchaslastyear’sdoublingoftheLargeBusinessRatesSupplement.ThereshouldbeamoratoriumonanyneworadditionalbusinessratetaxesandScottishMinistersshouldintroducea‘PoundageRateRule’sothattheactualtaxrateleviedneverexceedsthatinEnglandduringtheremainderofthisparliamentarytermoruntilfundamentalratesreformisimplemented.Thiswouldgreatlyaidfirms’abilitytoplanaheadwithgreatercertainty.

TheSmallBusinessBonuscontinuestobeawelcomerecognitionoftheneedtokeepdowncostsforfirms,howeverwearemindfulthatitispartlyfundedbyalevyonmediumsizedandlargerfirmsandthatthreequartersofretailemploymentinScotlandiswithinfirmswhichcurrentlyreceivenorelief.

AtthelastBudgettheFinanceSecretaryappearedtoaddfurthercomplexitytotheexistingratessystemwithpromisesoffurtherreliefsforruralareas.AswehighlightedtoBarclay,thecurrentratessystemisopaque,unwieldyandonlyseemstofunctionthroughmyriadexemptionsandreliefsthatcontinuetogrowasanoverallproportionofthetotalincomefrombusinessrates11.Wequestionhowsustainablethis‘stickingplaster’approachisandhoweffectiveitwillbe.Forexample,theSRCsupports–intheinterimpriortofundamentalratesreform–theprinciplebehindthelocaldiscretionaryratesreliefintroducedthroughtheCommunityEmpowermentActinOctober2015,asitiswelcomeacknowledgementoftheneedtokeepdowncosts forbusiness.

10SPICebriefingonNDR,16March2017

11Thevalueofreliefshasleaptby77%over9yearsaccordingtoMinisterialrepliestowrittenPQs,withvalueofthepackageofreliefsasaproportionoftheoveralltaxtakefrombusinessratesovertheperiodrisingtoo,upfrom17percentto21percent;SRCanalysis22May2017

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However,twoyearsintothefunctioningofthereliefweremaintobeconvincedthatitsusebycouncilswilleitherbewidespreadorsubstantiveenoughtobeeffective12, asonlytwocouncilsarecurrentlyaimingtoutilisethepower.ThepolicyrisksbeingseenasaflopandwerecommendMinistersredoubletheireffortstogetmorecouncilstocapitaliseonthisopportunitytosupporthighstreets.

Recentcallsforthepoundageratetobedevolvedtolocalauthoritiesorforcouncilstobeabletochargesupplementaryrateslevieswouldbearetrogradestepandissomethingweoppose.TherejuvenationoftheBusinessRatesIncentivisationScheme(whichallowscouncilstoretainaproportionofthegrowthinbusinessratesincomefromtheirarea)ishoweverencouragingbutanyrevenuesaccruingtocouncilsshouldbetransparentlyre-investedintotowncentreregenerationorlocaleconomicdevelopment.

Scottish Income Tax

WeconcurredfullywiththeScottishGovernment’sassessmentatthetimeofitslastBudgetinDecemberthat“householdbudgetsarealreadyunderstrain”13.Thatsqueezehassinceincreased,notleastduetorisingoverallinflation.WeapplaudedtheGovernment’srefusaltocountenanceincreasesinincometaxatthelastBudget,andbelieveMinistersshouldcontinuethepolicyofnotincreasingincometaxrates.Disposableincomesdonotstretchasfarastheyusedtoandaresettobechallengedfurtheroverthecoming18monthsbyacombinationofinflation,risingcounciltaxandhigheremployeepensioncontributions.Some441,000Scots14participateinauto-enrolmentworkplacepensionschemesandthestatutoryminimumcontributionissettorisenextSpringandagainin2019,whichissoundeconomicallyoverthelongtermforpensionsavingsbutconverselylikelytodepressdisposableincomesintheshortterm.Againstthisbackdropincometaxrisesmakelittlesense.A1pincreaseacrossthethreeexistingincometaxrateswouldreputedlytake£475millionoutofconsumers’pockets,equivalenttoalmosttwopercentoftotalretailsalesinScotland,atatimewhenretailers’marginsarelow(circa3to5%)andwhen252,000peopleinScotlandrelyontheindustryforemploymentwithmanymoreinthesupplychain.AnynotionsaboutincreasingincometaxratesforthevastmajorityofScotsshould beknockedonthehead,asitcouldcastapalloverconsumerspendingwhichremains amainstayoftheScottisheconomy.

Ifthesqueezeondisposableincomesissettopersist,thenScottishMinistersshouldbepreparedtoconsiderbringingforwardtheirmanifestocommitmenttocreateanew£250zero-rateincometaxband.Thatwouldeffectivelyincreasethetax-freepersonalallowanceoverandaboveexistingplans–givingtheopportunitytoincreasetheallowancemorequicklythanintherestoftheUK–whichcouldprovideatimelyboosttoconsumers,theeconomy,andemployment.

TherehasbeendebateaboutthegrowingdisparitybetweentheScottishandUKhigherincometaxratethreshold,andaboutthetopearners’additionalrateofincometax.ToomuchdisparityriskscementingforScotlandanunwantedreputationasahightaxdestination,underminingourabilitytoattractandretaintalentaswellasdepressingconsumerspending.

12‘Councilsfailtotakeupratesburdenpowers’,ScotlandonSunday,26June2016

13P1ofScottishGovernment’s2017-18Budgetdocument

14‘Auto-enrolmentboostsworkplacepensionnumbersinScotland’,BBCScotlandNewsonline,28March2017

SRC - Shaping the Future of Scottish Retail 11

Council Tax

Thelevelofcounciltaxaffectshouseholddisposableincomesandthechangeswhichcameintoeffectthisyearincreasedcounciltaxin2017-18byabout£160millionintotal15.Hopefullythereformsleadtoamoredurableandsustainabletax,onewhichreducesdemandforwholesalechangestothetaxwhichmightplacetheadministrativeburdenforcalculatingorcollectinganyreplacementonemployers.Futurecounciltaxrisesmusttakeintoaccounttheimpactonconsumerspending andtheScottishGovernment’s3%caponfuturerisesseemssensible.

Value Added Tax (VAT)

Ineighteenmonths’timehalfofthetaxreceiptsfromVAT-approximately£4.9billionperannum16-aresettobeassignedtothedevolvedadministration,followingthe2016ScotlandAct.Asaresultthedevolvedgovernmenthasadirectinterestinnurturinghigherlevelsofreceiptsfromthistaxasitwilldirectlybenefitdevolvedrevenues.WearekeentoknowhowtheScottishGovernmenthopestomaximisetherevenuesfromVATassignmentandhowthismightinfluencepolicymaking,howeverthefactremainsthatfewbetteropportunitiesexistthanencouragingandfacilitatingaflourishingretailindustry.RetailerswillbekeepingacloseeyeonthefutureofVATastheBrexitnegotiationstakeplace,andweremainscepticalofanynotionofdevolvingcontroloverVATgiventhepotentialimpactontheUKsinglemarketandadministrativeandpricingimplications.

New Devolved Taxes

Asaresultofthe2012ScotlandActtheHolyroodParliamenthastheabilitytolevy‘specified’devolvedtaxesofanydescription.TheScottishGovernmenthasthusfarwiselyavoidedusingthesepowers.Theretailindustryisasignificantpayerandcollectoroftax(e.g.VATorinsomecasesthedutyonthesaleoffuel),andbeforeanynewtaxesareconsideredletaloneintroducedwewouldwishtoseetheearliestpossibledialoguewithindustryandarobustandconvincingbusinesscaseandcostbenefitanalysis.WewouldbeparticularlyconcernedatanynewtaxeswhichmightmakeScotlandamoreexpensiveplacetoinvestorlive(e.g.workplaceparkinglevy,congestioncharging,additionalsalestax),ashaspreviouslybeenproposedbytheScottishGovernmentinitiated‘CommissiononLocalTaxReform’.

Apprenticeship Levy

RetailershaveastrongrecordontrainingandcareerprogressioninScotland’slocalcommunities,withmanyprovidingawiderangeofapprenticeshipsindiverseareassuchaslogistics,warehousingandfoodpreparationalongsidemanyotheraccreditedorjobrelatedqualifications.Thatrecordisunderthreatbytheasymmetricapproachtotheimplementationofthe(UK-imposed)ApprenticeshipLevy.RetailersinScotlandareestimatedtocontribute£12-15millionayeartowardstheLevy,forwhichitisunclearwhattheygetinreturn,withmanyviewingitassimplyanothercostburden.TheSRCwelcomedthedecisioninlastyear’sBudgettoestablishaflexibleworkforcedevelopmentfundwithaportionofthereceiptsfromtheLevy.

15P90ofScottishGovernment’s2017-18Budgetdocument:£111mfromre-basingthetaxpluspotentiallyupto£70mfromthe3%caponincreases(p89),albeitintheendonlytwothirdsofcouncilsincreasedcounciltax

16GERS2015-16,Table4.4,p40

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Indeed,theconceptofaflexibleskillsfundissomethingweproposedlastsummer.WealsocalledforchangestotheupperagelimitforsupportforModernApprenticeships,andarefreshoftheretailapprenticeshipframework.

However,eventhoughScottishretailersstartedpayingtheLevyinApril,westillawaitdetailsofthemooted£10millionflexiblefund.Thatdelayiscausinguncertaintyforretailers,whoareconsequentlybeingforcedtoquestiontheirownfuturetrainingprovision.TheScottishGovernmentshouldurgentlyannouncethedetailsoftheflexibleworkforcefund,settingouthowitwilloperateandhowlevy-payerscanaccessit.IntheBudgettheGovernmentshouldgofurther.Theproposed£10millionfundislessthanfivepercentoftheforecast£221milliondevolvedLevyrevenues.IntheBudgetwehopetoseetheamountinthefundincreased,andacommitmentmadethatthefundshouldataminimumincreaseinlinewithanyfutureincreases intheLevyrevenues–whicharesettoexpandto£239millionin2019-2017.

Land & Buildings Transaction Tax

Duetothenatureandscalabilityoftheindustrymanyretailershaveachoiceoverwheretobuy,rentorinvestinretailpremisesandwarehousesintheUK.Therates,bandsandthresholdsforLand&BuildingsTransactionTax–whichcameintoeffecttwoyearsago-mustthereforeensureScotland’staxesonpurchasesofcommercialpropertyarecompetitive.

Fees, Charges & Levies

TheScottishGovernmentdeterminesorishighlyinfluentialinthesettingofanumberoffees,chargesandlevieswhichareorcanbeapplicabletoretailers.Theseincludeplanningapplicationfees,BusinessImprovementDistrictlevies,chargesforalcohollicenses,waterandseweragecharges18,feesforbuildingwarrants,andthecarrier bagcharge.TheSRCiskeentoseeeffective,well-resourcedandconsistentregulatoryservices,underpinnedbyaclearrationaleandcostbenefitanalysisforvariationsinchargeswithcommensurateimprovementsinservicesandbasedontimelydialoguewiththeindustry.However,governmentcanassistfirms’cashflowandinvestmentplansbykeepingafirmlidonthosecostsunderitscontrol.

Deposit Return Scheme (DRS)

Scottishretailisamongstthemostclimate-consciousindustriesandretailershavetakenaleadinreducingtheenvironmentalimpactsofboththeirowndirectoperationsandsupportingimprovementsrightalongtheirsupplychainandwithcustomers19.TheSRChaspreviously20outlineditssupportforamoreharmonisedlocalauthorityrecyclingschemeandweredelightedtoseeCoSLAworkwithGovernmenttodeliveronthis.Thatsaid,weremainresolutelyopposed–along withmorethan30otherbusinessgroups-tothemootedScotland-widedepositreturnschemefordrinksbottles/cansandothercontainers.

17ScotGovtresponsetoUKGovtApprenticeshipLevy,5January2017

18ThemethodologyappliedtocalculatingwaterbillsforsomecommercialpremisesissettochangeinApril2018,witharound40%ofcommercialpremisesinScotlandexpectedsettoseehigherbillsasaresult

19‘ABetterRetailingClimate:DrivingResourceEfficiencyinScotland’,SRC,2015

20SeetheSRC’s‘Holyrood2016:Environment&Sustainability’policypaperpublishedon7October2015.

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Suchanation-widedepositschemeor‘bottletax’woulddisproportionatelypenalisetheconsumerbypushingupprices,bytensofmillionsofpounds,atatimehouseholdfinancesarecomingunderstrain.ADRSwouldundermineexistingkerbsiderecycling,forwhichthereareambitiousplansandwhichalreadybenefitsfromsignificantsumsofsunkinvestmentfromtaxpayers.

Anation-wideDRSwouldincreasecarbonemissionsthroughextraconsumerjourneysandretailerhaulageoperationsandplacesignificantcostsonbusiness.Askingshopsandgrocerydeliveryvanstotakewastelikethiscouldincurenvironmentalhealthissues.TheequipmentrequiredtoaccommodateaDRSwouldreducetradingspaceinshopsonourhighstreetswhichisincongruouswiththeGovernment’sambitionstorevitalisetowncentres.Indeed,theprojected£40millionpluscosttobusinessestimatedinarecentgovernment-commissionedreportunfortunatelyfailstotakeintoaccountseveralothercostfactorsincludingthelossoftradingspace,costsofstorage,associatedinstallationinfrastructure,andstafftraining.Ultimatelythereislittleevidencetosuggestadepositschemewouldeffectivelytacklelowrecyclingrates,whicharealreadyhigherinplaceslikeWaleswhichdon’thaveadeposit returnscheme.

Regulation

TheSRChasbeenattheforefrontofthedebateonbetterregulation,workingthroughtheScottishGovernment’sRegulatoryReviewGrouptoseekaregulatoryenvironmentthattriestosupportinvestment,innovationandeconomicgrowth.WithasignificantnumberofScottishretailersoperatingonaUKandinternationalstagetheeaseandcostofdoingbusinessisamajorfactorintheirdecisionsoverwheretoinvest.ImportantstepshavebeentakeninrecentyearssuchaslegislatingtoallowforthefutureintroductionofPrimaryAuthoritywhichcouldguaranteegreaterregulatoryconsistencyacrossthe32localauthorities,andtheScottishGovernment’sadoptionofSRCproposalstoensurethesamerigourisbroughttogovernment-inspiredvoluntaryregulationandagreementsasisthecasewithformal,statutorylegislation.WearekeentoensurePrimaryAuthorityisintroduced,despiteitbeing24monthssincetheofficialconsultationended.Wearekeentootoseefutureregulationstakefullaccountoftheprofoundstructuralchangeoccurringinindustrieslikeretail.InadditiontofullimplementationinthisParliamentofPrimaryAuthorityandacommitmenttoensuringtheScottishschemeisuptodateandinlinewithitsUKequivalent,InceptionImpactAssessments21shouldbeintroducedpriortoanydecisionoverwhetherornottopursueeithernon-legislativeandlegislativeregulations.

Infrastructure

Wesupportashifttowardsallocatingagreaterproportionofdevolvedgovernmentexpenditurethatsupportswealthcreation,forexamplebyinvestinginGDP-enhancingdigitalandtransportinfrastructureandhousing.

Transportisvitaltothesuccessofretail.Withoutletslocatedincities,townsandcommunitiesacrossScotland,retailersrelyonaccesstogoodqualityandreliabletransportforthedailyoperationoftheirbusinesses–foreaseofaccessforcustomers,todelivergoods,andtoenableemployeestoreachtheworkplace.

21SRC’sHolyrood2016:BetterRegulationdocument

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WefullysupporttheScottishGovernment’splanstodualtheA9andtheA96, butwouldurgeamoreambitioustimescalefordeliveryaswellasafullydualledA1.Improvedtransportconnectivitywillhelpunlocktheeconomicpotentialoftheseregions,helpgetgoodsswiftlytoretailoutletsaswellas,asisincreasinglythecase,directtocustomers.Railisincreasinglyusedtodistributefreightforretailersaroundthecountry,andchangesincustomerdemandandhowpeopleshopisputtingapremiumonhavingeffectivehighspeedbroadband.

Indeed,digitalinvestmentisespeciallyimportantgiventheprofoundshiftinshoppinghabitsandtheamountofinvestmentthatretailersaremakingintoonlineshopping,paymentstechnologyandassociatedskillsandlogisticscapability.OurScottishRetailSalesMonitorforexamplehasnotedthatapproximatelyaquarterofnon-food retailsalesarenowundertakenonline.

IntermsoftheScottishGovernment’snewabilitytoborrow,wearesupportive ofaffordableborrowingifitisforinvestmentinproductiveeconomiccapacity.

Windfall Consequentials

AnywindfallconsequentialsreceivedbythedevolvedadministrationfromUKBudgetsshouldbeusedtokeepdownbusinesstaxesanddirectedtowards GDP-enhancinginfrastructureandtowncentreenhancements.

CONTACT DETAILS

DAVID LONSDALE SRC Director David.Lonsdale@brc.org.uk

EWAN MACDONALD-RUSSELL SRCHeadofPolicy&ExternalAffairs Ewan.MacDonald-Russell@brc.org.uk

ABOUT THE SRC

Retail is an exciting, diverse and dynamic industry undergoing transformational change. The SRC is at the forefront – enhancing, assisting, informing and shaping. Our mission is to make a positive difference to the retail industry and to the customers it serves. Our broad range of stakeholders demonstrates how retailing touches almost every aspect of our culture. The SRC leads the industry and works with our members to shape debates and influence issues and opportunities that will help make that positive difference. We care about the careers of people who work in our industry, the communities retail touches and competitiveness as a fundamental principle of the industry’s success – our 3Cs.

In addition to publishing leading bell-weather indicators on Scottish retail sales, footfall and shop vacancies in town centres, our policy positions are informed by our 255-strong membership and determined by the SRC’s Board.

scottish RETAIL CONSORTIUM

Box112,12Southbridge,Edinburgh,EH11DD07880039743|info@src.org.uk|brc.org.uk/srcBritishRetailConsortium-acompanylimitedbyguaranteeRegisteredinEnglandandWalesNo.405720|10259mb17