The demise of the traditional UK high street has been front page news for some time. Calls to shore up physical shops by taxing online retailers have grown louder as the effects of coronavirus lockdowns have pushed consumers online. The recent sale of Debenhams to online clothing giant Boohoo and Arcadia Group to Asos has left millions of square feet of retail space redundant. An online sales tax alone is not likely to reverse this trend.
Even before the most recent difficulties, local authorities were considering how to revitalise empty town centres to attract visitors and generate much needed income. Plans for conversion of some larger key sites to leisure or mixed use could see those survive in another form, but not all sites will be suitable. More radical plans, such as demolishing older shopping centres, could also be considered.
In many traditional town centres, some shops were created from former residential property and another solution may be to return those to their previous use. Lack of affordable housing in many of these areas is a problem. With the Budget now less than three weeks away, could the Chancellor use the tax system to support the transformation of redundant commercial properties and the regeneration of town centres?
Business premises renovation allowance (BPRA) ran from 2007 until 2017, giving a 100 per cent tax allowance for certain expenditure to bring disused business premises in disadvantaged areas back into use. Unfortunately, aggressive avoidance schemes were an unintended consequence of BPRA, resulting in it being withdrawn. Although BPRA wasn’t available for residential developments, there is still a reduced VAT rate of 5 per cent for conversion of non-residential buildings to residential use.
Perhaps a better targeted tax allowance to encourage the creation of quality, affordable housing with supporting infrastructure would help bring people back to town centres as a place to live and not just for a Saturday shopping trip. In the post-Brexit world, there may also be scope for a further reduction in the rate of VAT.
There has been much talk about tax rises to tackle the growing budget deficit and pay for coronavirus support, but economic activity is essential to driving the recovery that will generate tax revenues. Maybe we need a carrot as well as a stick?