Small Shops Regulation

Debate between Lord Mackinlay of Richborough and Andrew Smith

Wednesday 2nd November 2016 Westminster Hall

[Craig Mackinlay]

There is a ratchet effect. One at a time does not seem too bad, and individually these regulations are often imposed for good reasons, but when they are put together as a framework for how small businesses and retailers have to operate, they become a true minefield of problems.

Adding to that minefield, small retailers face the new burden of pension auto-enrolment for their staff. I have no criticism of the Government’s great ambition: auto-enrolment is essential so that people can build their own retirement funds in excess of the state pension. The roll-out thus far for larger business has been successful—I am a member of the Select Committee on Work and Pensions, which has looked at that—but for the smaller employer, and notably the smaller retailer, I have asked for a free software tool that overlays the freely available real-time information software for payroll management, and HMRC has steadfastly refused.

It is good to note that the latest figures, published just last week, show the greatest ever increase in the salaries of the lowest paid due to the rise in the minimum wage. However, for smaller shops there are concerns that as hourly rates increase ahead of inflation in the years to come, the owners of these businesses might earn less than the staff they employ.

Of all tax and regulatory reforms, business rates relief has been the most welcome among smaller businesses. There has been small business rate relief, charitable rate relief, rural rate relief and enterprise zone relief. However, because of the high value of business premises in London and the south-east, new valuation assessments are in some cases creating huge increases to the business rates of businesses that are already paying higher salaries.

A real problem on the horizon that is causing much concern to the Institute of Chartered Accountants in England and Wales, the Chartered Institute of Taxation—I am a member of both—and, I am sure, the other accountancy institutes is the proposed roll-out of Making Tax Digital. If the underlying desire is to advance tax cash flows to quarterly, the Government should simply say so. People go into small business to run a business and earn a profit. They do so for aspiration and lifestyle reasons, not to spend time complying with additional administrative burdens. The Making Tax Digital programme should simply be scrapped until HMRC can prove itself capable of dealing with existing workloads to an acceptable standard. It should at least start with bigger businesses—those above the VAT threshold—that are more able to cope.

Adding together the last few years of real-time information, in which businesses have to provide monthly returns for payroll, and the software costs of auto-enrolment, and now Making Tax Digital, the Federation of Small Businesses estimates the compliance cost in software and professional support to be £3,600 per business per year. That is some way in excess of the well received employment allowance of £3,000 a year that every business can claim against its national insurance contributions.

Finance raising continues to cause difficulties. We have seen the welcome expansion of new forms of lending driven by the internet, such as peer-to-peer, but banks remain cautious, requiring guarantees and often over-zealous security coverage requirements. The reality is that family and friends are still often the primary source of seed financing. In February I obtained a written answer from the then Financial Secretary to the Treasury, my right hon. Friend the Member for South West Hertfordshire (Mr Gauke), about the take-up of the seed enterprise investment scheme. I learned that the amounts raised nationwide were extremely and worryingly low: just £168 million for 2013-14. I will not go into the flaws in the seed EIS application process or HMRC’s labyrinthine rules on getting such applications approved, but it is clear to me as a chartered accountant and chartered tax adviser that we need a lighter-touch regime to encourage more of the “friends and family” type of investment.

For many of our shops, which are often located in historic town centres, planning regulations can prove a barrier to sensible growth and plans for the future. We have the rather daft situation in which a conservation officer in one local authority will have an entirely different view from a conservation officer in the authority next door. That adds to uncertainty and costs.

Government Departments and local authorities have large procurement budgets, but bureaucratic rules still exist, particularly on contracts over a certain size and when EU procurement rules come into play. Those rules make it close to impossible for smaller retailers and businesses to even consider facing the cost and complexity of applying for lucrative bids.

My hon. Friend the Member for Bury North (Mr Nuttall) mentioned cigarettes. I have been working closely with the Tobacco Retailers Alliance and the National Federation of Retail Newsagents on the issue of illicit tobacco. For many shops, tobacco sales drive footfall and lead to other sales, but the Tobacco Manufacturers Association suggests that because of the increasingly draconian rules on tobacco sales, plain packaging, hidden counters and the tobacco taxation escalator, 30% of UK smokers now buy from illicit sources. That is hardly surprising when a packet of cigarettes costs 50p in the Ukraine and still hovers around the £2.50 mark in much of eastern Europe. Local retailers are losing not only turnover from tobacco sales, despite the low margins, but other turnover through lost footfall.

[Mr Andrew Smith (Oxford East) (Lab)]

I congratulate the hon. Gentleman on securing this important debate. I agree with the thrust of his argument and with his specific point on illicit tobacco sales. Is he aware that his debate is well timed because it coincides with the excellent “Freedom from Fear” campaign by the Union of Shop, Distributive and Allied Workers, which is aimed at protecting shop workers from abuse and assault? Does he agree that small shopkeepers and their staff are all too often in the frontline of such attacks and that stronger deterrent sentences are needed to protect them?

[Craig Mackinlay]

Just last week in Ramsgate, I invited the Kent police and crime commissioner to a retail crime forum to address that very point. It was quite worrying how many small shopkeepers in the room had suffered attacks in the last year or burglaries of what is often very high-value stock. Consideration could be given to tax incentives to encourage small shopkeepers to beef up their security, not only for themselves but for their stock. The right hon. Gentleman’s point is very well made.

A Ramsgate newsagent who came to my crime forum last week estimated that his turnover is down £150,000 per year because of illicit tobacco sales. That is happening on every shop on every high street. It means less taxation on what is an entirely legally derived profit, and it means a vast cash windfall for illicit tobacco traders. HMRC estimates that the loss to the Exchequer is £1.8 billion per year; the TMA estimates that it is closer to £2.4 billion. We need a grown-up debate about the taxation of tobacco, because we have reached a tipping point that is promoting unregulated, potentially dangerous purchases of unknown tobacco products. That completely flies in the face of what are sensible anti-smoking public health measures.

I will finish a little off-key, on the issue of insolvency, on which I have listened to many smaller businesses, including retailers. Hon. Members may have to listen carefully, because the chain is quite complex. When a primary contractor in a supply chain fails, having not been paid by the head client, the insolvency practitioner who is appointed will seek to recover the contract value from the head client, but that usually comes with a negotiated settlement of contracted amounts. That leaves the smaller participants down the supply chain unpaid, and we often see a domino effect of failure and insolvency through that supply chain.

There is a sizeable business in Broadstairs called Blaze Signs. Members can guess what it makes: yes, signs. It is a substantial local employer with a substantial local workforce. It makes 20-foot high signs for Marks and Spencer, Sainsbury’s and McDonald’s—huge signs that can be seen from a few hundred yards away. On the failure of the primary contractor in the chain, Blaze Signs has been left completely unpaid, despite its signs having being delivered and erected, because the insolvency practitioner has sought payment from Sainsbury’s, M&S or whichever company is at the top of the chain.

We need to give some consideration to a technical change to Insolvency Act 1986 rules. In the instance of unpaid bills at the top of a supply chain, where there are identifiable elements further down the supply chain supplied by participants who have been part of that final unpaid contract, the rules should be changed so that the payment bypasses the failed company in the chain and the smaller participants receive their money for goods properly supplied. That would almost be akin to putting a Romalpa-type clause on a statutory footing.

I am confident that the Government fully understand the challenges that smaller retailers and businesses face. I seek the Minister’s reassurance that the commitment to deregulation will continue and that the old mantra of “one in, two out” is realised. I will be pleased to hear from her how we can improve the business environment in this country still further.