By Mark Richards.
Honda is closing its factory in Swindon. The high street could become a ‘ghost town’ – and the two are more closely linked than you might think. Is there anything we can do to stop events like this happening? Or do we simply accept that change is inevitable?
Let us start off with the good news: the UK economy is buoyant. The number of people in work is up, unemployment is down and wages are rising faster than inflation. Yes, UK growth in 2018 was only 1.4% – that might be the slowest for six years, but it is ahead of Germany and well ahead of the rest of the Eurozone.
Meanwhile, inflation in January was down to 1.8%, whilst wages are up by 3.4%. Figures from the Office for National Statistics showed that 2018 ended with 444,000 more people employed than at the start of the year, and unemployment fell by 100,000 over the full year.
So plenty to cheer about. And yet this last week has brought two very dark clouds. At first, they seem unrelated, but look in more detail and they are closely linked – and they raise a simple question. Should we support industries, businesses and locations that are in trouble? Or should we accept change as inevitable, and recognise that some things have simply run their course?
Honda decides to leave Swindon
This week brought the news that Japanese carmaker Honda will close its plant in Swindon in 2021. Honda makes 160,000 Civics a year in Swindon and – more importantly – employs 3,500 people.
It would be easy to blame this decision on Brexit. In fact, it would be better news for the UK if Brexit were to blame. Honda bosses stated clearly that the move was due to “global changes in the car industry” and the rapidly increasing demand for electric vehicles. As we wrote recently, the Chinese bought 1m electric cars last year, while the Japanese company Toyota has launched a hydrogen-powered car, the Mirai.
With this growing demand for cleaner cars – and ever-more stringent emissions regulations in Europe, small wonder that Japanese car makers are choosing to go home. Honda is also planning to close its plant in Turkey and, with the EU/Japan trade deal recently having been signed, will soon be able to export cars directly from Japan free of any tariffs.
This decision comes hot on the heels of Nissan also deciding to discontinue production of the X-Trail in Sunderland – for very similar reasons. Business Secretary Greg Clarke called Honda’s decision “devastating” for Swindon and the UK car industry – but should the politicians have seen it coming?
The high street ‘could become a ghost town’
There was a report on the BBC business pages yesterday with a stark headline: could the high street become a ghost town? The facts it laid out were stark and will be familiar to regular readers: 20% of retail sales now take place online and that proportion is expected to grow. Amazon pays 0.7% of turnover in business rates: high street retailers pay between 1.5% and 6.5%.
Predictably, the committee of MPs who were hearing this tale of woe decided that the answer was an online sales tax – in effect, penalising people who shop online in a bid to protect the high street.
Would that work? In my view, it does not have a hope of succeeding.
There is a medium sized shop in a ‘just off the high street’ location quite close to my office. It has been empty for a year and there is a big sign in the window: ‘Rent reduced to £18,000.’ Seriously, why would anyone take that shop? £18,000 rent, perhaps £10,000 of business rates, the cost of staff, heat, light, insurance. Given a normal mark-up in retail, the shop probably needs to take £3,000 to £4,000 a week to break even.
Surrounded by bank branches that are going to close in the next five years, why would anyone commit to taking that shop on a lease? Whatever it sells, you can be sure that Amazon, Etsy and Not on the High Street sell it as well. And if you do have to pay an online sales tax to shop, it still will not come anywhere near the cost of parking, or the time you spend travelling to your high street.
So are Honda and the high street connected?
‘Yes’ is the simple answer. Honda ceasing car production in Swindon will immediately hit 3,500 jobs. But it will hit many thousands more in the supply chain: from the companies who make some of the parts for the Honda Civic, right down to the local tradesmen who will do odd jobs in the factory and the lady who owns the café across the road.
I witnessed a similar effect in Redcar, in the North East. In 2015 it was announced that the local steelworks was to close down, ending 98 years of steel production in the town and costing 2,200 jobs – plus the inevitable local supply chain. Around the same time – with the writing having been on the wall for the steelworks for some time – the local branch of M&S closed after 76 years. You can imagine the impact those two closures had on the town and if you live in the south of England pop buy property Redcar into Google. You will think you have travelled back to the 1980s…
Can Swindon now expect to see something similar? Well, the M&S is open today but it is no secret that – like other big chains – M&S is closing branches. Out of town shopping centres are starting to struggle and it is very easy to see the closure of the Honda factory in Swindon having the same impact as the closure of the Redcar steelworks.
Can we do anything about it?
This is the key question: should the Government rush in with a huge package of aid to tempt Honda to stay in Swindon? Should it have propped up the steelworks in Redcar? And should we all be prepared to pay more for something online so we can protect the high street?
Or do we accept that change is inevitable? That we can no more protect the high street against the internet – or the internal combustion engine against electric cars – than we could protect the horse and buggy economy when the first Model T Ford rolled off the production line in 1908.
We all know that death and taxes are certain. But so is change, and change has never been happening more quickly than it is at the moment. However good the economic news might be this week, there will be plenty more Swindons in the years to come.