Slash business rates before we shut up shop say retailers
Tax on high street operators is ‘outdated, unfair and bad for the economy’.
Grocery giants and independents rarely agree on anything, but when it comes to business rates they speak with a single voice: they say it’s an unfair tax on high street operators and a major overhaul is long overdue.
Last week, in his autumn statement, George Osborne insisted he had been listening, and announced a series of measures to help lift the burden and reinvigorate UK high streets at the same time.
The chancellor limited the increase in business rates to 2% – an inflation-linked 3.2% increase had been looming. He also slashed by £1,000 the amount paid by businesses with rateable values up to £50,000, and halved rates for retailers opening in vacant properties.
“We’re backing Britain’s businesses all the way,” he said.
But for most, the measures are too little, too late, and will be of limited help for “bricks-and-mortar” retailers.
Simon Thomas of Moorfields Corporate Recovery, the administrator for doomed video chain Blockbuster, said: “If the chancellor continues to delay the review of business rates until 2017 [when it is due] it will be too much for the sector to bear. We are confident that by stimulating retail activity across the country the exchequer would increase the direct and indirect tax take.”
Blockbuster was felled by online competition, but it complained that business rates amounted to 10% of its turnover.
Thomas added that the tax break for retailers occupying empty premises could also have unfortunate results: “It is open to a lot of abuse. There are lots of landlords with empty properties and who are trying to avoid paying rates, and there is an industry out there trying to find ways to do that.”
Landlords could, he said, drop rents for retailers that hop between properties to qualify for the reduction, while stalwarts of the local high street suffer.
The key problem is that business rates are normally set every five years, using a formula based on the premises’ rental value – but the last review was in 2010 and used figures from early 2008.
Since then, rents outside London have plunged, as closures swept Britain’s high streets. But the government has delayed the 2015 review for two years, leaving struggling shops paying rates based on boom-time rents – and their online rivals paying relatively little because they don’t have a high street presence.
Sainsbury’s boss Justin King has been battling to make the burden of business rates known, pointing out that the government’s loudly trumpeted corporation tax reductions have been entirely wiped out – and more – by other taxes: “For every £1 we have benefited from the reduction in corporation tax we have incurred more than £2 of other taxes, in particular business rates.”
Campaigners had called for a two-year freeze on business rates to allow time for an overhaul of a system that ratchets up costs automatically. This would have cost the Treasury £1.7bn. Osborne has said he will consider changes for the 2017 revaluation, but retailers argue that that may be too late, with 18 shops closing each day.
Richard Rose of accountants BDO said: “It’s an iniquitous system because rates have been increasing throughout the recession, when rents and profits have been going down. It’s a substantial tax and the government isn’t prepared to let go of it, irrespective of its impact on retailers.”
John Rogers, Sainsbury’s finance director, said the matter could not wait, because high streets are threatened with irreversible decline: “Business rates continue to place a significant and unfair burden on bricks-and-mortar retailers in the UK and are discouraging investment in local jobs and communities.”
What retailers really want is a new tax on shops’ revenues or a system of yearly revaluations. Either would link rates more closely to the business’s fortunes.
Britain relies on business rates more than any other country in the European Union. They are equivalent to 1.6% of output in the UK, compared with 0.3% in Germany and 0.5% in France.
BDO’s Rose said overseas retailers might think twice about opening in the UK when they could opt for Germany. Julian Dunkerton, chief executive of fashion business SuperGroup, has said high rates would make him open shops overseas instead of in Britain.
Shop owner Paul Turner-Mitchell, who contributed to the recent Grimsey Report on the high street, said: “We are moving new shops and potential employment overseas, yet the chancellor says we have the most competitive taxation in the world.”
The chancellor’s problem is that business rates are a big source of revenue, bringing in £26.5bn last year. But retailers argue that cutting the overall take from business rates would stem the tide of closures and encourage expansion, so the government would bring in more corporation tax. It would also, they argue, boost employment, taking people off benefits and getting them paying tax. And that, they say, might just slow the attrition on the high streets too.