A fresh round of high street bloodletting is expected after major chains, who are closing stores and shedding jobs, were overlooked by emergency business rates cuts.
The government took the step of scrapping bills for small business owners including shops, restaurants and nightclubs in the coming year so their finances would be better able to cope with coronavirus-related upheaval.
The chancellor, Rishi Sunak, said tens of thousands of businesses in the leisure and hospitality sectors – including theatres, gyms, art galleries and B&Bs – would benefit from the manifesto pledge to cut the rates of small companies (those paying less than £51,000 a year in rent). The move could save each business “up to £25,000”, Sunak said.
John Webber, head of business rates at property advisory firm Colliers International, said the help package ignored big retailers that were struggling to absorb rising costs at a time when sales were moving online and consumer confidence was low.
“We are now destined to see more shop closures and job losses on the high street in the months ahead,” said Webber. “While helping SMEs is to be applauded, there is nothing in the budget that tackles the issues of the larger businesses – and these are the ones shedding the jobs.”
Business rates are calculated by multiplying a property’s rateable value (the market rent) by the multiplier (the number of pence-per-pound of rateable value you need to pay in tax). Bills have risen steeply in recent years partly because the 2015 revaluation of property values was delayed until 2017. The multiplier has also risen from 34.8p in the pound back in 1990 to 51.2p this year for stores paying more that £51,000 in rent.
Business rates will raise £25.6bn in England in the coming year, of which the retail sector will pay about a quarter, or £6.6bn. Despite only a tenth of shops in England having a rateable value of more than £51,000, those shops pay nearly 70% of sector’s bill, according to real estate adviser Altus Group.
The government said 700,000 small businesses already exempt from rates due to their size would receive a £3,000 cash grant to manage their overheads during the coronavirus crisis.
Paul Martin, UK head of retail at KPMG, said small retailers were a vital part of the retail industry, but the survival of prominent high street names was of real concern: “Retailers are mass employers in the UK and their survival has a very human impact in terms of both employment and the shape of our high streets. For many of these players, rates are the largest operational expense they have to contend with.”
“The amount of business rates they are paying is out of kilter with the amounts paid by online businesses. Some of the changes we are witnessing are the fallout of changing consumer behaviour, but retailers are also contending with myriad pressures, whether it’s Brexit uncertainty or the potential impact of Covid-19.”
The general election also saw the Conservatives promising a fresh review of business rates and on Wednesday the Treasury outlined its objectives, which include looking at ways to improve the current system as well as considering “more fundamental changes”.
The review, with a six-month timetable, has been met with a heavy heart by retailers given the energy already devoted to analysing the subject – and all at a time when high streets are suffering record store closures and heavy job losses. The Ministry for Housing, Communities and Local Government looked at business rates in 2014, only for the Treasury to revisit the subject the following year. The Treasury select committee also looked at rates last year.
However, there was good news in that the review promises to look at ways to improve the transitional relief scheme, which, it is argued, forces retailers outside London to subsidise those in the capital.
That is because retailers facing big rates bill increases after the last revaluation – such as those based in London, where rents have risen most sharply – benefited from caps that were funded by slowing the speed at which retailers with premises revalued at a lower business rate have their bills reduced.
Altus Group’s Alex Probyn said that there had already been 155 policy papers and consultations on business rates since 2010. “The difficult questions have already been asked,” he said. “If we are serious about ‘levelling up’ the economy to help struggling towns, tax demands must fall in line with declining rents.”
Mike Ashley’s Frasers Group recently described transitional relief as “disastrous” for retailers, with some stores within the group, which owns Sports Direct and House of Fraser, paying up to four times the rates bills they should be. The meagre annual reductions “punishes those in greatest need of relief”, Ashley said. “This kind of pattern clearly cannot be right and is no doubt repeated widely across UK retail; it is a significant contributor to the dire straits the high street currently finds itself in.”
