Retail Reflections

Business Rates: The Curse Of The High Street

Business Rates: The Curse Of The High Street

The news that Coast has collapsed into administration was met with the usual gnashing of teeth.

And whilst stablemate Karen Millen has bought the brand and the online business, all Coast stores are shuttered. 

Brexit, the weather, suppressed consumer confidence, rising staff costs…..we’ve become used to the usual mantra.

But add to this a disease which is attacking our High Streets for which a cure needs to be found quickly lest we witness many more joining the likes of Coast, Maplin and Poundworld.

It’s the curse of the High Street: business rates.

Put simply, business rates are a tax on property used for business purposes, calculated based on a property’s ‘rateable value’. The rateable value being a property’s estimated value on the open market.

The Local Government Finance Act of 1988 introduced the current system of business rates in 1990, five years before either Amazon or eBay were launched and six years before Tesco offered its first online shopping.

Retail currently contributes £8bn to the Treasury through business rates – most of it from High Street businesses as opposed to pureplay online retailers.

In other words, the current system of taxation on retail businesses did not envisage ecommerce and is therefore no longer fit for purpose.

The most recent revaluation came into effect in April 2017 and according to research by Altus Group, a rates adviser, they found the average rates bill for department stores in England and Wales was up 26.6 per cent in 2018/19.

In contrast, rates for some online retailers dropped during the same period. Asos and Shop Direct for example, are paying less on their distribution centres this year than last, while Amazon paid just 0.7 per cent more*

The reason for this anomaly can be found in the fact that rates generally increased in city centres whilst they decreased in rural areas. It is no coincidence that this is where many of the online players’ distribution centres are to be found.

But shouldn’t these be taxed in exactly the same way as High Street brick and mortar retailers? Both are delivering direct to the consumer. Taxing both on the value of the property makes no sense.

As consumers we generally don’t get to see the inside of an Amazon warehouse, however we shop with them in just the same way as we do if we walk into a shop on the high street. It’s merely a different (some would say the same) delivery channel. 

Tesco boss Dave Lewis has been particularly vocal of late in his opposition to the current business rates (Tesco is one of the UK’s largest ratepayers with an annual business rates bill of around £700m) however he is not alone.

Chairman of John Lewis, Sir Charlie Mayfield has seen the business rates tax for its flagship Oxford Street store rise by 57% from £12.68m to £19.91m under last year’s revaluation*

And this is not a new call to reform business rates, as long ago as August 2015, he told the Telegraph:

“Business rates bills have continued to rise when property values have fallen. Reforming the rates system would be a welcome boost for retailers and help drive investment in training and technology”

The British Retail Consortium have long championed a reform of the outdated business rates, Chief Executive Helen Dickinson saying: “Business rates are outmoded and outdated. They were created in the last century and are not fit for purpose in the 21st century”

The tax burden has reached the point where companies are going bust. Has the Government thought through what happens when retail starts to decline and if the job losses start to become significant

Dave Lewis, Tesco CEO

Whilst the call for change gets louder, as recent as July this year, Chancellor Philip Hammond was moved to say that the review of business rates in 2016 found “no consensus on an alternative base”.

However, a glimpse of hope was given last week by business secretary Greg Clark at the Tory party conference when he told a fringe group that business rates could change as “one way” of recognising the role played by high street retailers.

But just as Nero was accused of ‘fiddling while Rome burns’ the chances of a business rates reform in the foreseeable future appear slim whilst all eyes are focused on Brussels.

Let’s hope that once our decree absolute comes through, we will still have a High Street to save.

*source: Altus

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