In the limelight: December 2019

January 17, 2020

The “broken” business rates system risks impeding future trade growth and creating a dangerously divided commercial sector unless it undergoes a significant overhaul, according to Treasury Committee findings. Steven Hugill looks at the existing levy and finds support for its reformation

Back in the late 1980s, Toys ‘R’ Us launched an animated television commercial that quickly became a Christmas tradition.

With its lights illuminating the dark road ahead, a car slalomed trees and hedgerows to reach a hidden superstore where an army of beaming, yellow sweater-clad assistants stacked towering shelves alongside company mascot Geoffrey the Giraffe.

This was a land of perpetual brightness – ironic given Toys ‘R’ Us’ subsequent collapse – where a smiling sun heralded each new day, displays burst with goods and traditional over-the-counter custom was brisk.

The modern reality, however, is a fair bit darker.

Britain’s retail environment is a major employment source, with its three million jobs double that provided by the NHS1.

Yet it rests on tremulous ground – highlighted by the recent collapse of Mothercare and the struggles of Mamas & Papas, Bonmarché and Clintons – as operators grapple with fragile consumer confidence, the weaker pound and online shopping’s ceaseless rise.

Furthermore, firms must deal with rising overheads that include rental payments, improving basic wages and the cost of business rates, with the latter – which added £31 billion to Government coffers last year2 – a long-held bone of contention for campaign groups.

Opponents see the levy – also applicable to offices, pubs, warehouses and factories – as a major impediment to commercial success, since retailers pay a quarter of all business rates, despite accounting for just five per cent of the economy3.

Disapproval extends to the way rates are measured, with detractors saying their emphasis on physical stores favours online operators over bricks and mortar retailers – a point made weightier by figures showing Amazon’s £63.4 million 2018 UK business rate bill was 0.7 per cent of British turnover, compared to traditional market bellwether Marks & Spencer’s two per cent and Debenhams’ three per cent4.

In a review undertaken before the calling of the General Election, the Treasury Committee ordered a thorough overhauling of what it termed a “broken” business rates system, saying “odd reliefs…are nothing more than sticking plasters.”

Supporting the Committee’s findings, Rachel Anderson, assistant director of policy (Tees Valley & Energy) at the North East England Chamber of Commerce, says the report comes not before time.

She believes the current system does little
for retailers already facing a volatile market and represents a major deterrent to start-ups, adding the country’s new Government must make rates restructuring a priority.

“For some time, the Chamber has been demanding wholesale reform to the business rates system,” Rachel tells North East Times.

“The impact on new businesses, particularly retailers, is a significant factor in the performance of high streets and in retail closures.

“The current system takes no account of ability to pay and imposes a significant financial burden on businesses before they open their doors,” she continues.

“This starves new companies of investment capital and can be a significant hurdle in encouraging entrepreneurship.

“While we accept businesses must pay something, the current system is outdated and unfair.

“Successive Governments have kicked this issue into the long grass; there needs to be reform – and fast.”

Rachel’s call adds fuel to a reformist fire fanned by organisations such as CBI, The British Independent Retailers Association
and manufacturers’ organisation MAKE UK. Additionally, the Federation of Small Businesses’ North East area leader Michael McMeekin argues “the system (causes) businesses and investment to flat line,” with the British Retail Consortium (BRC) warning the Government must decisively intervene as retail “navigates a transformation driven by new technology and changing consumer behaviour.”

The latter organisation previously sent the Government
a letter – signed by a cross-section of more than 50 retailers including Newcastle baker Greggs – calling for defined change to save the high street.

It has now, however, taken its fight a step further.

A new manifesto, ‘A Vision for the UK Retail Industry’, advocates the scrapping of the downwards transition system – a method critics say severely limits the amount bills can go down – which the BRC says would save retailers £1.3 billion over five years.

While we will never have a world like Toys ‘R’ Us’ animated utopia, the blueprint, says BRC chief executive Helen Dickinson, at least gives retailers an even chance in the unforgiving real world.

“This is a unique opportunity to address many of the imbalances that are adversely affecting retailers (which) have led to job losses and store closures,” she says.

“The next Government must do more if retail is to be the vision of success it sets out to be.

“Our plan offers a path to empowering our shops, our shopworkers and our communities.”

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In the limelight: November 2019