10427 The Retailer Autumn 2018_Final Draft Pages

Don’t Turn A Deaf Ear to Business Rates Reform

John Webber Head of Rating Colliers International

EXPLAINING WHY, GIVEN THE DESTRUCTION OF THE HIGH STREET, THE TIME FOR TALKING HAS PASSED. The destruction of the High Street across the UK is now becoming a reality. Barely a day goes by without some bad news– first from the independent retailers, then from the bigger chains and later the casual dining market. Colliers has calculated that 30 sizeable retail/restaurant chains (of 10 stores or more) have gone into CVA or administration since the beginning of the year including names such as Toys R Us, Carpet Right and House of Fraser. Other stores such as M&S or Debenhams are closing outlets. According to figures published by ONS, retailers have had their worst start to the year for five years. Observers claim that 50,000 jobs are at risk. Retail pain is obviously not solely down to the business rates hike that many retailers saw in the 2017 Revaluation. The rise of internet sales, poor management structures, rising costs of goods and workers have all combined with falling consumer confidence and footfall to lead to difficulties. But property costs and business rate rises have played their part. Because rates are linked to rents, the Government decision to delay the 2015 revaluation to 2017 meant that some retailers are now experiencing the second year of massive business rate hikes (tied to seven-year rent rises between 2008 and 2015). House of Fraser, for example, faced a business rates bill of around £38m in 2017/8, which rose to £40.3 million in 2018/9, before it announced its CVA. Some of its stores, such as in Westfield shopping centre, saw increases of over 100% at the Revaluation. House of Fraser on Oxford street had a rates bill of £2.96 million in 2016/7. By 2021/22 it would have been paying rates of over £5 million a year. A massive bill for one store alone! Unsurprisingly it’s one of the stores that management has decided to close. Box 1 shows some of the big business rates bills some retailers are facing this year. And as Box 2 demonstrates, the situation is only going to deteriorate. With inflation added on top, for many these increases are unsustainable. Despite these hikes, it is not generally their Central London stores that the retail chains seem to be closing. The real pain is in other parts of the country - areas which should have seen a decrease in rates bill following the Revaluation, mirroring fallen rental values. But the four-year downward phasing for rates to find their true level has meant some retailers are still paying more than they expected or can afford. Debenhams in Stockport, for example, saw a 50% reduction in its RV following the Revaluation. But its rates bill only decreased

from £340,445 to £330,253 in the first year and is now at £324,616- substantially higher than the £225,000 figure it should be without the penal downward phasing charge. This is a pattern repeated across the UK. In some towns, the future looks uneasy, as some independent retailers have closed due to rate hikes and now the big chains are considering their store closures. Thinking they might have some redress with the new Revaluation, the delayed implementation has tipped the balance, making made many managements having to make some tough decisions. The Government’s response to high street pain has been derisory. Announcing 3-year revaluations and linking business rate rises to CPI inflation figures is a start, but it is not enough. The package of small business rates relief which the Chancellor announced in the recent budget is nowhere near as far reaching as it implies and its impact on the high street is expected to be minimal. Commentators vary as to what should be done. Some call for a land tax say, others to replace business rates with a tax on internet sales, others to abolish business rates in their entirely. However, the current system provides annual funds of £30 billion net to the UK government. It would be naïve to think it would abolish this well-needed funding without a proper replacement- and that will be hard to guarantee. Colliers’ solution is twofold- the immediate and the longer term. Our new manifesto suggests six actions the Government needs to implement: 1. Immediate freeze any business rate increases next year - not the unsustainable 49% for top rises as currently planned. 2. Immediately remove downward phasing, enabling rate payers to pay their true rates liability now, not wait four years to do so. 3. Review and implement a policy to reduce the multiplier currently around 50p in the £1- so in effective a 50% tax. Reduced to say 34 p in the £1, as in 1990, rate bills would be diminished into something businesses could meet. 4. Look at the whole systems of reliefs -incredibly complex and has created business rate deserts in some parts the country. 5. Introduce a fairer system of how the business rates tax take is funded- asking all small businesses to pay a minimum contribution to the system and looking at other reliefs, which may need reform, thus spreading the load more evenly across the UK economy. 6. Reform the appeals system- providing more support to the VOA. CCA (the new business rates appeals system) is a “car crash waiting to happen” - an over complicated appeal system that few can navigate.

26 | autumn 2018 | the retailer

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