The Retailer Summer Edition 2021

THE RE TA I L ER

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NEWS FROM THE BRC

BUSINESS RATES – THE ROAD TO REFORM NEEDS A BRIDGE NEXT YEAR

Dominic Curran Property Policy Adviser British Retail Consortium

L ast year held a few surprises, it’s fair to say. One of the smaller but no less remark- able ones was that Government kept to its promise to undertake a fundamental review of business rates. They had a once-in-a-century valid reason not to proceed but, to their credit, they allocated Treasury officials’ time to this hugely pressing issue for retail. Admittedly the timetable for the results of this review slipped from Spring to Autumn this year, but we can forgive this delay, particularly if we get a good result at the end. One of the Chancellor’s first announcements as the pandemic took hold last Spring was a 100% business rates relief for retail and other sectors for 2020/21. It is certain that this £7.5bn retail tax cut, alongside other measures, helped otherwise viable business survive, particularly those whose stores were required to be closed for longer than theywere able to be open in that financial year. In March this full relief was extended for a further three months in England, and for the full year (with some variations) in the rest of the UK. A more limited relief applies in England for the remaining nine months of 2021/22, with two thirds off business rates liability subject to a cap of £105,000 per business for non-essential businesses and £2m for essential ones. The relief has kept the rates issue at bay during the pandemic, and while Government conducts its review. But as its value (in England) tapers over time, and with any reforms emerging from the review not likely to take effect until 2023 at the earliest, many retailers are looking anxiously at 2022/23. A new ratings list, based on values on 1 April this year, takes effect from 2023. This should embed lower retail values into the rates system, reflecting not just post-pandemic retail rent levels, but the wider fall in rents since the last valuation in 2015 in much of England. But the rates burden in the year between the end of the current relief and the start of the new list could stretch many businesses to breaking point.

As things currently stand, the intervening year, 2022/23, will see a return to full rates liability based on estimated rental values as of April 2015 – an eternity away in the world of retail rents. Ratings consultants estimate that, excluding Greater London, retail rents in England since 2015 have fallen by at least 30% - much more in some locations. This in turn means that properties are extremely overvalued for rates pur- poses. Rates should be 51% of rent – a high enough figure in itself - but the fall in rents since 2015 means that the rates bill is now the same or more than the annual rent in many locations. This is making shops unprofitable, resulting in more closures and fewer new openings, with knock on impacts on local jobs, investment and high street viability. A return in April to full rates liability based on 2015 values across the UK will therefore cause a profound shock to the high street ecosystem. Many businesses that will have managed to get through Covid may find themselves undone by the sudden imposition of full business rates lia- bility. Unlike Covid, however, that economic shock is entirely avoidable. While we remain hopeful that the review of business rates will result in positive changes, that road to reform will only start after 2023. In the meantime, retailers need one last bridge to get them through to the lower rates burden of the 2023 list and the implementation of post-review reforms. That bridge needs to do in 2022/23 what we anticipate the reforms will begin to do afterwards, which is to better reflect current market values in business rates bills. That means that retail business rates bills should fall by at least the average fall across England - around 30%. This would effectively reset the system to a more sensible rate, bringing values in line with the real world, supporting investment, jobs and communities, and protecting future tax revenue for the Chancellor. Unlike major reform, this change will be relatively simply to implement. It could be in the form of a retail discount just as we have had in recent years, granted to local authorities byGovernment and disbursed in turn by them to local retail ratepayers. Alternatively, an approach for the longer term might be to set a separate retail multiplier – the effective tax rate in the business rates system – so that the tax rate for the industry could be set at a rate that was tailored to its profitability and growth, making it a more sustainable system that could be flexed as necessary over time. Whatever form it takes, a bridge from the current system to the post-re- view system is a vital part of the road to reform, and it is imperative that Government announces one alongside the outcome of the review in Autumn.

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