Receding High Street may force rates changes

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Receding High Street may force rates changes

August 2017

shopping

The business rates regime is in a right old pickle.  I wrote three months agoabout the chaos and confusion created by the delay of the 2015 revaluation to this year – and the apparent last-minute U-turn in the March Budget under pressure from business groups to grant certain reliefs.

Since then, the 2017 rates year has commenced.  We’ve also had the small matter of last month’s inconclusive snap General Election returning a minority Conservative government.

That has created further political and economic uncertainty with the consequent impact on the Brexit negotiations which are just beginning in earnest.

But, as the politicians dither and tinker, I wonder if broader business and social trends might force a more radical overhaul of the ratings system and its place in the wider tax raising puzzle all governments must grapple with.

First, a bit of context. The Office of Budget Responsibility reported that £28.1 billion in business rates was collected in 2014-5, representing 4.33% of the total UK tax income achieved at an average in-year collection rate of 98.1%.

In 2015-6, that figure had risen to £29.1 billion, while forecasts for the following years start at £28.9 billion for 2016-7, while the next five years under the new regime and revaluations start at £29.7 billion and climb to £33.8 billion by 2021-2.

Essentially, business rates are calculated by multiplying your property’s ‘rateable value’ – in the 2017 list a reflection of the Market Rent as at 1 April 2015, based on an estimate by the Valuation Office Agency – by a ‘multiplier’ set by central government.

This year, contrary to predictions, saw a 1.8p reduction in the standard business rates multiplier to 47.9p – or 46.6p for small businesses.  But in 1990-1, the standard rate was just 34.9p! Online retailers have applied growing pressure on the traditional high street, with town centres historically attracting higher rents – and consequently higher business rates.

Retail government adviser and guru Mary Portas predicted that a third of independent shops could be killed off by the latest revaluation and rates regime.

M&S, one of Britain’s largest retailers, said last year that it planned to close 30 UK stores and convert 45 more into food-only shops as part of a business overhaul to slash the amount of shop floor space devoted to its ailing clothing ranges. In April, it announced the first six closures, all in town or city centre locations, as shoppers increasingly turn online or favour out-of-town retail parks where parking is plentiful.

Similarly, Debenhams announced plans in April for up to 10 of its 176 stores to close, under new chief executive Sergio Bucher, who intriguingly joined the retailer from Amazon in October last year.

He polled 16,000 shoppers before drafting his turnaround plan to focus on ‘social shopping’ and making store visits a ‘fun leisure activity’.

Martin Lane, managing editor of price comparison web site www.money.co.uk said that the retailer still faces major headwinds. 

He said: “High-street retailers are really struggling to compete with our nation’s love affair with online shopping and the department store has done little to shake up its fading image,”

Online retailers have an advantage with lower costs as larger out of town distribution warehouses have lower rents and therefore lower business rates.

Clearly, other traditional retailers will be considering their property strategy and portfolios.

The impact is not just on retailers, or the town centres they may vacate, but on landlords too.  Lower occupancy rates will result in falling rents and landlords becoming liable for the business rates of vacant properties after three months.

On a positive note, we are seeing an increase in the value of commercial development land outside town centres driven by a requirement for storage and distribution centres. But the days of central government being able to rely on business rates for a reliable and increasing share of the tax take may be numbered.

Though, while the government generates a 20th of all tax from business rates, I guess there will be very little incentive on their part to undertake a major overhaul!

You can contact Rob Haigh on 01302 243902 or email him here

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