Struggling department store Beales which is at risk of collapse into administration unless it can find another last-minute buyer, is the latest victim of the absurdity of the business rates system, particularly transitional relief says John Webber, Head of Business Rates at Colliers international.
Beales’ 22 regional stores are paying a total of £2.847 million in business rates this year- but according to estimates by Colliers this is more than they should be- all due to downwards phasing introduced following the 2017 Revaluation. Adding up the four years of overpayment by Beales, Colliers estimate the retailer has paid £1.060 million in business rates more than it should have in the years since the Revaluation.
Business rates are based on a property’s rent. Transitional relief was designed to reduce the increase by which rates would rise following an upwards rent revaluation, staggering the rise over a four-year period. But to keep the total business rate tax take revenue neutral, this has been funded by those businesses based in areas where rents were dropping and who should therefore have been seeing their business rates payments reducing. Instead, for many businesses, business rates reductions have been phased in slowly with the result that many struggling companies have perversely been paying more than they should be, whether or not they could afford to.
In Beale’s case, the company saw a 14% decline in its Rateable value in the 2017 Valuation and therefore should have seen a 14% reduction in its rates bill. In reality it only saw a 3% drop in 2017/8 and in subsequent years the drops were -1% and -2%. To quote John Webber, “In a period in which retail has already been struggling due to internet competition and other rising costs, such rates reductions have been pitifully inadequate” and” have certainly contributed to the business’s current demise.”
Tony Brown the Chief Executive of Beales has called the business rates situation at the company “lunacy” and claims in some stores the rate bill is 3 or 4 times the rent bill.
John Webber added, “Of course Beales is not alone. Many other stores who have joined the long list of CVAs and administrations since 2017 have suffered in a similar way. A number of Debenhams and House of Fraser stores on the closure lists were there because they were paying artificially high business rates due to phased downwards transition. Toys R Us suffered the same fate and was paying many hundreds of pounds worth of business rates bills higher than it should have been.”
Webber adds, “There is one chink of light at the end of the tunnel. We are about to see a new Revaluation in 2021 and given retail rents have collapsed, business rates falls should in theory follow. Of course, the government could put a spanner in the works and again introduce downwards transition as it did in 2017, limiting reductions. But that would be disastrous.”
“One can only hope (and pray) that Mr Johnson and his colleagues have learnt from the deserted high streets of 2020 and the thousands of jobs losses -and provide a fairer playing field for the physical retailers. If he doesn’t, I’m afraid the crisis can only get deeper.”