Punitive business rates continue to dampen results of UK retailers

John Webber, Head of Rating, Colliers International. Copyright Nick Cunard / NCSM Media.

The Government must address the difficulties UK retailers are facing with their business rates in the forthcoming Budget, giving current financial pain – according to Colliers International, the global commercial real estate agency and consultancy.

Recent retailers results – such as M & S (underlying pretax profit down from £231.3 m to £219.1 m) and New Look  (posting a £72.7m post tax loss)  emphasise the pressure upon UK retailers- a pressure, according to Colliers International, the global commercial real estate agency and consultancy,  increased by the need to pay ever higher business rates on their stores. (According to the BRC the retail sector is looking to see an increase of £270 m plus on their rate bills next year.) And, says Colliers, Government policy has not helped.

According to calculations by Colliers, business rate bills at M & S and New Look are now over £570 million and £100 million respectively for 2017/8 and are set to continue upwards over the next five years.  Because the Government allowed a seven year gap between the last Revaluation in 2010 and this year’s Revaluation in 2017 (normally the gap is 5 years), retailers saw some massive increases on particular stores, which they are needing to now finance, particularly those with stores in city centres. For example M&S stores in Hampstead, Westfield and More London saw business rate rises of 170%, 133% and 127% respectively and New Look’s stores in Banbury, Fitzrovia and Oxford Street saw rises of 87%, 86% and 72% also.

Whilst coping with rises in these stores, the situation has been made worse by the fact that those stores in locations in the UK , which should have actually seen relief from the 2017 Rating Revaluation are not yet seeing the impact. This is due to the Government’s policy of phasing in reductions, whereby it takes five years of “transition” until businesses in England are allowed to pay their business rate bills at the new revalued levels. As a result many retailers with stores which should have benefited from the 2017 Revaluation are still paying much more than expected.

In M&S’s case,  stores in Shrewsbury, Altrincham and Stockport which should have seen reductions in their rates liability of 53%, 47.7% and 46.5% actually only saw their rate bills drop by 3.5%, 3.4% and 3.3%.   For New Look the pattern is similar with Stockport and Bolton seeing reductions in liability of 54% and 50% but this only translating to a reduction of 3.5% and 3.4% this year

John Webber, Head of Rating, Colliers International, said, “The government decision to delay the business rates revaluation to 2017 and to introduce the policy of transition is certainly impacting on UK retailers, either by giving massive rises in some areas and little relief in others.  By delaying businesses rates reaching their true levels, retailers with stores in the less attractive areas have been forced to pay for the better ones for far too long.”

And, adds Webber, “Marks & Spencer and New Look are by no means alone.”  Colliers has analysed the business rates liabilities of other major retailers with stores around the country – such as House of Fraser and  Debenhams and the same pattern is arising. Debenhams’ rating bill is now over £62 million for 2017/8 and rising. Some individual stores saw rises of over 50% or 100% in the Revaluation (Westfield +133%  and Oxford Street +57% ) where as those such as Newbury who should have seen a reduction of 20% are actually only seeing a tiny reduction in their rates bills: – 1% in 2017/8 and -3% in 2018/9, due to downward phasing.

Webber added, “The current business rates regime has done nothing to stimulate healthy retailers and only seems to be adding to the problems. High rises in some areas and little relief in others. It’s no wonder Debenhams and M& S are looking to close stores in some areas. Obviously retailers are having a tough time anyway-  uncertainty over Brexit, rises in the NLW, interest rates on the up and the rise of the internet retailers, who don’t have physical stores to pay business rates on. All of this is impacting on sales and profits of many businesses who are feeling increasingly vulnerable.”

“But the business rates issue is playing its part in the difficulties. The Government needs to be more supportive of retail business and reform the system now. Saying that it will tie future business rate rises to CPI instead of RPI is all well and good, but it does not solve the underlying problems.  Retailing pain has not stopped and will continue. So to us this still smacks of re-organising the deckchairs on a High Street called Titanic! ”

Colliers is still campaigning for genuine business rates reform including more frequent valuations and the need to offer more support to the Valuation Office Agency (VOA) so it can deal with the estimated 200,000 outstanding business rates appeals in the system.

Colliers Manifesto for Business Rates Reform:

1. More frequent revaluations, three-yearly, at least, by 2022;
2. Increase funding for VOA in order to deal with existing appeals’ backlog;
3. Release VOA from pressure exerted by local councils and HM Treasury;
4. Introduce a register of appeals professionals – removing the ‘cowboy’ element;
5. Root and branch reform of current business rates exemptions and reliefs.