Is the golden goose of Business Rates being over cooked?

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

Not only have crippling business rates bills helped add to the demise of both Toys R Us and Maplin, which have just announced to be on the brink of collapse, but- according to Colliers International, the commercial real estate agency and consultancy- the Government will be nearly £165 million down over the next five years if the companies go down now and don’t pay their business rates bills.

Both struggling retailers appear to have failed to secure rescue buyers- putting 5,500 jobs at risk. Maplin has over 200 stores and 2,500 staff in the UK, while Toys R Us employs 3,000 workers in its 105 stores.

Earlier this year, Colliers calculated that Toys R Us could have saved over £17* million had the 2017 business rates revaluation gone ahead as planned in 2015. However due to postponement and the effect of the Government’s transitional rate scheme, the company was saddled with big bills – a rates bill of nearly £22 million alone in 2017/8 and a similar figure of £22m for 2018/9- a bill just about to be served. Colliers estimate that Maplin would also just be receiving its 2018/19 rates bill- a total figure of around £10.25 million for the year.

The first payment instalment of the bills would be on April 1st 2018, since retailers can elect to pay their bills monthly over the 12-month period. Obviously, companies only pay their business rates when they are trading, so a fall into administration will cost the Exchequer over £32 million this year from these two companies alone, and nearly 165 million, (£112 m from Toys R Us and £52.6m from Maplin) over the next five years should they have maintained trading.

“Toys R Us and Maplin are like so many other physical retailers facing financial pain at the moment, with poor sales, reduced consumer footfall and competition from the internet retailers.” said John Webber Head of Business Rates at Colliers International. “And the current rating system is a further drain. Government policy has not helped. The policy of phasing in rate 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, has meant many companies such as Toys R Us and Maplin were still been paying much more than expected on many of their stores across the UK. Then moving rate increases from RPI to CPI indexing purely tinkered with the issue and still meant a 3% rise on business rates this year (around a £200 million increase). Many retail stores just can’t take this right now. “

Webber added, “I do wonder how many companies need to go down before the Government takes some proper action and considers proper business rates reform. Burying their heads in the sand not only impacts on retailers and the high street, but also ultimately on the man in the street. If companies go into administration, they can’t pay their taxes. The Government needs to make sure it doesn’t overcook the golden goose of business rates or there won’t be any golden eggs left for the Treasury to take home.”