Radical reform to alleviate the pain on the high street and to tackle the business rates crisis which has left many businesses and retailers out to dry can no longer be a talking matter, says Colliers’ Business Rates team, particularly as the 2018/9 rate bills for April 1st have started to hit home. Colliers has researched that there are 23 sizeable retailers (with more than 10 stores) who have gone into CVA/administration since January 1st (and 28 since the April 2017 Revaluation) – some of them were facing large business rates rises. House of Fraser, for example was due to pay a rates bill of £40 m this year, Poundworld, £24.5 m and New Look over £58 million. The global commercial real estate agency and consultancy business has come up with six action points it believes the Government needs to take and take now. The immediate implementation of this suggested action plan could impact upon several decisions currently being made by retailers on whether to close or keep open stores in a number of regional high streets.
Colliers Six-Pronged Approach:
- Immediately freezing any business rate increases next year – not the unsustainable 49% for top rises as currently planned. Such businesses will have already have had to swallow a rise of 74% plus inflation in the last two years
- Immediately remove downward phasing of business rates payments enabling rate payers to pay their true rates liability now and not wait four years to do so. This could well impact on several decisions to either close or keep open stores in a number of regional high streets.
- Review and implement a policy to reduce the multiplier. (The UBR against which the rateable value of the property is multiplied to give the final rates bill.) This multiplier is currently around 50p in the £1- so is an effective 50% tax. If it could be reduced to say 34 p in the £1, as it was in 1990, many of the extremely high rating bills would be diminished into something businesses could meet.
- Look at the whole systems of reliefs. The current relief system is incredibly complex and has created business rate deserts in the country, where due to the system of small businesses reliefs, some businesses are paying no business rates at all for the services they receive.
- Introduce a fairer system of how the business rates tax take is funded- Webber suggests a rebasing of the multiplier could be paid for by asking all small businesses to pay a minimum contribution to the system and looking at other reliefs, such as agricultural reliefs which may need reforming, therefore spreading the load more evenly across the UK economy.
- Reform the appeals system- providing more support to the VOA. CCA (the new business rates appeals system) introduced last year has been described by Webber and other commentators, as the “car crash ready to happen” since it has introduced an over complicated appeal system that few can navigate. Only around 23,700 properties have begun to check and challenge their rating assessments i.e. 1.3% of the 1.85 million rateable properties in England. It is essential that businesses have a true and fit for purpose appeal system, if they believe they have been assessed unfairly.
“We have devised this action list, “says John Webber, Head of Business Rates at Colliers, “because we see the pain experienced by a number of retailers following the 2017 Revaluation is only going to get worse. The policy of phasing in business rate increases means that retailers, particularly in Central London, who saw big rises in their rateable value in 2017 are continuing to experience further significant rises.
A company with a 100% rise on its rateable value (RV)*, for example would have seen a 42% rise in its actual bills in year one, following the Revaluation, (2017/8), a 32% additional increase in year two, (this year 2018/9) and a massive 49% increase on top of this, next year (2019/20). These figures do not include inflation, which will be in addition.
“This is totally unsustainable” says Webber. “If we look at how many retailers and casual dining restaurants have already gone under or gone into CVA or restructuring since the beginning of the year, what is going to happen when further rises come into play next year? If companies such as House of Fraser or Debenhams are struggling now, the future is even bleaker going forward. Already Carpetright has announced it can’t keep to the terms of its CVA. Toys R Us has already gone under. Prezzo and Byron are on their way. Even John Lewis is admitting that things are painful and is closing some of its Waitrose outlets. According to the Press Association 50,000 jobs have been lost or at risk between January and June 2018. Obviously, business rates aren’t the only financial issue such companies are facing, but in the current market they could well topple a company over the edge, particularly with no signs of reprieve on the horizon.”
He added, “Even those retailers and restaurant operators in areas which should have seen relief from the Revaluation are still not benefitting, due to the fact that we still have four years of downward “transition” before they are allowed to pay their bills at the new revalued level. By delaying business rates reaching their true levels, retailers and restaurant operators and pubs in such areas have been forced to pay artificially high business rates for too long and for many owners and operators, the long wait means keeping the store open is no longer a viable option. This is now having a major negative impact on many UK regional High Streets.”
According to the Chief Executive of UK Hospitality, pubs and restaurants alone are therefore paying £1 billion a year more in rates than they should be.
Webber continued, “Some commentators have called for a cap in business rate bills, without suggesting any alternatives. This is naïve given the system needs to be revenue neutral and must still pay for public services. The Government can’t afford to reduce the £25 billion pot it receives from the business rates levy. But it is in everyone’s interests that we properly reform the system so that every business pays something for the services it receives from the local community and the rates burden is not purely on a few that increasingly can’t afford it.”
“In the medium term we need a proper Ken Barclay- style review into how we avoid the business rates deserts and distribute the load from the retailers and casual diners to a wider audience. But it’s too late to wait for this now and in the immediate term, relief must be given. A freeze on new rate rises and abolition of transitional downward phasing is a good start. Let’s hope the Government takes heed before the golden goose of business rates has been well and truly overcooked! “