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Retail business rates to rise by £170m in 2020 – Study

The UK’s High Street retailers could be facing a £170m increase in business rates next year.

That’s according to analysis of available data by real estate specialist Altus Group, which says the total business rates rise in 2020 is likely to be in the region of £660m, based on an expected adjustment +2.1% in line with September inflation.

If correct, it’s yet more financial pressure on the High Street, something that the industry is already lobbying the government to address.

Last month fifty major retailer demanded the Government takes action to fix the ‘broken business rates system’. In a letter to the new Chancellor, Sajid Javid, retailers called on the Government to put business rates at heart of the promised new economic package.

The letter, coordinated by the British Retail Consortium, was signed by major retailers including the CEOs of supermarkets, food-to-go, fashion, homeware, and department store retailers.

The letter asked for four fixes that would address many of the challenges posed by business rates:

  • A freeze in the business rates multiplier;
  • Fixing transitional relief, which currently forces many retailers to pay more than they should;
  • Introducing an ‘Improvement Relief’ for ratepayers;
  • Ensuring that the Valuation Office Agency is fully resourced to do its job.

Altus Group’s Head of UK business Rates, Robert Hayton, reiterated the point, telling PA: “With major retail and hospitality businesses reducing their estates and headcount often citing high level of rates as a contributory factor, I urge the Chancellor to take the bold and ambitious step of being the first Chancellor to freeze the multiplier since the national business rates system was introduced in 1990.”

Retailers demand government action on business rates

Over fifty major retailers have come together to demand the Government takes action to fix the broken business rates system, in a move led by the British Retail Consortium (BRC).

In a letter to the new Chancellor retailers called on the Government to put business rates at heart of the promised new economic package.

It was signed by major retailers including the CEOs of supermarkets, food-to-go, fashion, homeware, and department store retailers. 

The BRC says retail remains the largest private sector employer in the UK, employing approximately three million people. The industry accounts for 5% of the UK economy, yet is burdened with 10% of all business taxes, and 25% of business rates.

The letter comes after BRC-Springboard data showed that UK Vacancy figures had risen to 10.3%, the highest since January 2015.

It also comes shortly after the BRC-KPMG Retail Sales Monitor showed the 12-month average sales figures dropped to their lowest level on record, at 0.5%.

The letter asks for four fixes that would address many of the challenges posed by business rates:

  • A freeze in the business rates multiplier;
  • Fixing transitional relief, which currently forces many retailers to pay more than they should;
  • Introducing an ‘Improvement Relief’ for ratepayers;
  • Ensuring that the Valuation Office Agency is fully resourced to do its job.

The letter notes that implementation of these four recommendations “could be undertaken quickly, would reduce regional disparities, remove barriers to the proper working of market forces, incentivise economic investment, and cut away at least some of the bureaucracy of the current system.”

Helen Dickinson OBE, Chief Executive of the British Retail Consortium, said:These four fixes would be an important step to reform the broken business rates system which holds back investment, threatens jobs and harms our high streets. The new Government has an opportunity to unlock the full potential of retail in the UK, and the Prime Minister’s economic package provides a means to do so.

“The fact that over fifty retail CEOs have come together on this issue should send a powerful message to Government. Retail accounts for 5% of the economy yet pays 25% of all business rates – this disparity is damaging our high streets and harming the communities they support.”

Image by Steve Buissinne from Pixabay

High-Street

BRC demands action on business rates

The British Retail Consortium (BRC) has demanded an end to what it calls the Business Rates burden on UK retailers.

In a submission made to the Treasury Select Committee on April 1st, the BRC set out a framework to fix the business tax system under the principles of Relief, Review and Reform.  

Since being introduced in 1990, Business Rates have risen 45%, from 38.4p to 50.4p in the pound, which the BRC says will mean shops will now be paying over half of their rateable value again in Business Rates before they have even made a penny in sales.

The current system, the BRC argues, is contributing to the rising number of store closures and discouraging new businesses from taking over empty shops.

Under the current system, business owners that make improvements to their shops see their tax bill rise as the rateable value increases. For example, adding solar panels to the roof will result in a firm paying higher Business Rates. 

In addition, the BRC says those firms whose rates bill is found to be too high are forced to subsidise those who are paying too little as the system lacks the flexibility to correct itself quickly. 

The result – retail has seen a drop of 48,000 jobs between 2017 and 2018 even though the economy as a whole added 415,000 new jobs over the same period.

The BRC has called for a number of changes to be made, culminating in an Independent Review of Business Taxation that must look at how various business taxes should be levied to ensure that the tax framework is fit for the 21st century.

Helen Dickinson OBE, Chief Executive of the British Retail Consortium, said: “Retail is in the midst of a transformation as new technologies and changing consumer behaviour impact the way we shop. The investment needed for this reinvention is being held back by a rising tide of public policy costs, with Business Rates the biggest among these.  

“Retail accounts for 5% of the economy, yet pays 10% of all business taxes and a staggering 25% of Business Rates. This is simply not sustainable; the raft of shop closures and job losses are testament to that.”

“While Government fiddles at the edges, retail suffers and consumers pay the price. The Treasury Select Committee Inquiry comes at a critical moment for the retail industry. If the Committee can seize the opportunity to find a way to address the madness of a system which is strangling our high streets, they can protect shops and jobs and put British retail on the right trajectory for the future.”

RICS urge review of business rates as Brexit uncertainty takes its toll

The ongoing uncertainty surrounding the Brexit negotiations is taking its toll on the UK Commercial Property market, causing some hesitancy among tenants, according to the Q3 2018 RICS UK Commercial Property Market survey.

As such, the Royal Institute of Chartered Surveyors (RICS) has called on the government to review the business rates system in the upcoming Budget.

Brexit uncertainty is taking its toll at a headline level, as occupier demand fell slightly, with a net balance of –9% (down from -8% in Q2) reporting a fall. Breaking the three sectors down, demand from businesses looking to take-up retail space fell for the sixth successive quarter and demand for office space saw a marginal decline in interest. Once again, industrial is the only sector to see growth. Indeed, in this quarter demand for industrial space continued to increase, extending a run of uninterrupted growth going back to 2012.

As tenant demand in retail continues to fall, a net balance of +39% of respondents reported a further rise in retail availability in Q3, prompting landlords to increase the value of incentive packages. Vacancy rates were stable in the office sector, although the use of inducement packages did increase slightly. Conversely, both availability and incentives continued to decline in the industrial segment.

To help provide a much-needed boost for the High Street and the wider commercial property market, RICS is calling on the government to review the business rates system in the upcoming Budget, helping ease the burden on companies.

Hew Edgar, Head of Policy at RICS, said: “People want a vibrant high street at the heart of their community. Yet the combination of Brexit uncertainty and competition from online retailers mean small independent businesses, in particular, are finding it harder to stay afloat. That’s why we are calling on the government to use the Budget to review business rates, with the aim of improving the whole system and help provide a shot in the arm for our ailing high streets.”

In each quarter since the Brexit vote, survey participants have been asked if they have seen any evidence of firms looking to relocate at least some part of their business as a result. Throughout much of this time, the proportion reporting they had seen signs of this type of activity remained at around 15-18%. Interestingly, this picked up to 25% in the latest results.
The subdued activity means near-term rental expectations remain flat at the headline level (a net balance of -2%), pointing to virtually no change in headline rents over the coming three months.

Once again, this is underpinned by the retail/industrial contrast as rents continues to fall in the retail sector but rise in industrial. Looking to the year ahead, both prime and secondary industrial rents are envisaged posting solid growth. Rental expectations in the office sector are mixed with expectations moderately positive for prime offices but broadly flat for secondary. For the third quarter in succession, expectations remain firmly negative for retail rents, continuing a downward trend that started in Q2 2016.

Regionally, the retail sector continues to exhibit negative rental projections across all parts of the UK. In London, secondary office rents are still expected to fall slightly, albeit the net balance of -11% was the least negative reading since the beginning of 2016. The outlook for prime office rents is also flat in the capital but more positive across all other UK regions, with Northern Ireland and the South West pointing to the strongest growth. Again, the industrial sector remains the outperformer in terms of rental growth expectations in all areas of the UK.

Looking to investments, enquiries rose most firmly in the industrial sector with a new balance of +32% reporting a rise, which is up from +28% in Q2. Investors do however, continue to shy away from the retail sector. Meanwhile demand for offices picked up but only marginally. Overseas investment demand remained largely unchanged overall, albeit a small increase was cited for industrial assets. Alongside this, the supply of property on the market declined in all but the retail sector, where it continued to rise for a fifth consecutive quarter.

On the back of this, twelve-month capital value expectations remain steeped in negative territory across the retail sector, with respondents foreseeing price declines for both prime and secondary assets. Capital value projections remain modestly positive for prime offices, but the outlook for secondary has turned slightly negative. Given the supply demand dynamic, prime and secondary industrial values are again posting solid gains over the year ahead.

BRC calls for retail reinvention in the UK

The British Retail Consortium has issued a rallying call to the industry, encouraging reinvention in both business and political terms during what is ‘an unprecedented period of change’.

Writing on the BRC blog (published in Drapers), the organisation’s Chief Executive, Helen Dickinson, highlighted recent worrying key trends, including:

  • There are 2,485 fewer retail stores in the UK than there were three years ago.
  • Just over 16% of all sales were made online last year – up from 12.5% just two years before.
  • Since the beginning of 2015, there have been more than 3,200 retail insolvencies in the UK and a growing awareness of company voluntary arrangements (CVAs) most recently involving high street household names such as Mothercare, New Look and House of Fraser.
  • For customers, the squeeze on real earnings is unrelenting and a drag on spending is expected to continue as real wage growth remains weak.

Dickinson then detailed several ways in which proactive steps can be take to turn the High Street tide: “Politically, there is much the government can do to help relieve some of the pressure on the high street. The business rates system is not fit for purpose. It is a big cost burden – retailers contribute around 5% to the UK economy, yet pay 25% of business rates.

“This is simply not sustainable. It acts as a barrier to investment from new entrants to the industry and discourages the reinvention of our high streets at a time when retailers are struggling to adapt to shoppers’ changing habits.”

Dickinson added that this and the growing rates bill is a big part of the calculation when retailers are thinking about rationalising their store portfolios – only this week has Marks & Spencer outlined more store closures over the next few years.

Brexit is also cited: “We also have to continue to make the case for tariff-free and frictionless trade as vital outcomes for retailers from the Brexit negotiations if we are to avoid increasing prices and creating less choice for consumers.”

Of course, there are internal changes needed too, however, with Dickinson highlighting the fact there is too much retail space across the country: “In the future, there will be fewer shops and their role will be different – more engaging and based on creating experiences for customers. Online will continue to grow, but seeing online and stores as two separate channels will become increasingly irrelevant. This will deliver better service and experiences for customers, and enable new emerging brands and entrepreneurs to grow. And the role for technology and innovation will expand exponentially.

“The future is bright, but we must create the opportunities to ensure it’s not armageddon retail but reinvention retail.”