Retail Property and Business Rates

Business rates are due to increase by 3.2% in April 2014. They usually amount to about 40% on top of the rents that are paid. How can retailers afford this when so many of them are going out of business? Costs are rising but sales have not been. The British Retail Consortium (“BRC”) has warned that this increase alone will put nearly 20,000 full time jobs at risk. This point has been made by leading figures in the retail trade like Sir Philip Green.

Shops like Jessops Cameras have closed on the High Street largely because of a decline in sales. This has been due to customers buying over the internet rather than in the shop. A customer will visit the shop to view and touch the products, get the benefit of advice from a trained assistant and will then go off to their computer and buy the product more cheaply elsewhere. That is why we are seeing more coffee and franchise food shops on the High Street and less product shops. How can a book shop survive when faced with the competition of Amazon?

How many retail businesses will be announced as having gone out of business after the Christmas sales period is over? We are bound to hear in the New Year that there has been an increase in internet buying for Christmas. If people are buying more over the internet, then they are buying less in the shops. Are we at risk of seeing the High Street, as we know it, disappear?

The other point about the system is that it relies on a valuation review to be carried out every 5 years on all business premises. This is carried out by surveyors on behalf of the local authorities and the review leads to an increase in business rates. This review is inefficient and inaccurate and very often the smaller shop owner will not know how to fight the increase proposed. And of course any fight will lead to more costs.

It is surely time to overhaul the business rates system. It has been around since the 16th century. It is past its sell by date. BRC has warned that high street retailers pay more than 3 times as much in business rates as they do in corporation tax. Internet companies do not have the business rates tax as they are trading in the cloud and the business rates tax hasn’t (so far) managed to penetrate there.

Who in Government has the imagination, or indeed the courage, to change the system radically? Billing and collection is arranged by the local authorities and the income from the tax is their principal means of meeting their spending budgets. The tax has to be raised somehow, so if it isn’t going to come from business rates, it will need to be found elsewhere. If there are fewer shops on the High Street, then the tax raised from business rates will be less and the local authorities will not be able to meet their spending budgets.

BRC has commissioned a report to review the system and to report on its overhaul. Will the Chancellor, George Osborne, dare to ignore the problem in his Autumn Statement due on 5 December?