“Quite frankly, the costs of trading in many areas far outweigh the benefits of being in town.” So Mary Portas begins her analysis of the business rates regime in her eagerly awaited review into the future of the British high street.
Stephen Robertson, Director General of the British Retail Consortium explains:
Mary Portas has rightly drawn attention to the fact that unaffordable rates are not just a threat to the survival of individual retailers, they endanger entire town centres by making the shops at the heart of them financially unsustainable.
Retailers have less flexibility concerning their location
Retailers have less flexibility about where they are located than many other forms of business. Being accessible to customers means being in convenient places, in towns and cities across the UK. That means stores have higher rental values than many other types of business premises, which in turn drives higher business rates bills. Research recently completed for the BRC shows retail pays 28% of all business rates, the highest proportion of any sector, amounting to more than £5 billion a year.
September 2012 RPI was the highest recorded in 20 years
The arbitrary use of September’s Retail Price Index (RPI) to decide the annual increase, has resulted in an eye-watering 5.6% increase for April 2012, which will add £350 million to retailers’ tax bills. September’s RPI was the highest recorded for 20 years and is likely to have been a peak. Inflation is already falling. The Bank of England’s central forecast expects it to be nearer 3% by the time the increase comes into effect. An additional £350 million is income the Treasury and local authorities will be loath to go without. In these straightened times it is understandable. But, as Mary Portas’ review makes clear, it is essential to consider the wider implications of the way business rates are currently set, not least for the high streets which are at the heart of our local economies and communities, providing jobs and services.
Retailers are crucial to the UK economy
Retailers play an active role in all the communities they operate in, not only by providing work for three million people. Business Improvement Districts have a high success rate because they are focused, allowing the retail sector to contribute to specific local projects. Sadly, retailers will always have a limit on money they are able to make available. When business rates soar as sharply as they have in recent years, their ability to volunteer that funding is squeezed even further. Financial support that retailers would like to provide to the towns and cities where they operate are instead swallowed up by the national machine.
Business rate increases need to be more predictable
Retailers have shown a willingness to pay more, provided it is linked to clear goals and benefits. The retail sector expects to pay its way, and does. The affordability of business rates is obviously key but what is needed is a predictable formula for increases which allows retailers to make long term investment plans. This is crucial to making high streets places where shops do not just survive but thrive.
That greater certainty could come from a switch to CPI, a CPI / RPI annual average or a more sophisticated mechanism. What we, and Mary Portas, are looking for is an urgent review and swift action. The government is due to respond to the Portas Review in the spring. Amending the system of business rates increases should be top of the Chancellor’s list of New Year resolutions. It is an essential step to help retailers maximise their contribution locally and to the long term recovery of the UK economy.