Retailers lose £500m to transitional relief since 2017
Over fifty major retailers are calling on the Government to take the first steps towards fundamental business rates reform in the Budget. The letter, coordinated by the British Retail Consortium, focuses on fixing transitional relief – a component of the business rates system.
Business rates are based on the rateable value of a property. Transitional relief limits the speed at which a firm’s business rates liability changes in response to changes in its rateable value. To achieve this, it staggers the speed at which ‘underpayers’ move to their higher business rate liability (upwards transition), and funds this by slowing the speed at which ‘overpayers’ move to their lower liability (downwards phasing).
This system has two consequences:
- It forces retailers to subsidise other industries: £543m net over the last three years
- It forces locations outside London to subsidise London businesses: £596m net over the last three years
Retail remains the largest private sector employer in the UK, employing approximately three million people. The industry invested over £1bn in new technology, helping to drive up productivity growth to 5.1% (vs 0.5% UK average) in 2018. Despite this massive investment in the future, it faces some of the highest taxes of any industry. Retail accounts for 5% of the UK economy, yet is burdened with 10% of all business taxes, and 25% of business rates.
The letter has been signed by 52 major retailers and associated trade bodies including the CEOs of supermarkets, food-to-go, fashion, homeware, and department store retailers. It notes that the “burden of business rates has become unsustainable for many retailers” and that the system is broken, a view echoed by the Treasury Select Committee in October 2019. Scrapping downwards phasing would remove the harmful effects transitional relief has on retailers and businesses in the North of England. This could be achieved by central funding of upwards transitional relief.
This comes two days after the BRC-KPMG Retail Sales Monitor showed that the 12-month average sales growth fell to a record low of -0.2%.
Helen Dickinson OBE, chief executive of the British Retail Consortium, said:
“The future of retail is an issue that matters to people everywhere – it employs three million people and serves the needs of the entire country. Yet transitional relief undermines both the industry as a whole, and many regions that it serves. Northern high streets effectively subsidise London banks, forcing a £600m transfer of wealth to the capital; this could be used to support investment in people and technology that would benefit all parts of the UK.
“Every year retail faces higher and higher business rates bills, holding back much needed investment in an industry that is transforming at a dramatic pace. Swift action at the upcoming Budget would show the Chancellor was serious about levelling up all parts of the UK and supporting a retail industry towards realising a brighter future.”
Eric Mazillier, UK CEO of Decathlon, said:
“The business rates system is broken and in urgent need of fundamental reform. It undermines investment in shops, damaging job creation and hurting high streets and town centres. Fixing the complex transitional relief scheme would be a good start.”
Andrew Hinds, director, F Hinds:
“As government quite rightly works to ‘level up’ communities with one hand, the other is taking huge sums from the retail businesses struggling to survive in those communities through excessive business rates. If we don’t reduce the cost of doing business in these towns to a sustainable level, we will kill their high streets, making it for harder for locals to find opportunities to find work and to access services. This will reduce social mobility.
“The Government should immediately implement the reduction that a business is entitled to as a result of a revaluation, rather than continuing to collect more than is justified over several years. Furthermore, they must acknowledge that any significant reduction in rental values is a ‘material change’ in circumstances and grounds for a business to appeal its excessive rates bill.”
Nick Lakin, group corporate affairs director at Kingfisher, said:“Business rates are the number one tax paid by UK retailers. The tax rate is unsustainable, the system too complex and it does not reflect modern retail. Downwards transitional relief has added to this complexity and is exacerbating regional imbalances”.
