Without rates reform, four in five retailers will see store closures
- BRC report shows devastating impact of business rates, ahead of government’s Fundamental Review
- In a survey of major retailers, 83% say they are likely or certain to close stores unless Review reduces rates burden
- Business rates had a material impact in two-thirds of store closures over the last two years
- As an industry that provides over three million jobs spread across every region of the UK, Retail makes a key contribution to the government’s levelling up agenda
A new report published today by the British Retail Consortium (BRC) highlights the need for government to take immediate action to reduce the burden placed on retailers by business rates. According to the report, this would help to “unlock the industry’s potential to support the economic recovery from the pandemic, ensuring that retail remains a provider of quality jobs and an important contributor to tax revenues for years to come.”
The report, Retail, Rates and Recovery: How business rates reform can maximise retail’s role in levelling up, is based on a survey of leading retailers carried out by the BRC. Retail accounts for over three million jobs spread across the UK and is responsible for over £400bn in consumer spending a year. The survey of retailers shows that unless business rates barriers are addressed, the government will miss a key opportunity in supporting their ambitious levelling agenda. The key findings from the survey are:
- 83% retailers say it is ‘likely’, ‘very likely’ or ‘certain’ that they will close shops if the business rates burden is not reduced as a result of the Fundamental Review.
- 85% of retailers say that business rates is an ‘extremely’ or ‘very important’ issue for their businesses when opening or closing stores.
- In two-thirds (67%) of store closures in the past two years, business rates had a material impact in the decision-making process.
- 25% of stores paid more in business rates than in rents. Given the multiplier of 51.2%, the rates liability should be approximately half of the rent paid.
The report makes a number of essential recommendations aimed at encouraging investment and securing the viability of shops and high streets. The key recommendations include:
- Cutting the multiplier to its original rate of 35 pence in the pound (35%)
- Fixing the system of transitional relief, which cost retailers over £500m between 2017 and 2020
- Introducing an ‘Improvement Relief’ to ensure that rates bills do not rise immediately as a result of investment in a property
- Reforming the Valuation Office Agency to ensure accurate valuations and faster processing of appeals
The government announced a Fundamental Review into business rates in 2020, which will report back this autumn. The stated aims of the review include “reduc[ing] the overall [rates] burden on businesses”.
Business rates were introduced in 1990, at a rate of 34.8 pence in the pound; this has since risen 47% to 51.2 pence in the pound in 2020 (As the tax is devolved, the multiplier is slightly different in Scotland, Wales and NI). Retail, which accounts for 5% of the economy, pays 25% of business rates – an approximately £8bn bill for retailers across the UK. The huge cost of business rates has been a major factor in many store closures and business administrations in recent years.
Helen Dickinson, chief executive of the British Retail Consortium, said’ “Given the retail industry contributes almost £100bn to the economy (Gross Value Added) and employs over three million people spread across the country, it has a vital role in both the UK’s economic recovery and the government’s levelling up agenda. This report underscores the urgency of fixing the broken business rates system, which currently hold back new jobs and investment. With one in seven shops currently shuttered, it is essential that action is taken, or else it will be our local communities and high streets which suffer the consequences.
“The government needs to bring the burden down and take action to ensure that the system reflects property market values more quickly. This should include a cut in the multiplier rate, returning it to its original rate of 35%. Furthermore, government should introduce an improvement relief to prevent stores being immediately punished for investment into their property. At a time when the green agenda is so important, it is madness that business rates should rise for a firm that adds solar panels to their property.”