The recent report by the British Retail Consortium (BRC) has laid bare the devastating impacts of business rates. The trade association has found that, without serious reform to business rates, 83% of traditional retailers are likely to shut their stores permanently. This stark warning comes just as the Government’s Fundamental Review of business rates is expected to conclude this autumn, and all eyes are on how business rates will be updated for the 21st century.
Businesses across the country will be eagerly awaiting the recommendations of this review with many of them facing serious hardships should the reforms not go far enough. In my constituency, Strickland & Holt, a department store that has served the people of Yarm since 1854, has benefitted greatly from the generous business rates relief that the Government introduced at the start of the pandemic. However, with the rates holiday coming to an end, businesses that have become staples of our local high streets are considering their futures.
It is not controversial to say that the current system of business rates is an inflexible and inaccurate form of taxation. It does not consider success or profits and punishes those that wish to invest in their property to provide a better shopping experience for their customers. It disproportionately affects retailers who naturally need more space to run their business. Whilst retail accounts for 5% of our economy, it pays 25% of all business rates. This system is not a tax on success – it is a tax on existing and needs an urgent overhaul.
Since the last revaluation in 2017, which was based on 2015 rental value, we have ended up in the grossly unfair situation where it’s possible for a business to end up paying more in rates than they pay in rent.
And then we see multinationals such as Amazon, who lease warehouses with a lower rental value, gain a competitive edge over high street retailers who end up shouldering the brunt of the tax burden. This reform must urgently address this matter and make this situation more equitable, encouraging investment in our high street properties, allowing owners to give our city centres the facelift that many of them have been crying out for, and ensuring rates are paid fairly across the board.
In a time of labour shortages, these taxes have also made it more difficult for high street shops to remain competitive when it comes to wages. Retailers risk losing staff, many of which they have made considerable investment in training, to other sectors that can afford to pay more attractive wages as a result of not having extra extortionate and unfair levies imposed upon them.
The retail sector is a critical part of our economy. It has the second largest share of UK employees, with over 3 million people relying on the industry for employment. The potential collapse of this sector will have disastrous knock-on implications for families across the UK, so any overhaul has to be radical and brave. In the budget, we must see the Government step up to the plate. There is no point in fiddling around the edges and hoping for the best. The BRC’s report is unequivocal and clear-cut about the dire consequences of making changes that simply don’t go far enough.
I would urge Ministers to look at alternative systems of administering business rates. Rather than having reviews into this system every 5-7 years, an annual, computerised system of valuations based on the Dutch model that can move with the times surely needs to be considered. This would not only be a fairer and more effective way to value properties, but could also reduce administration costs by £50m a year.
With the business rates holiday coming to an end, this is the last chance saloon for the Government to deliver ambitious and innovative reforms on business rates. This Review has to go hard or, frankly, go home. Anything less will ensure that retail giants become retail dodos and join the likes of Woolworths in the ever-growing list of extinct high street names.