Are business rates the bane of small high street retailers?

posted on 06/11/2013 15:16:04 by Dan O'Sullivan

Small stores have blamed business rates for their difficulties in balancing the books

Small retailers have blamed business rates for their bleak experience on the high street

The plight of Britain's high streets has been well documented in the press, with independent retailers and established chains being forced to close due to the unsustainable costs of trying to stay in business.

While in some respects the problem stems from the recession and consumers' changing shopping habits, other explanations have also been sought, with many small store owners blaming expensive business rates for their troubles.

This is reflected by research we've conducted ourselves, with 15% of our customers listing the charges as their most unfairly priced overhead. With many public figures and industry bodies calling for the rates to be reviewed, the issue is clearly a pressing one - but just how big an impact do the costs have on independent retailers?

Picking apart the problem

One of the biggest complaints surrounding business rates is that they're determined by the rental value of a business's premises, but this is only reviewed once every five years. Under the current system, retailers are paying rates based on calculations made when the market was at its peak in 2008.

Given the struggles of the economy and the recession that the country has experienced since then, the argument is that many shop owners have been charged at a far higher level than they would have been if revaluations were carried out more frequently. On the whole, rental values decreased dramatically after the economy collapsed - but businesses' rateable values (which determine how much they pay in rates) have remained the same.

By the time new charges are introduced, businesses will have spent nine years paying rates that were determined during the peak of the market boom. Strong frustration is justified

With the government having announced a delay that means another revaluation will not be carried out until 2015, retailers are set to continue paying their existing rates until 2017. Indeed, by the time new charges are introduced, businesses will have spent nine years paying rates that were determined during the peak of the market boom. Strong frustration is justified. 

Choosing sides

Despite the anger, high streets minister Brandon Lewis maintains that retailers would not see a boost from an immediate revaluation of business rates, arguing that the only beneficiaries would be London office tenants.

Yet while the minister insists that figures released by the Valuation Office Agency support his position, industry bodies and experts alike have called for the system to be reviewed in order to relieve the financial pressure on smaller stores.

Former Iceland boss and high street activist Bill Grimsey has gone so far as to directly challenge Mr Lewis' assertion, and information gathered by his team of specialists claims that the delay to revaluations will only serve to keep independent retailers' rates artificially high.

Finding an answer

It's difficult to understand exactly what the fix is, but the general consensus outside government is that a remedy has to be found.

Commenting on business rates, Helen Dickinson, director general of the British Retail Consortium, said: "Complete reform is the only solution that can support retailers in continuing to deliver a vibrant and sustainable retail industry for UK consumers and local communities."

Labour leader Ed Miliband has his own ideas, too, and recently promised to reverse the coalition's plans to increase business rates for smaller firms. The move would equate to an £800 million tax break, and would be paid for by scrapping a scheduled cut to corporate tax.

Positive change

Business rates are undoubtedly a contentious issue, and there's no sign that problems are set to go away - especially given the government's apparent reluctance to reform the system.

As such, the coming years will be crucial in determining whether Britain's independent businesses could benefit from a comprehensive tax overhaul. Even if the answer is yes, there's no telling how or when the appropriate measures will be enforced - but that doesn't mean retailers should give up calling for positive change. 

Image credit: Danny Robinson

Dan O'Sullivan

Dan O’Sullivan is Make It Cheaper's Web Content Manager, which means much of his time is dedicated to ensuring we have plenty of online material to help business owners understand the energy, insurance and telecoms industries. With years of experience working alongside SMEs, Dan is committed to making life as easy as possible for smaller firms. You can email Dan at dan.osullivan@makeitcheaper.com

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