Four in five retailers fear store closure without reduction in rates

The British Retail Consortium (BRC) has called on the government to ease the burden of business rates after a new report has shown its ‘devastating’ impact ahead of the government’s Fundamental Review.

According to the report published today by the BRC, based on a survey of leading retailers, 83 per cent of the respondents said they are likely or certain to close stores unless Review reduces rates burden.

The other key findings from the survey include:

• 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 government announced a Fundamental Review into business rates in 2020, which will report back this autumn. Retail sector, which accounts for 5 per cent of the economy, pays 25 per cent of business rates – an approximately £8bn bill.

The report noted that by reducing the burden placed on retailers by business rates, the government can help “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.”

“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,” Helen Dickinson, chief executive of the BRC, commented.

“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 key recommendations of the report include:

• Cutting the multiplier to its original rate of 35pence 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

While business rates were introduced in 1990 at a rate of 34.8 pence in the pound, this has since risen 47 per cent to 51.2 pence in the pound in 2020 in England. The multiplier is slightly different in Scotland, Wales and Northern Ireland.

BRC noted that 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.

“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,” Dickinson added.