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Published on September 21st, 2021 | by The GC Team

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Without rates reform, four in five retailers will see store closures

This is the message from the British Retail Consortium, whose latest report shows the devastating impact of business rates on the retail sector.  

The report comes ahead of the Government’s Fundamental Review into business rates, which was announced in 2020 and will report back this autumn. The stated aims of the review include “reduc[ing] the overall [rates] burden on businesses”.

According to the BRC, without rates reform, four in five retailers will see store closures and 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.

“Retail, which accounts for 5% of the economy, pays 25% of business rates”

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 (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 – a c.£8bn bill for retailers across the UK. The huge cost of the tax has been a major factor in many store closures and business administrations in recent years.

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 shows that unless business rates barriers are addressed, the Government will miss a key opportunity in supporting their ambitious levelling agenda.

“25% of stores paid more in business rates than in rents”

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 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

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.

“…it is madness that business rates should rise for a firm that adds solar panels to their property”

“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.”

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