The Government mustn’t leave it any longer before it spells out its proposals for business rates for the beleaguered Retail and Hospitality sectors says John Webber, Head of Business Rates at Colliers International and must think about this now or it may find it will be too little too late and only accelerate the decline of the high street.
According to Webber, business leaders will be making their plans for 2021 over the coming weeks and will need to factor business rates into their decision making.
“Whether the government decides to extend the current business rates holiday* for another six or even twelve months from April 2021 or whether it gives 50% rates relief will be important factors to put into the decision making about keeping open or closing stores or cutting jobs. We ask the Government not to leave this decision to next year or even the Autumn -or for many businesses the decision to stay open or close will have been made and the horse will well and truly have bolted.”
In non-COVID times, business rates provide the Government with a net tax take of about £26 billion, of which the Retail Sector is the largest single sector, paying between a quarter and a third (around £7.625 million) of the total tax bill.
This is even though the gross value added by retail to the national economy (GDP) is less than 10% (ONS). Together with the hospitality sector, the tax contribution is around £10 billion.
Although both of these the sectors are now receiving a business rates holiday*, casualty in the sectors have been far and wide, even as lockdown has begun to lift. Household names such as TM Lewin, Victoria Secrets, Johnsons Shoes, Cath Kidson, Debenhams, Laura Ashley and Oasis/Warehouse have gone into administration. Others well-known brands are permanently shutting stores and planning to lay off currently furloughed staff. In the restaurant sector, Carluccios and Tex-Mex dining chain Chiquito have also been casualties.
“In many ways COVID-19 has been the catalyst for what we were seeing anyway.” says John Webber Head of Business Rates at Colliers International. “2019 was the Year of the Retail and Restaurant CVA and even before COVID-19 many of the weaknesses were apparent. The impact of too high business rates, increased employment costs and competition from on-line rivals were taking their toll. Coronavirus has only exaggerated this.”
Given the state of hardship being faced by both sectors, Webber believes it is inconceivable that retailers and restaurateurs would be able to take back their business rates commitments in the next twelve months. “Even “successful” retailers such as John Lewis would be facing annual rates bills of over £50 million (not including Waitrose) next year for a chain of fewer than 50 stores.”
Current press reports suggest the Chancellor is planning to tackle the issue and is looking at ideas to reform the system such as introducing a tax on online sales and consumer deliveries, as well as replacing business rates with a possible land tax. He has already called for another review on the system which should report in the Autumn.
“We await the conclusions of the Business Rates Review in the Autumn with bated breath.” concludes Webber, “Whether the Government will finally recognise that a £26 billion property tax is unsustainable waits to be seen.
“In the meantime, the Chancellor must give retailers and the hospitality sector some glimmers of hope and reassure them that they won’t be facing exorbitant and unaffordable business rates bills as the economy tries to recover in the New Year.”
*In March as the Government announced Lockdown it introduced highly supportive measures for all businesses in the retail and hospitality sectors. In England this resulted in:
- A cash grant of £10,000 available for small businesses (including retail, leisure; nurseries and hospitality) with a Rateable Value of under £15,000.
- A cash grant of £25,000 for those in the retail, leisure, nursery and hospitality sectors above with a Rateable Value of below £51,000.
- A 12-month rate-free period for all businesses in the retail, leisure, nursery and hospitality sectors.
This 12-month rate-free period was an extension of the existing Retail Relief Scheme which was introduced to ‘help the high street’ and only applied to properties that are ‘wholly or mainly being used as shops, restaurants, cafes drinking establishments, cinemas and live music venues’. It was later extended to cover nurseries and childcare establishments.
Colliers welcomed the measures at the time as a major stop gap to prevent many businesses in the retail and hospitality sectors going under. The Government has just announced that the grant scheme will close by 28 August 2020.