Essential reading for retailers and suppliers in the home improvement market
Bill sets out his stall in the ongoing business rates debate Much has been written and even said by the great and the good about the ridiculous pressure placed on retailers by the current business rate system. However, in the context of the national debt burden, there is a limit to what can be achieved in the short term to ensure that reform is fiscally neutral from the current system.

Nevertheless, who are the real winners and losers from the decision to defer the revaluation from 2015 to 2017? The only conclusion I can reach is that the big retailers and government stand to win and the small independent retailer is the whipping boy again!

Business rates have become a significant part of the overheads of a retail business. The impact of these costs, which have risen significantly in recent years as a result of successive large increases in September's RPI, have led to the net rate yield increasing by £2.615bn between 2008-09 and 2012-13.

In England there are 471,000 shops in the rating list with a total rateable value of £12.778bn. Neither the Department for Communities and Local Government nor the Treasury records business rate income by reference to sector and cannot provide the exact contribution to the net rate yield by retailers.

However, by using the total number of shops and total rateable value in the list, it is possible to project that bricks and mortar retailers will pay around £6.005bn in business rates this year.

Last year, before reliefs, the total yield was £25.730bn. Bricks and mortar retailers, therefore, account for approximately 23.34% of the total business rate yield. Property taxes need to have regular and reasonably frequent revaluations to maintain fairness and acceptability - the five-year gap has been accepted since 1990 and was generally viewed as the maximum appropriate period.

Current rates liabilities are based on rental values as at April 2008: since then rents have fallen by an average of 14% across the country according to the Valuation Office Agency. April 2008 marked the high water mark for rental values in secondary and tertiary areas which have since collapsed.

In broad terms, the effect of postponement will be to transfer wealth from struggling places where rents have fallen by more than 14% to successful businesses, many of which are in the lucrative London and south east areas.

Rental data shows that some of the sharpest rental falls were seen in high street retail, particularly in towns and regions that have struggled since 2008. Forcing these areas to pay artificially high business rates for an additional two years will undermine the government's attempt to address the high street decline.

The collapse in retail rents outside of the capital and south east prime retailing locations is endemic. Analysis of major retail centres reveals the following rental value changes between March 2008 and September 2012: Leeds -31%, Nottingham -27%, Bristol -25%, Sheffield -21%, Manchester -19%, Newcastle -18%, Birmingham -11%, London West End +10%. Of these cities just London and Birmingham would have expected higher rates bills following a 2015 revaluation.

In addition it is reasonable to assume that the big successful retailers would have seen a rise in their rental values, and therefore their rates charges, due to their upward-only rent reviews.

Call me a cynic, if you like, but 2015 is an election year and a revaluation which might have reduced overall income to the treasury is not a good idea for this government wanting to get re-elected. Also a big question is: how close are the big retailers to Whitehall and how much do they influence these decisions? This delay has certainly saved them from an early bath!
View User Profile for Bill Grimsey Former major retail boss, turnaround specialist, and now author of The Vanishing High Street, Bill discusses the key issues facing the retail sector.

Posted by Bill Grimsey | 31 October 2013 | 11:32 | More from: Talking Point


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