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Comment: Business rates proposals not enough to ensure survival

Paul Moran, head of business rates at property firm Mason Owen, discusses the latest business rates developments.

Paul moran

Paul moran

Calls for government to ‘do something’ about the business rates system have grown louder in recent years. The loudest calls are from the bricks and mortar retail sector, which has found itself under massive pressure from online retailing and changes to shopping habits.

But replacing rates is not a simple job. As a tax it is hard to avoid, generally easy to administer and raises circa £25bn in revenue. Fundamental reviews are promised, alternatives are suggested – sales tax anyone? – but for now the existing system carries on.

Or it did until the coronavirus pandemic threatened to undermine the economy. In his Budget speech on 11 March the chancellor Rishi Sunak announced business rates measures designed to help small businesses survive. Shops with Rateable Values below £51,000 (a figure which represents the government’s view of what differentiates ‘small’ and ‘big’ businesses) would pay no rates from 1 April. This was welcome, but my own view is that just because a business can be described as ‘big’ does not automatically mean that it will be able to survive a severe economic shock.

There is no doubt that the pandemic is causing just such a shock, especially for ‘discretionary’ retailers such as those in the fashion and related sectors of the economy. This was demonstrated on Tuesday when Laura Ashley filed for administration, citing the impact of the pandemic. Leaders of ‘big’ businesses complained that the budget announcement offered them no help, despite their businesses employing thousands of staff, facing big bills, and often operating on slim margins.

Business leaders also complained that the measures would be negated by EU State Aid provisions. Intended to promote competition within the EU, these limit the assistance governments can give to individual businesses to €200,000 (£187,000) in any three-year period. State Aid takes many forms, and businesses taking advantage of training grants, apprenticeship schemes and other sources of funding have found themselves hitting the €200,000 (£187,000) limit very quickly.

As the scale of the pandemic increased after the budget, so did pressure on the government to provide more help. Sunak’s announcement on Tuesday (17 March) of a £330bn assistance package included unprecedented provisions in relation to business rates. The intention is that occupiers of retail and hospitality properties, regardless of size, will pay no business rates from 1 April. This offers a very important lifeline to businesses facing an uncertain future.

Coincidentally, the EU announced an increase in the State Aid funding limit to €500,000 (£468,000) per business. Given the scale of the crisis, this figure will be of limited assistance to larger businesses. It is my understanding that the UK government is applying to have its proposals exempted from State Aid rules. If this is rejected, then I would argue that the proposals should be implemented regardless.

On their own, these proposals will not be enough to ensure survival for vulnerable retailers in the fashion sector. After all, the annual rates bill of an individual shop might represent no more than one month’s takings. More help will be needed if jobs are to be preserved. Businesses will need to be flexible and prepared to adapt quickly to a very difficult environment.

What do you think? Please leave a comment or get in touch at drapers@emap.com.

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