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Demands for 'level playing field' from business rates report

Fashion retailers are calling for urgent action following the Treasury select committee’s report on business rate reform.

The report branded the current system as “broken”, and included the following proposals and resolutions:

  • The government should explain whether it is government policy to allow the growth in business rates to outpace inflation
  • For the government to set out its views on the fact that, of the 36 countries in the OECD (Organisation for Economic Co-operation and Development), business rates represents one of the highest property tax takes, and detail its impact on international investment
  • All business rate reliefs should be reviewed
  • The Ministry for Housing, Communities and Local Government (MHCLG) should work with all billing authorities to create a single comprehensive guide on how business rate reliefs are operated
  • The Treasury needs to revise the business rates system, and implement change to support and encourage investment by businesses
  • The Valuation Office Agency’s previous appeals system needed to be replaced
  • The Check Challenge Appeal (CCA) process should have been designed so that it had more functionality than the system it was replacing

Jerry Schurder, head of business rates at property services firm Gerald Eve, gave evidence at the committee hearings, and told Drapers: “It’s a well-considered and detailed investigation into the issue, and what is encouraging is to see an independent and impartial body repeating and recognising all of the concerns that have long been expressed by retailers in particular.”

However, he expressed disappointment that the recommended actions fell short: “Given the concerns that they clearly recognise, this has not translated into the firmer recommendations that we would need to satisfy businesses and resolve the problems.”

Most notable for Schurder was the stance on business rates in comparison with inflation and taxation by other members of the OECD: “The recommendation businesses wanted was that this must be reversed, so that it is a fair tax with overseas competitors.”

Martin Brighty, owner of central London menswear independent Peckham Rye, was damning of the report: “It’s a very typical ministerial document that actually offers nothing. Given they are not prepared to trial any new ideas or concepts, we will be stuck with what we have, because it brings in the most money for doing the least work.

“Most councils are deficit operations. Anything that takes money away from them will be fought over to the bitter end. The summary would have been better had it read ‘why kill the golden goose that lays the golden egg’.”

The report also suggested replacement systems, including a land-based tax, online sales levy, profits-based tax and a consolidated or hybrid tax.

Brighty considered none of these adequate: “To attempt to hit landlords with a tax is just plain daft, and they would just pass it on anyway. The consolidated or hybrid: what does that even mean other than a mix of two or three taxes rebranded. They must think everyone in the UK is stupid to even think this report addresses the problem.”

However, head of business rates at property services firm Colliers International John Webber was “relatively optimistic” at the outcome, and that its timing ahead of the general election could make it a key policy point for candidates.

“In its current form, the business rates system is the beginning of the end for the industry,” he said. “This report will now be the start of a common-sense approach being taken.

“It sets the tone for what should happen over the next year or two. If this is ignored, there is no hope for anyone.”

The report detailed how the current system provided difficulties for multiples with stores in different valuation jurisdictions.

“We challenge every rate we have,” the managing director of one menswear multiple confirmed. “We’ve phoned the rating office [in one store location] to discuss our rates and have been on the phone five times for up to 25 minutes with no success. It’s ridiculous. There is no relation between the rents and rates at the moment.”

One independent owner told Drapers how business rates at their current level will restrict expansion plans.

She said: “I had to open in an area that doesn’t have footfall, because I could never afford the rents and rates of the main shopping streets in my borough. I would need a completely different business rates structure to expand.”

Gant managing director for northern Europe Fergus Patterson agreed that urgent change is now needed: “Anyone can see that the current system is damaging the high street. Increasing costs by more than inflation is only one element.

“Bricks-and-mortar retailers are not operating on a level playing field with ecommerce pure players, and the complexity of the system means that trying to understand what relief is available is incredibly difficult. Reform is long overdue and urgently needed to reverse what is an alarming decline on UK high streets.” 

Justin King, non-executive director of Marks & Spencer, and former chief executive of Sainsbury’s, told BBC Radio 4’s Today programme: “Business rates are past their time – they are a legacy tax. What the government should try and do is level the playing field for all retailers. The simplest way to do that is through VAT. A simple move in VAT – 2% on the rate of VAT – would allow the government to reduce business rates by 50% for all retailers. It wouldn’t cost the government a penny and, because it’s one tax moving to another, it wouldn’t put prices up either.”

He continued: ”All taxes are paid by consumers. The fact that retailers up and down the high street pay these business rates – that is paid for by the customers in pricing. If they see a reduction in their business rates, and VAT has gone up and that is equivalent value, you won’t see any price move at all. So consumers won’t suffer.

”Importantly, it’s perfectly possible for retailers to send some of the VAT receipts to the Treasury but also to local councils – that’s the other aspect of business rates: they pay for local goods and services. That’s why it’s so unfair that only physical retailers pay them. [Etailers] use the services that are paid for by them. They use the roads maintained by them and the boxes they deliver are recycled by people paid for by those business rates. It’s an unfair part of the tax system.”

 

Readers' comments (2)

  • If you think having a prominent high street presence is expensive, check out the cost of making yourself visible on the Internet’s high street! Then add delivery and return shipping, and you’ll discover that the base cost of e-commerce is far more challenging than property costs. Those that have navigated that cost base profitably have a well-run business, not a structural advantage. Look at the wafer-thin net margin Asos has endured over the years, owing to the operational cost of the online experience that customers demand.

    That bricks and mortar retailers have the chutzpah to insist e-com retailers share their property costs, says more about the commercial mindset of the old guard than it does about business rates. I’ll share your property costs when you share my shipping and digital marketing bill guys.

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  • darren hoggett

    I agree much with the previous poster.

    While the consumer has, and will continue to migrate to e-com, blaming online businesses is a Red Herring. They are far from immune to commercial pressures too.

    There seems to be this misguided approach that if the rates system was shaken up and made the 'High Street' (sic) more competitive, customers would migrate back to physical shopping. That is not going to happen.

    We live in a world where there is far too much of everything, with retail being no exception. Whether it is physical or e-com, the strongest will survive and that will actually make it better for the consumer and re/e-tailer in the long term, as quantity is never better than quality.

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