Michael Shalders is the co-owner of fashion distributor and agency Love Brands
It’s obviously good news to have a majority government now at Westminster. There are few scenarios worse for a nation than five years of indecision, so having a government that is able to make decisions and implement them without compromise is a welcome outcome. Providing that they make the right decisions, of course!
As a London-based fashion distributor and agency, we welcome the attention being given to the business rates review in the forthcoming July budget. For an SME like us, business rates really do need reviewing, although this is only one of several policies that are currently not working for small businesses.
The fact is that business rates are correlated with rent value, and anyone wanting to operate a business such as ours in Southeast England needs to have a base in London, which is prohibitively expensive.
One of the issues we are faced with is that, hypothetically, if we were to base ourselves in, for example, Glasgow, Birmingham, Manchester or Belfast, we would be less effective as a business and unattractive to the European brands we represent. This is because they perceive London as the centre for fashion and business. Equally, the majority of key buyers we are selling to are based in London.
How could business rates be evaluated differently? There is no perfect solution, but there could definitely be a more suitable arrangement which would encourage the growth of SMEs – the driving force of our retail economy.
Europe is an interesting point of comparison. All the brands we represent are based in Europe, where they don’t have the burden of business rates, which is also one of the reasons why retailers in Europe are able to work on a slightly lower mark-up than in the UK. A 2.4 to 2.5 mark-up is not uncommon in Europe, but it would be impossible to launch a brand on that mark-up over here.
There’s been discussion in industry circles about linking business rates to profit, which would make sense in many ways. However, there remains the question of whether this is profit ‘after the directors have been paid’, in which case there is a loophole for abuse. Alternatively, the government could consider using turnover as a barometer, but that could leave small new enterprises with good turnover but no profit – due to start-up investments – heavily disadvantaged. There is no solution that fits all.
Disincentives for businesses more generally are a big concern for us. For example, the government has been urging businesses to employ more apprentices and graduates, but paying 13.5% PAYE to the government on top of a salary of £18,000 for a supposedly inexperienced employee is not an attractive prospect for a business owner. On the other hand, if you are paying an experienced member of the team a £40,000 salary, presumably that employee is bringing in a significant amount of business. In order to get more graduates into work, employers need to be incentivised. After all, we are in the business of turning a profit – we are not a charity.