The Chancellor’s budget on March 18 contained plans to save high street shops from the threat of online competition with a business rates review said to be the widest ranging in a generation.
However, the government has said any reforms will be “fiscally neutral”, which means it expects the tax intake from business rates to remain the same; so for one business to pay less, another will have to pay more. While this could result in a fairer system, there will be winners and losers.
As Next chief executive Lord Wolfson pointed out last week, retailers with large store estates are unlikely to feel much effect, as any changes to rates are likely to be balanced out within their portfolios. For example, if the system is changed so rates are calculated by turnover rather than the value of the property, larger retailers’ higher-performing stores would pay more, but the others would pay less.
This seems fair and could also benefit independents with one or two stores in areas of low footfall, with naturally lower turnover. However, some independents with a higher turnover might have to pay more, despite having higher overheads, including rent. And this is against the background of a volatile market, where the discounting culture can have a dramatic impact on margins.
The government has said it will look at what is being done overseas and trial various approaches, but it hasn’t been very specific. The simple truth is that we don’t know how this review will play out.
The best outcome will be a clear, easy to understand system, which is reviewed on a more regular basis. The current system is based on a valuation carried out in 2008 – a lot has changed since then. It needs to be reviewed every two to three years. This does not have to be a radical review; rather, the system should be seen as a work in progress, which can adapt to changes in the market. The high street needs a rates system that is built from the ground up.