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A business rates cut would be the perfect Christmas gift from Rishi Sunak

Credit: PA Images

Emma Cariaga, Executive Committee | British Land

5 min read Partner content

We should scrap the current outdated approach and replace it with a fair and sustainable business rates system.

This Christmas marks the end of a ‘once in a lifetime’ year for retail, when many of Britain’s shops have been closed for extended periods due to the coronavirus pandemic.

While the high street is enjoying comparatively positive trading as people stock up for Christmas following the relaxing of restrictions earlier this month, the industry still needs a shot in the arm to support it through these unprecedented times.

Retail was already under pressure before Covid struck.

Competition from online shopping was growing rapidly, but the truth is that retailers were adapting - using online sales, mobile phone apps and click and collect schemes to increase trade.

Business rates are too high. UK property taxes have grown so much that they are now the highest in Europe.

Most recognise the essential role that shopping centres and high street stores play as a feature of the community. Physical retail is crucial in supporting jobs and local economies. To take an example of this, the Broughton Centre near Chester employed nearly 2,000 people before Covid, with the centre contributing £53 million to the Flintshire economy each year.

That is one of the reasons why British Land is sponsoring the new All Party Parliamentary Group on the Future of Retail; cross-party support will be crucial in securing the future of our high streets and supporting the people they employ as we recover from the Covid pandemic.

The main issue is simply that shops have obligations that online-only retailers escape.

The most burdensome of which is business rates: a local tax that must be paid to the council regardless of the commercial success or not of the business concerned.

This tax on physical retail has put the high street at a serious disadvantage, and with Covid-19’s impact on top, it threatens to tip many shops over the edge.

Business rates are a charge on most non-domestic property, covering everything from pubs, restaurants, and shops to warehouses, factories, and holiday homes.

It is calculated using a property’s ‘rateable value’, or the estimated value of the property on the open market. Accurate and up to date assessments of this value are therefore essential.

Taxes which are too high can have huge effects on the wider economy and prospects for jobs and growth.

And business rates are too high. UK property taxes have grown so much that they are now the highest in Europe.

 In fact, they have risen spectacularly compared to rental values in the retail sector – more evidence that they are not a fair reflection of the value of the properties being taxed. As figures from REVO, the retail property professional body, show, in March 2020 business rates in England were 87% higher than in 2001, whereas retail rents were only 17% higher over the same period.

Business rates also penalise high streets in some regions more than others.

We know from recent research that over 75% of the areas of England and Wales paying the highest rates as a proportion of earnings are in the North and Midlands, the same regions the Government wants to help to “level up” because they face comparative difficulties in terms of creating jobs and growth.

The main task is ensuring there is a fair and level playing field between physical, online, large and smaller retailers.

The Government’s decision to suspend business rates in the first lockdown in March this year was therefore absolutely vital: retailers could not trade, so it was unfair to expect them to pay fixed taxes on their business.

It also served, however, as a recognition that the current system, which taxes businesses on their rateable value regardless of their profitability, is unfair.

This is why the Government has implemented a fundamental review of business rates, which is expected to report in 2021. The key question then is what replaces business rates?

The first task, given ongoing restrictions, is to extend the suspension of business rates well into the new year to give those retailers on the brink at least a fighting chance of coming back. But that cannot go on indefinitely. There needs to be a replacement that is fair, practical and sustainable.

There are solutions here.

Simplest would be a reduction in the rate – a substantial reduction across retail property is long overdue and we would suggest 40% is the kind of figure needed.

The Government could also move to a system of annual revaluations, rather than every five years or more which is the present situation, ensuring rates reflect market conditions and the current rateable value of the property.

Finally, the Government could extend the rates relief on empty retail units to 12 months and introduce a 50% rate relief after this period, to reflect the reality that more and more space is going to lie empty until the market thrives again.

Business rates currently bring in around £26bn for the Treasury, so these reforms would create a tax shortfall of part of that, but this could be filled in a number of ways that reflect the changing balance between physical, shop-based retail and other types who escape the responsibilities shops take on.

Options might include an online sales tax, a turnover tax, or delivery charges.

The main task is ensuring there is a fair and level playing field between physical, online, large and smaller retailers.

The best business rates solution is also one which will give our shops a fighting chance, support jobs and local communities, and allow our high streets to thrive: we should scrap the current outdated approach and replace it with a fair and sustainable business rates system.

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