Two-tier rates’ system to help retailers could cause headache for other sectors

Stuart Hicks, Manchester Office, Director - Dunlop HeywoodBy Stuart Hicks, Director

Last week saw business rates rise again, with the multiplier increasing to 50.4p in the pound – a hit many companies could do without and pretty much every retail lobbyist out there was fighting against.

However, the Chancellor was not for turning and it means retailers alone will now shoulder an additional £200m of taxes this year. The British Retail Consortium is valiantly trying to help members with its latest submission to the Treasury Select Committee, as part of its latest inquiry, setting out its framework to fix the business tax system.

BRC chief executive Helen Dickinson says her retail members are unable to invest in the technology they need to compete with online competition whilst tax policies keep thwarting their recovery and progress.

As retail accounts for 5% of the economy but pays a hefty 25% of business rates she has a point, and the continued flow of stories of struggling retailers big and small is testament to that. Arcadia is the latest major high street name to be considering a CVA, while last week Retail Week revealed that Select was on the brink of administration, risking another 180 stores and 2,000 jobs.

The Treasury Select Committee Inquiry does come at a critical moment, not just for the retail industry but British businesses as a whole. You only have to look at the trajectory of business rates over the past two decades to understand the current pain they are inflicting.

Since starting in their current form in 1990, business rates have risen +45%, from 38.4p to 50.4p in the pound, meaning business are paying over half of their rateable value again in business rates before they have even made a penny profit.

Other stats that won’t make comfortable reading for businesses or the Government (according to BRC figures) is that store closures between 2017 and 2018 led to 48,000 job losses. Fortunately, the wider British economy added 415,000 new jobs during the same period which masked the hit taken by retail workers.

Tesco boss Dave Lewis has also warned that retail was at a “tipping point” with the balance out of kilter between taxation and sales. He points out as 20% of sales have gone online, the burden on business rates has not only stayed but increased on a declining sales base. He wants to see an online sales levy so that the burden of tax can follow the sales.

That sounds fair for retailers but what about the other sectors also struggling under the present tax system? Retailers may think they have a special case to plead but tax levies that only apply to certain sectors could led to a two-tier system of business rates that will only shift more of the burden onto others in an era where the Chancellor is showing no signs of relaxing his “fiscally neutral” red line on any BR reforms.