Broken Britain 18: government’s business rates structure, unjust – or merely short-sighted?
On reading news of over 21,000 retail job losses this year in the worst quarter since the financial crash, an Earlswood reader comments, “This is the downside to the internet changing consumer buying behaviour”. So it would seem, but there is another remarkable reason for retail job losses.
Struggling department stores have been hit by 26% rates rise as profitable online rivals benefit from tax cut Debenhams has issued three profit warnings this year.
Andy Bounds looks at the revaluation which has raised rates for shops compared with online retailers. In the FT he explains that high street retailers struggling with shaky UK consumer confidence, the popularity of online shopping and increasing wage bills are also being hit with higher business rates — while online retailers see their rates drop.
Business rates across the UK increased by 3% in April, in line with inflation. However, research by Altus Group, a rates adviser, found the average rates bill for department stores in England and Wales was up 26.6% in 2018/19, compared with 2016/17; large high street shops saw average rises of 10.8%.
Rates for some online retailers dropped during the same period.
Asos, the clothes seller, and Shop Direct, the former Littlewoods empire, are paying less on their distribution centres this year than last, while Amazon paid just 0.7% more, Altus Group’s analysis showed. According to the Office for National Statistics, while total retail sales grew 1.4 per cent in 2017, online sales were up 12.1 per cent.
While the 2017 revaluation led to higher rates in busy city centres, it reduced them in rural areas and poorer towns, where online retailers tend to have their warehouses.
Steve Rowe, chief executive of Marks and Spencer, said the company opted to close its Covent Garden store after it faced an “untenable” rate rise of almost £500,000 in a year. He described rates as “an unfair burden of taxation directly contributing to the challenges the high street is facing”.
Government: paving the road with good intentions
Andrew Griffiths, the business minister, told MPs in the House of Commons last month that the rapid rise in online retail sales last year was a “challenge for government and business”. “That is why we are looking at the business rates structure and also at what we can do to help business to transition during this difficult period.” The Treasury said: “To ensure our tax system is fair for all businesses — whether bricks and mortar, or online — we are reviewing corporate taxation of the digital economy.” The government has promised to reform the levy but retail bosses say time is running out as the difference between operating from out-of-town warehouses and expensive town centres widens, and high street retailers see profits plummet.
44 shops vanish a week while online companies see tax cuts
Under this headline, the Retail Gazette comments that the figures from ratings agency Altus Group have revealed the staggering rate of shop closures. The study also highlights the growing advantage online retailers have over their physical counterparts. Despite many shops struggling to keep up with their new business rates bills, online giant Amazon will see rates on its nine distribution centres cut by £148,000 to £11.3 million.
Retailers say that without urgent reform, the higher rates could kill the high street.