The BRC has long made the case that the current business rates system is untenable.
It is outdated, outmoded, not fit for purpose and has failed to keep pace with a 21st century economy.
For over five years, we’ve warned that the current system is harming the largest private sector employer in the UK and acting as a barrier to the successful transformation of retail.
There continues to be a growing chorus of shoppers, retailers, campaigners, politicians – daily newspapers, even – who agree. Our campaign has had some successes – past caps, the move to CPI, a commitment to more regular valuations.
“It is short-sighted to consider different forms of business tax in isolation from one another or retail in isolation to other industries”
But while government intervention has saved the industry hundreds of millions of extra costs, the underlying problem of a broken system remains.
Where do we go from here?
Today, the retail industry makes up 5% of the economy, pays around 10% of business taxes and within that nearly 25% of business rates – more than £7bn a year.
There are 2,500 fewer shops than there were three years ago, over 3,200 retail insolvencies since 2014, several high-profile CVAs and many more companies restructuring their store portfolios.
Something’s got to give
Retailers face increasing public policy costs and are investing heavily in retraining workforces for the digital economy and new technology to cater for the ways people now want to shop – all of which will improve the productivity of the industry.
Retailing in the future will look different. There will be fewer stores, their role will change, online will continue to grow and the lines between digital and physical will be increasingly irrelevant.
But upping investment, restructuring, cost increases and a market growing slowly (at best) comes at a cost. Industry profitability is falling with average net profit around 2.5%, down from 4% over the last five years.
While there is no silver bullet to a successful industry transformation, something’s got to give. It’s a situation that those in power are only beginning to grapple with. Which is why we are calling for a business rates freeze.
Having spent many hours, sought much input and procured lots of expert analysis, I admit I don’t have an all-encompassing solution, but I know it doesn’t lie within the constraints of the business rates system alone.
I also believe an online or sales tax is the wrong answer to the wrong question. It is short-sighted to consider different forms of business taxation in isolation from one another or retail in isolation to other industries.
In retail it is increasingly difficult to distinguish between an online and physical sale and we know retailers are increasingly adopting multichannel operations.
Rates apply to everyone operating commercial property, so why would the industry with the biggest sales numbers and the smallest profit numbers want to tax that biggest number? Implementing a sales tax would mean an industry that already pays more than its fair share would pay even more.
“The journey to a modern business taxation system won’t be quick or easy, but action cannot wait”
A two-year business rates freeze would provide some short-term relief and allow time for government to recognise the only way to resolve the business rates conundrum is look across the whole business taxation system – to decide what this system should look like for commerce in the 21st century.
But the journey to a modern business taxation system won’t be quick or easy, and action cannot wait.
As we try to nudge towards toward it, we must seize every opportunity to erode the burden of rates. With the current industry backdrop and media profile, I see such an opportunity now. An opportunity that on the face of it looks small, but would still be worth hundreds of millions to the industry.
Someone once said to me, “carpe diem”. The bigger the chorus of the call for a freeze, the higher the chance of success.