It is clear that the retail sector is under pressure, whether it’s because another retailer is heading into administration or the impact of the rapid rise of etail on high streets.
Traditional bricks and mortar retailers, burdened by the high costs of occupying property, are at a disadvantage in this new landscape. Multiples are slashing store portfolios as a result and successful independents are becoming ever more specialised and niche in order to survive. Those that aren’t evolving are facing difficulties – that is the state of the current retail market.
This rapid change is at odds with the revaluation cycle within the business rates system which sees the Rateable Value (used in the calculation of your rates bill) reassessed against the current rental market for all commercial property every five years. Unlike other substantial ‘fixed’ costs such as rent and inventory, where discounts can be negotiated, business rates are hugely inflexible and rise year on year.
Retailers had to stomach a 5.6% uplift in the multiplier in 2012 and are facing a further 2.6% rise in the rates bill in March this year – costs that the BRC and Retail Week are absolutely right to challenge.
With this inflexibility comes certainty, for the Government at least. With the business rates ‘take’ from UK businesses running at £24bn and rates being one of the most dependable sources of tax income, the Chancellor will have to be feeling particularly generous to make any dramatic changes to the system.
Pegging business rates increases to RPI is also hugely advantageous to the Treasury and the industry will have to bring its full force to bear to align the system with the more reasonable and consistent CPI.
There are, however, a number of changes to business rates that can be made to support occupiers, and retailers in particular. The most crucial to stop more businesses going to the wall is reforming the cumbersome and inefficient business rates appeals system.
At the last formal count (March 2012) there were over 240,000 business rates appeals outstanding on the 2010 Rating List. Based on our experience, it takes a minimum of 12 months to process a business rates appeal and in many cases much longer. By direct comparison to the 2005 Rating List, there were 2% fewer appeals lodged in the first two years of the 2010 Rating List and yet there have been 41% less appeals settled.
The current system is simply not working. It is too bureaucratic, both for the applicant and the Valuation Office, and results in businesses paying over the odds for their business rates in very difficult economic conditions. CVS’s estimates are that there are approximately £1.8bn of savings currently held up in the backlog – money that should be returned to businesses and spent creating jobs and generating growth.
As a society we need a healthy retail sector. Changes in consumer patterns can’t be controlled and we all know it’s a case of adapt or die. Nonetheless steps must be taken to give existing retail businesses the support they need. Improving the performance of the business rates appeals system will do this, and crucially there doesn’t need to be a significant change in Government policy to bring it about. It requires cutting back unnecessary bureaucracy and empowering the specialists sitting on both sides of the table to reach agreements swiftly and professionally.
High rates bills and a sluggish appeals process are harming retail businesses large and small. Getting an improved system must be a top priority for Government and we need them to act swiftly for the benefit of retailers across the country. As the UK’s largest business rates specialist representing more than 36,000 clients across the UK we’re adding our voice to Retail Week’s campaign. It’s time to get the system working.
Don Baker is the Chairman of Rating at business rates specialist CVS