Are business rates changes to blame for the struggles of our high streets?
PUBLISHED: 08:50 13 June 2018 | UPDATED: 08:54 13 June 2018
Archant Norfolk © 2016
Pubs are struggling and a different major retailer seems to be announcing store closures each week. A supermarket boss has pointed the finger at business rates - but have changes made last year really had a destructive impact? Doug Faulkner reports.
The values by which business rates are calculated changed for the first time in seven years in 2017 – leading to fears those facing increases would struggle.
Now, after a series of high-profile business failures and restructures, including the likes of Toys R Us, New Look and House of Fraser, business leaders have once again blamed rates for the high street pain.
But is this a fair reflection of what has happened?
The revaluation of business rates took place in 2016 and businesses were given a year to appeal against changes before they came into effect on April 1, 2017.
When the new rates were calculated many trade bodies and business leaders raised concerns about the impact of the changes, fearing rises were another blow to high street companies in difficult times when other costs such as minimum wage were on the up.
Last week, Tesco chief executive Dave Lewis suggested the current rates regime had created an “uneven playing field” that was putting traditional retailers at a punitive disadvantage.
With a business rates bill of more than £700m a year, he said a balance needed to be struck between the digital and traditional worlds of retail.
He has not been alone. Sainsbury’s boss Mike Coupe described the system as “archaic” last year, while restaurant chain Carluccio’s blamed rates, rents and food prices for its company voluntary arrangement (CVA) – a restructuring process – last month.
Jackie Crisp, partner at Norwich property experts Roche Chartered Surveyors, said business rates had had a huge impact on retail in particular but the sector was also being affected by the planning system and tax issues for online competitors.
“Business rates are something which are causing tremendous difficulties in the retail sector but they are just part of a whole range of issues,” she said.
“I think town centres are going to contract because of big names such as Marks and Spencer looking to move out and leaving big holes in the high street, especially in market towns.”
Discretionary relief has played an important role for many businesses and councils have been able to hand out discounts totalling around £9m across Norfolk, Suffolk and Essex.
But Mrs Crisp said, as a general rule, this would only support those at the smaller end of the scale.
Nick Dunn, partner at regional estate agency Brown and Co, said while there had been plenty of concerns before the revaluation came into force it did not seem to have had the impact many predicted.
He said: “It wasn’t as bad as we feared and in many cases rates stayed the same but there were some examples where you had big winners and those who had lost out.
“There are some notable hotspots like Southwold and Burnham Market which saw some fairly hefty increases.
“Has it had a big impact on the market? The answer is probably not.
“We have not had a lot of people come to us and say the rateable value is an issue and it is too expensive. It doesn’t seem to have slowed down the market at all.”
Mr Dunn said his firm had appealed a number of valuations which it believed were based on faulty information but due to the length of the process was still waiting for resolutions a year on.
“This could be a cashflow issue for a small business,” he said.
Chancellor Philip Hammond listened to businesses by agreeing to bring forward the next revaluation at his Spring Statement and had previously placed a cap on the increase businesses coming out of small business rate relief could pay.
He also handed out a £300m pot for discretionary relief which was passed on to local councils to distribute to businesses within their area.
Mr Hammond also stepped forward to close the gap between online retail giants by introducing legislation to make companies pay royalties on any UK sales regardless of where the payer is located from 2019.
Impact on pubs
The pub and hospitality industry has been one of the hardest hit by business rates traditionally, because turnover counts towards rateable value.
However, a Norwich publican said the sector had become used to the high rates and was not suffering as much as the high street.
Victoria MacDonald, who runs the Cellar House in Eaton, Old Ram in Tivetshall St Mary, White Lodge in South Norfolk and The Buck Inn in Thorpe St Andrew, said while business rates could be tipping some businesses over the edge, many pubs had become used to them.
She said: “The issue for pubs is that we are already paying disproportionate rates compared to other businesses so we already pay a high rate and have not been hit as hard as retail for example. The £1,000 relief for pubs is something but it doesn’t help if your rates are £100,000. With increases in minimum wage and food prices that we have to manage business rates could tip some pubs over the edge.”
Impact on small retailers
Rate relief has proved vital for businesses in a coastal town known for its independent stores, according to a business owner.
Rebecca Bishop, who runs bakery and cafe Two Magpies in Southwold, said business rates were one of several factors which had combined to make it a tough environment.
She said: “In Southwold we have managed to negotiate a local discount from Waveney District Council which has made a massive difference.
“If that was to go a lot of small businesses would be in trouble.”
Many businesses on the high street in Southwold had faced their rates doubling at the most recent revaluation after property prices were pushed up by larger chains moving into areas.
Ms Bishop said with shoppers spending more online it was becoming increasingly hard for small retailers to compete with fewer customers heading to the high street.
How have councils tackled rates?
Most councils in Norfolk, Suffolk and Essex which responded to this newspaper’s request had seen a reduction in the amount of business rates they had collected this year compared to before the revaluation.
Norfolk’s Broadland District Council collected £30.7m in the year before the revaluation compared to £30.2m the year after, while in Essex Braintree District Council collected £42.06m in 2017/18 compared to £42.51m the year before.
Both also saw increases in the amount of discretionary rate relief they handed out to businesses.
Tendring District Council said it had seen a drop of around £70,000 in collected rates since the revaluation, to £26.65m. Zoe Fairley, Tendring District Council cabinet member for investment and growth, said the business rate changes had been a mixed bag for the area with small businesses tending to come off better than their larger counterparts.