Ahead of today’s budget, UK retailers call for business rate reforms
Recently, business leaders have requested the new Chancellor ahead of his first budget calling for a number of reforms to business rates. They include representatives from organisations such as the British Retail Consortium, the British Chambers of Commerce and the Association of Convenience stores.
The fact that the retail sector accounts for 5% of the economy but pays about 10% of all business taxes and 25% of all business rates highlights a huge disparity that is gravely harming high streets and hurting the communities they support.
The system was designed for a time when there was only bricks-and-mortar retail, and people conducted business from physical premises; a concept that has long since changed with the advent and exponential growth of online shopping. Online giants such as Amazon and eBay have been paving the way for a new kind of retail shopping over the last few years that physical stores and high streets are struggling to keep up with. When UK retailers, including Marks & Spencer, Harrods, Iceland and more than 50 others, are demanding tax cuts from the government to safeguard the future of the high street against intense pressure from online rivals, it becomes clear that there is a problem needing to be addressed.
Bricks-and-mortar retailers have faced strong competition from online rivals in recent years, with the proportion of goods bought online rising to roughly one-fifth of all sales. Online retailers are more likely to experience lower taxes as they occupy less physical space. Amazon pays £63.4m in business rates, a figure that is almost £40m less than Next, despite making up more than double the sales in the UK.
In a sign of the gradual decline of town centres and high streets across the country, vacancy rates on the high street have risen to 10.3%, the highest they have been since January 2015. Average sales figures over the past 12 months have also dropped to the lowest on record. Total sales increased by 0.3% in July, compared with a rise of 1.6% in July last year according to British Retail Consortium sales data.
As River Island Chairman Clive Lewis told the Guardian last year: “The burden that rates places on all high street businesses not only stifles growth but is a major contributor to the closure of stores and the resulting decline in towns across the country.”
In addition to online retailers, transitional relief is having a major impact on larger retailers although there has been a push for this to be scrapped completely.
Is there anything else that can be done to help retailers? Numerous major retailers such as Tesco, Asda and Boots have proposed a 2% online sales tax that would aid in funding a cut in business rates for shops, whilst Mike Ashley has argued that retailers with more than 20% of their sales online should pay a 20% tax on digital sales.
We’ll be watching with interest today to see what the response will be to pleas from retailers for the government to reform what they see as the “broken rates system which is drastically killing the high street”.