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High street retailers’ rates bills “out of touch with reality”

  • Research reveals divergence between rates bills and falling high street sales
  • Bricks-and- mortar retailers effectively subsidising online competitors

High street retailers’ business rates bills have continued to rise despite falling sales, underlining the complete disconnect between the rating system and economic reality, according to the latest data from Gerald Eve.

The data – which compares the growth of business rates revenues and retail sales since 1990, see chart – demonstrates the extent to which rates bills have become divorced from retailers’ trading performance. Rates bills broadly tracked total retail sales growth since 1990 1 , but the two started to diverge in 2008, the year on which the most recent rating revaluation was based and the beginning of the financial crisis.

The impact is particularly pronounced when online income is removed from the sales figures, highlighting the scale of the problem faced by bricks-and- mortar retailers. Government revenue from business rates has risen by 24.2% since 2008, compared to growth in total retail sales (excluding online) of just 8.7% over the same period.

Jerry Schurder, head of business rates at Gerald Eve, said: “What this data demonstrates, above all, is how out of touch with reality the rating system is, with bills for high street retailers continuing their inexorable rise despite the economic reality of falling sales. Depressingly, last year was the first this decade when sales from retail properties fell in cash terms, by 2.2%, yet Government rates revenues continued to grow, rising 2%.

“Having revaluations so far apart, when relatively minor reform could greatly increase their frequency, perhaps even to an annual basis, simply entrenches these divergences for significant periods and makes the system unresponsive to changing economic conditions.

“Retailers have plenty of other concerns to address, without having to deal with the disproportionately high bills created by a flawed rating system and a Government that is apparently content to treat the sector as a milch cow to be exploited.”

Subsidising competitors

Due to the structure of the rating system – whereby total revenues are fixed and the redistribution of the burden is only determined by a full revaluation – the disparity between rising bills and falling high street sales means that bricks-and- mortar retailers are effectively subsidising the business rates burden of the online retailers they are competing against.

Jerry Schurder added: “It is one thing for bricks-and- mortar retailers to have to compete for sales with their internet-only cousins, but it is quite another to impose disproportionate operational costs on them, in effect subsidising the very companies they are competing against.

“More frequent revaluations would go some way towards addressing this inequity, but the issue cannot be resolved fully without the Government accepting that there is no justification for the business rate to be the only tax where the total take remains fixed in real terms. It is a tax based on property values and if retailers’ rents fall because of declining affordability, then their rates bills should reduce proportionately.”

1 1990 was the year that the modern business rates system was created, with the introduction of the uniform business rate (UBR) and five-yearly revaluations.

Key Team

Jerry Schurder
Head of Business Rates