The British Retail Consortium is calling on the Government to freeze business rates in 2009. What are the chances of it doing so, asks Nick Hughes

For a Government that considers itself a friend to small business owners, Labour is hardly looking out for its retail mates.

No sooner had Gordon Brown announced plans to offer employers financial incentives to recruit new staff, than his party pressed ahead with its Business Rates Supplements Bill and proposals to raise business rates by 5% in April.

The Bill, which had its second reading on Monday, will give local authorities the power to impose an additional tax on businesses on top of their existing rates.

Throw into the mix business rates revaluation and the loss of empty property tax relief, and it’s an attack that the British Retail Consortium says could add a punishing £1.6bn in rates to an already beleaguered retail sector.

“Many retailers are struggling with the triple whammy of falling sales, crushed margins and rising costs,” says Stephen Robertson, BRC director general. “We don’t expect handouts, but we don’t want further handicaps.”

Retail, of course, is especially exposed to business rates as it is a property-intensive sector where location is crucial to attracting customers and rental costs are high.

“Business rates are a £20bn tax that falls disproportionately on the retail sector,” says Lucy Neville-Rolfe, corporate affairs director at Tesco. “Because it is a charge on property, retail pays 27% of the tax, even though it makes up only 11% of businesses.”

Typically, business rates increase in line with the previous September’s Retail Price Index inflation rate. Last September, the RPI stood at 5% – a 17-year high. This rate is “unrepresentative” of the market, claims the BRC, pointing out that in the past quarter RPI has fallen sharply, with some forecasters even predicting deflation for 2009.

Should the 5% increase be imposed, it would equate to an extra £250m in costs for retailers in 2009. The BRC has joined its members, including Tesco, in calling on the Government to freeze rates in 2009 to avert further insolvencies and job losses.

The reasoning behind it all
Although the multiples, with their vast property portfolios, will foot the majority of grocers’ share of the costs, it’s the embattled independent retailers that will feel any increase the most.

Controversially, the Bill will give councils the power to levy an additional two pence in the pound from local businesses to pay for improvements to the local infrastructure, which the Government claims will ultimately benefit all concerned.

Shop owners disagree, claiming the costs will have to be offset elsewhere, such as by cutting back on hiring new staff, and result in more shops being forced to close.

“What chance do small businesses stand when we have a Government that acknowledges us as the lifeblood of the economy, while doing everything it can to strangle us,” asks independent store owner Jonathan James.

The Association of Convenience Stores claims many indies will be forced to fund projects that have no benefit to them, adding that the burden of business rates threatens to make the grave situation facing local shops even worse.

“We’ve always been opposed to the principle,” says ACS chief executive James Lowman who, prior to last autumn’s pre-Budget report, wrote to Chancellor Alistair Darling asking him to freeze rates during the current economic climate. “It’s all very well saying the revenue will go towards improving services and infrastructure that will benefit businesses, but there are no proposals that will benefit all businesses. Things such as town centre improvements are all very well if you’re in the town centre, but most independents aren’t. Road improvements won’t benefit members either.”

The Government’s Crossrail project to develop railway links across the capital would be the first beneficiary of revenue generated from business supplements in London and the South East, but the strategy of making businesses fund it, especially in the current economic climate, has met with criticism.

“Plans for Crossrail were developed in times when the economic environment was more favourable,” says Tom Ironside, policy executive at the BRC. “Coming back and asking for funding now puts businesses in a difficult position.” 

Revaluation of rates
The biggest cost to retailers is business rates revaluation, which is expected to add an extra £900m to retailers’ rates in 2010/11. The revaluation is based on market rates as of 1 April 2008, but this was “the peak of the market”, according to the ACS, which supports the BRC’s campaign for the Government to postpone revaluation until the property market has stabilised.

There have also been calls to re-establish empty property rate relief of 50%, abolished by the Government in April 2008. As things stand, the full business rate has to be paid after a commercial property has been empty for three months, adding an extra £115m to retailers’ costs.

“Sadly we have seen a number of retail failures in recent weeks,” says Neville-Rolfe. “Government could help to head off more by reducing the burden of business rates on retailers. It could scrap the 5% increase scheduled for this year and postpone the revaluation in 2010.”

But the prospect of a Government u-turn on any of the proposals, however, looks slim.

“We haven’t received any positive indication that the Government is going to do this,” adds Ironside.

Giving with one hand...
Lowman believes that by pushing ahead, the Government is complicit in damaging the very businesses it claims to be helping.

“We’re not in the business of scaremongering, but these are hard cash increases on the bottom line. You can’t mitigate in any way for them. We’ve had longstanding problems with business closures in our sector. The Government says it’s trying to help, but the VAT cut made no change – whereas freezing business rates would.”

The business rate proposals are self-defeating and will simply send more convenience store operators to the wall, adds James.

“We’re paying significant business rates anyway. All these rises mean is that what the Government gains from businesses that are able to continue, it loses from businesses that go under because they can’t pay rates.”

The added threat of job losses makes the latest incentives package seem even more inconsequential.

“We [retailers] are one of the largest employers,” says James. “Whenever you get a cost rise that you can do nothing about, something has to give. I can’t put my prices up, because if I’m uncompetitive I can’t survive. I’m not going to make anyone redundant but the likelihood is that if a member of staff leaves I won’t replace them.”