The British Retail Consortium (BRC) has warned that failure to fix the flawed business rates Transitional Relief system could cost retailers over £1 billion between 2023 and 2026.
The Transitional Relief is the mechanism by which Government limits how much a retailer’s bill can change each year as a result of business rates revaluation. At revaluation, the Valuation Office Agency (VOA) adjusts the rateable value of business properties to reflect changes in the property market.
The system means that retail is subsidising other sectors, including over £550 million between 2017 and 2020 for government-owned infrastructure. The BRC says it also forces businesses in poorer parts of England, where rents are dropping, to subsidise those in richer areas, where rents are rising.
The Transitional Relief system gradually moves businesses to the correct rate over a period of years. The BRC pointed out that this “contrasts with other business and personal taxes, where those who are overpaying are immediately moved down to the ‘correct’, lower level of tax.”
The most recent revaluation came into effect in England and Wales on April 1, 2017, based on rateable values from April 1, 2015. The next revaluation will come into effect on April 1, 2023, based on rateable values from April 1, 2021.
The BRC has cited two examples of one retailer who is losing out to Transitional Relief. The first is a store in Chorley, Lancashire, that saw a 45% fall in the rateable value from 2010 to 2017, reflecting lower rents. Its business rates bill remained over 50% higher than it should have been in 2017, forcing them to pay £4,300 rather the ‘correct bill’ of £2,800.
The other example was a large store in central Blackpool seeing a 36% fall in the rateable value from 2010 to 2017, reflecting lower rents. The business rates bill for that store remained 44% higher than it should have been in 2017, forcing them to pay £26,000 rather the ‘correct bill’ of £18,000.
Retailers are struggling with rising costs and disrupted supply chains, warned the BRC, and while businesses are trying to limit how much of these costs are passed on to consumers, there is little margin left. It says the money lost to Transitional Relief in 2023-2026 is “yet another burden that must be accounted for, particularly for retailers outside of London, who are worst affected by the scheme”.
Tom Ironside, director of business and regulation at the British Retail Consortium, commented: “The business rates system is damaging our high streets and town centres by directly undermining store viability. The retail industry accounts for 5% of the economy yet is saddled with 25% of the total business rates bill.
“This is directly contributing to the loss of shops and jobs, particularly in many of the parts in the UK in need of ‘levelling up’ and putting additional pressure on prices.”
Said Ironside: “Transitional Relief is a flawed system that could cost retailers over £1bn during the next three years, leaving them with no choice but to close those shops which are most impacted by artificially inflated rates bills. This is money that could be used to help address the cost of living or support the vitality of towns and cities around the UK.
“In the short run, the most impactful change that any new Prime Minister could make to reform business rates, would be to scrap the ‘downwards phasing’ part of Transitional Relief.”