Comment: There must be a fairer way of setting business rates for retailers

3 Comments

Given the current state of the market, some of Britain’s leading retailers have called on the government to freeze business rates next year – and can you blame them?

When you think about it, it’s really no wonder that companies are up in arms, since they are being asked to pay business rates that have been set according to historical (which is just a nice word for ‘outdated’) data.

As a result, retailers now face a £175m business rates bill next year, based on the fact that the Retail Prices Index (RPI) measure of inflation rose 2.6% in September.

This burden will be especially hard for retailers to bear as it follows two consecutive years of substantial increases. Struggling retailers were already hurt by a £350m increase in business rates in April 2012, after the RPI figure hit 5.6 per cent in September 2011. That followed a £200m to £250m increase in April 2011, which means that retailers’ rates bills have risen by more than £500m over the past two years.

Against this backdrop, it seems incredibly unfair that the annual increase in business rates, due in the spring, will be determined by these figures announced today.

Retail revenues have been dropping significantly, in terms of both margin and volume, and now retailers are being asked to pay business rates that are based on a trading environment that no longer exists.

As a result, businesses are left with a choice between raising prices (which is simply not an option for most, as today’s consumers will simply not have the stomach for it) or taking it on the chin. But how many more hits can retailers’ chins really take?

Businesses in this sector are currently getting it from all sides: property costs and commodity prices are going up just as consumer spending is going down, creating a perfect storm that is bad news for retailers. However, while some of these other factors are uncontrollable, business rates are not. They are set by committee and could – or rather should – be controlled more effectively.

However, that doesn’t mean that putting business rates on hold is necessarily the answer either. Whilst a total freeze on rates would be a coup for retailers, it may not be realistic, as that scenario would mean that there is only one ‘winner’.

Instead, retailers need to work together, en masse and in volume, with the Government to develop a fairer way of calculating business rates, so that both sides can feel as if they have won.

A short-term solution could be a switch from RPI to the Consumer Prices Index (CPI) when setting rates, but even this model would rely upon data which, by definition, is out of date.

What is really needed is a way of smoothing out the disparity between historical data and the current trading environment in order to find the “fairer and more sustainable formula” that UK retailers are demanding.