As it emerged that regional airline Flybe was in trouble, ministers scrambled into action to keep the business flying.
No fewer than three members of the Cabinet – chancellor Sajid Javid, transport secretary Grant Shapps and business secretary Andrea Leadsom – combined to put together a rescue deal understood to include the deferral of tax payments worth around £100m and a review of air passenger duties on domestic flights.
Retailers would be forgiven for reacting with bemusement and anger to the rapid response to Flybe’s woes. Aid was provided, PDQ.
If only the same energy and focus was devoted to one of their own tax burdens, business rates, which is a structural challenge rather than a one-off problem affecting a single company.
Retailers might have looked quizzically too at the reasons given for the Flybe assistance. Shapps, according to the BBC, said: “The actions we have taken will support and enhance regional connectivity across the UK, so local communities have the domestic transport connections they rely on.”
Swap that around a little and it sounds very like retail – vital to local communities, part and parcel of town centres almost as much as infrastructure, an industry that connects consumers to life’s essentials and luxuries alike, and nationwide store and fulfilment networks ensure nowhere is neglected, from Dover to the Isle of Lewis.
Crushing pressure
But retail’s pleas for business rates reform have been ignored. While there have been improvements to a broken system that have helped small businesses, the big chains have had no respite.
In the final quarter of last year alone, the number of retail jobs was 36,000 down year on year according to the BRC – that’s 18 times as many as the number at risk at Flybe. Over the course of 2019, the Centre for Retail Research calculated, more than 140,000 retail jobs were lost as company collapses and store closures took their toll. Altogether, 16,000 shops were shut.
“It’s not the role of government to bail out failed businesses. It is its role to create the environment for business and economic success”
Retailers pay 25% of the total raised through business rates, a hugely disproportionate sum considering it accounts for 5% of the economy. Over recent weeks, retailers have time and again drawn attention to the crushing pressure.
Shoe Zone chief executive Anthony Smith said in the retailer’s annual results statement last week: “Over the past 10 years, the rates paid as a proportion of our rent has increased from 26.4% in 2009 to 54.3% in 2019. Despite rationalising our store estate, the value of rates paid has increased by £700k despite having 38% fewer stores and 30% lower sales.”
This week, Mike Ashley’s Frasers Group business wrote to Boris Johnson arguing for changes to transitional relief rules, which stop rates falling in line with rent.
Broken model
Many argue it is not the business of government to provide life support for companies that can’t pay their way. Tax is a fact of life, and a business that can’t pay its taxes probably faces fundamental problems. Willie Walsh, boss of British Airways owner IAG, said in a letter to Shapps that the Flybe intervention was a “blatant misuse of public funds”.
Many might agree with him, but that point actually hammers home the big difference between retailers’ calls for rates reform and the Flybe situation. Nobody is arguing in favour of saving particular retailers that have lost resonance with shoppers. When famous names such as Debenhams or Mothercare’s UK operations fell into administration, it was accepted they had failed to compete or adapt to changing shopping habits.
While it’s not the role of government to bail out failed businesses, it is its role to create the environment for business and economic success.
The new administration plans yet another review of the business rates system and this time the promise is that it will be “fundamental”.
Retailers should deluge the policymakers with the evidence that the existing model is well and truly broken. If the government can act to help a single troubled business such as Flybe, why on earth should it not take the necessary action on rates that would lead to more successes, not failures.
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