Since the recession started back in 2008, a number of retailers have gone out of business leaving a large proportion of UK high streets with empty shop fronts. One of the main reasons retailers struggled during the recession was because people started spending less money as the cost of living increased and wages remained stagnant, however this isn’t the only reason. All retailers based in the UK have to cover the costs of outgoings including rent on their premises, shop insurance and business rates, which is why they have called on the government to abolish the latter.

Business rates apply to all non-domestic properties including shops, pubs and offices, however recently the Business, Innovation and Skills (BIS) committee put forward a proposal to scrap business rates and introduce a tax on sales instead. This would mean that retailers who are struggling with a lack of sales would not have to continue to pay business rates and would therefore have more chance of staying in business. In their proposal the BIS stated: “Removing these properties from the financial and administrative burden of business rates would have a hugely positive effect, with the cost to the public purse outweighed by the boost to enterprise and the substantial efficiency savings that the exemption would bring.”

Unfortunately, the government rejected the proposal and claimed that as we already have a tax on sales system in place with VAT, adding another would be too complicated. In a statement the government said: “The UK has a sales tax in the form of VAT. Introducing a new sales tax alongside VAT would be double taxation which the Government wishes to avoid. Reforming the basis of business rates would be a significant undertaking. Creating a new tax based on sales is likely to be much more administratively complex and to have higher costs than the current system. Furthermore the Government believes that taxes on property are less distortive and less harmful for growth than other taxes.”

Retailers are disappointed with the fact that the government stated there would not be a reform on business rates until 2017 which will put a strain on businesses over the next few years. Jerry Schurder, head of rating at business rates expert Gerald Eve, said: “With any changes deferred until after the 2017 revaluation, business rates have effectively been kicked into the long grass, which will be a concern to struggling retailers who need to see reform sooner rather than later.” Meanwhile, Ion Fletcher, director of policy at the British Property Federation, said: “We urge the Government to take note of our suggestions, as we fear that lack of reform could have damaging consequences for the property industry and economy as a whole.”

Helen Dickinson, director general of the British Retail Consortium (BRC) also commented on the government’s decision, and said: “Earlier this year the BIS Select Committee joined us in highlighting how Business Rates represent the principal threat to the survival of retail businesses and that fundamental reform was needed. We are pleased at today’s acknowledgement of the need for reform. At the same time, there is a strong case to go further than the potential measures outlined in Government’s business rates Administration Review and the accompanying short term reliefs announced in the Autumn Statement.”

The government and the BRC also clashed when it came to the success of schemes already in place to help the UK’s retail sector, such as Portas Pilot Towns where retail expert Mary Portas worked with the government to improve a number of UK high streets. However, the government have claimed that fifty four per cent of the twenty seven Portas Pilot Towns in the UK have already spent their funding. The government added: “Many pilots are still delivering their work programmes; there was no formal limit to the time in which the pilots had to spend their funding. The Government would rather that the pilots spent the money in the most effective way, than rush spending to meet an arbitrary deadline.”

Even though retailers may be rewarded some reliefs in the Autumn Statement, it is unlikely that they will feel they are enough to protect their businesses. When the reform does come in 2017 it is therefore probable that we will see a hard-line campaign from retailers trying to convince the government to bring in a new system and abolish business rates.

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