Are Business Rates to Blame for Britain’s Struggling Retailers?

There has been much discussion in the press recently about how Britain’s retailers are struggling to make ends meet, with many placing the blame for this firmly in the hands of the government in the form of the most recent business rates revaluation. More information about the 2017 revaluation can be found in the PDF attachment to this post.

Shopkeepers across the UK have been vocal about the perceived unfairness of their liability for business rates. However, it is unlikely that changes to business rates are the sole reason why so many retailer outlets are failing. Specialist business rates company RVA Surveyors has already helped over 30,000 properties in the UK on a No Reduction No Fee basis.

Changes to Business Rates Distribution

Prior to April 2013, all revenues collected from business rates went into a national pot, which the government then distributed. Since the 1st of April 2013, a new system has begun to be rolled out whereby local authorities retain more of the revenue, up to half of the total. The reasoning for this new system given by the government was that it would provide local authorities with the incentive to increase their own income by promoting new business and growing their local economies.

However, the new scheme has in many cases increased uncertainty and risk for retailers and other businesses. One of the dangers is that some councils may act irresponsibly and view the new system as a way to treat local businesses as cash-cows, particularly where local funding from the government pot has been reduced and is now inadequate.

Retailer Complaints

The complaints about business rates from retailers have been many and varied, with a lot of focus on the ‘unfairness’ of the system. Many have declared the system to be unfair as it penalises businesses for having brick and mortar premises, rather than retailing online. Others have stated that the rates on commercial premises for retailers are excessive, as retail accounts for approximately a quarter of the burden of business rates.

Contributing Factors

While retailers vocalise the unfairness of the excessive system loudly and regularly, very few are talking about the myriad other factors that are also contributing to a decline in retail profits, choosing instead to place the blame solely on the government.

The fact is that the retail sector has been experiencing increasing pressure since the financial crisis of 2008/9. Prior to the crisis, Britain was experiencing a credit boom, with financing for new businesses and properties readily available, as well as financing for the purchase of retail groups through leveraged private equity.

Consumers were also able to access easy lines of credit and spending was up. Since the crisis, however, the fraction of household income spent on shopping has diminished, with many choosing to shop for better deals online. It is evident that the retail market is over capacity, which is why many retailers are now struggling, including some of the larger chains.