High Streets Initiative · 13 September 2017

Business rates hike could lead to “tsunami” of high street closures

Great Yarmouth, Norfolk, England - June 8, 2016: A few people passing a row of empty shops in King Street, in Great Yarmouth, Norfolk, eastern England, on a sunny spring day. Great Yarmouth’s fortunes have deteriorated over recent decades and many shops have closed. The tourist industry has also declined, as well as its fishing and North Sea gas and oil industries.
One in ten shop units are currently vacant on Britain’s high streets, a number experts warn could rise

Independent retailers are braced for a £280m business rates hike in April 2018 after the UK’s inflation rate continued to rise in August, and experts have urged government to rethink its calculations or face a wave of high street closures.

The retail price index (RPI), the formula currently used by government to control business rates, rose to 3.9 per cent in August 2017 and is expected to surpass four per cent by September. September’s RPI will determine the business rates uplift for April 2018.

According to the British Retail Consortium, the steady rise in inflation will push up “already onerous” business rates bills for high street retailers by £280m.

Commenting on the significance of the likely spike in business rates bills, Tom Ironside, director of business regulation at the BRC, warned the latest inflation readings painted a stark picture for independent retailers.

“Retailers are staring down the barrel of a hefty £280m hike in their business rates bills from next Spring,” he said in a statement.

“It is highly questionable whether communities across the UK can afford a spike in business rates of this scale and any resulting loss of commercial investment will contribute to fewer shops and fewer jobs.

With almost one in ten shop units currently vacant on Britain’s high streets, Ironside warned the growing issue would severely limit the chance for economically-vulnerable communities to thrive.

The Department for Communites and Local Government (DCLG) provided examples of he impact in key UK cities as per the RPI.

The impact in key UK cities of the predicted inflation figure

Local Authority Area Estimated increase in business rates for retailers caused by four per cent RPI increase 1 April 2018 Estimated total amount retailers will pay in business rates 2018-19
Birmingham £4,101,822 £106,647,377
Liverpool £1,961,959 £51,010,927
Manchester £3,302,386 £85,862,049

Ironside warned that the growing issue of empty store units – one in ten shops are currently vacant on Britain’s high streets – would severely limit the chance for economically-vulnerable communities to thrive.

“With the economy slowing, consumer spending facing headwinds and retailers responding to profound changes in shopping habits, the prospect of a further investment-sapping tax rise of this magnitude is deeply worrying and will only serve to make life tougher for high streets.

“Government should knock on the head any notion of a bumper rise in rates next Spring and work with the retail industry and business to put the rates system on a more affordable and sustainable footing. This would increase retailers’ confidence about investing in new or refurbished shop premises.”

Responding to the latest inflation figure, Mark Rigby, chief executive of specialist business rents agency CVS, told Business Advice that the subsequent business rates hike could lead to a “tsunami” of high street store closures.

“Retailers are experiencing higher operational costs through increases to both the National Living and Minimum Wage, the introduction of the Apprenticeship Levy and higher business rates bills overall of 3.8 per cent.

“It does beg the question; how much more are businesses expected to take?”

Business rates calculation under fire

The government’s use of the RPI to calculate business rates has been the subject of recent criticism, from both statisticians and business rates experts, as it is said to unfairly represent how prices change in Britain.

Jonathan Atow, director general at the Office for National Statistics (ONS), called it a “flawed measure…with serious shortcomings”. Atow said the consumer price index (CPI), the model used by the ONS, represented a more “comprehensive” picture of the economy.

Britain’s Statistics Authority also declared in 2013 that the calculation of RPI did not meet international standards, and the model has since ceased being an official statistic.

Currently, the RPI sits at least 70 points higher than the headline CPI rate. The CPI is calculated through consumer measures such as housing costs.

Analysis from CVS suggested owners of small firms could be hit with an additional £781m in business rates bills due to the RPI’s unfavourable rates.

However, the Treasury has reitereated its plan to wait until 2020 before moving business rates indexation to the CPI.

Rigby has continued to push for an earlier switch to the CPI, and told us: “When I met with the secretary of state [for communities and local government], Sajid Javid, ahead of the Spring budget, I urged him to accelerate the switch from RPI to CPI and to implement that change from April this year.”

Find out the business rates loopholes your small company should know

This article is part of a wider campaign called the High Streets Initiative, a new section of Business Advice championing independent and small retailers by identifying the issues that put Britain’s high streets under pressure. Visit our High Streets Initiative section to find out more.

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ABOUT THE EXPERT

Simon Caldwell is a reporter for Business Advice. He has a BA in politics and communications from the University of Liverpool, and previously worked as a content editor in the ecommerce industry.

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