Will the business rates cap at end of June harm retail revival?

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The Government must re-consider the £2m cap it is proposing to place on business rates relief, for the beleaguered retail sector when their three months business rates holiday ends at the end of June says John Webber, Head of Business Rates at  Colliers, or the systemic loss of stores and jobs in the sector will just continue.

This will become even more pertinent since the moratorium on retail evictions is also to be lifted on June 30th putting further pressure on the sector at a crucial time.

When the Chancellor announced in the Budget that the last year’s 100% business rates holiday for the retail and hospitality sector would be extended three months to the end of June 2021, he said rates bills afterwards would be discounted for the remaining nine months of the financial year by two thirds, up to the value of £2m for closed businesses.

Research by Colliers has revealed that this means many large and medium sized retailers will be hit with hefty rates bills from July 1st. We investigated what amounts retailers will actually be paying.

 

Company Business Rates

Liability (approx)

(2021/2)

Liability After

3 Months’ Relief

(01/07/21 to 31/03 /22

Potential value of

66% discount

on remaining liability

Cap  

Actual

% Discount

Next £114 m £86m £57m £2million 2.33%
 

Fraser Group

£70 m £52 m £34m £2 million  

3.83%

 
Primark £55 m £42m £27 m £2 million 4.81%
H&M £48 m £39m £24m £2 million 5.53%
Halfords £46 m £34m £23m £2 million 5.84%  
John Lewis £45 m £33 m £22m £2 million 5.99%  
River Island £27m £20 m £13m £2 million 9.81%  
Zara £23m £17m £11m £2 million 11.65%
Clarks Shoes £19 m £14m £9m £2 million 13.91%  
Monsoon Accessorize £14m £10m £7m £2 million  

19.52%

Body Shop £8m £6m £4m £2 million 34.28%  
 

The table above looks at a handful of household retail names and assesses their total yearly bill, what they have left to pay after the three months extended holiday- i.e.  from July 1st onwards, what sort of saving a 66% reduction would have meant if granted without a cap and what percentage of discount retailers will actually receive with the cap in place.

Our estimates show that none of the chains below get anywhere near receiving a 66% discount on their remaining nine months rates bills and for John Lewis, Halfords, H&M, Primark, Fraser Group and Next the discount is less than 6% to the end of the year. Fraser Group will see a measly 3.8% discount on its £52m nine months rates bill, Next 2.33% on its £86m nine months bill. No wonder Fraser Group said, the £2m rates cap “makes it a near worthless support package for large retailers”, and warned it would need to review its entire portfolio to “ascertain stores that are unviable due to unrealistic business rates.”

As John Webber of Colliers says: “The cap is a sleight of hand. Retailers were pleased that they received an extension to their business rates holiday- but many are only just waking up to the fact that the cap is on each business, not each store and therefore really limits what most businesses with multiple stores can expect for the rest of the year. 66% relief sounds great – but if your total rates bill is over £50m for the next 9 months and you only receive £2m towards this, it’s a drop in the ocean. It certainly won’t be significant enough to make you change your strategy concerning any store closures or redundancies or shifting your business further on-line.”

Retailers in some areas will be seeing particularly high rate bills come July given their current bills are still tied to rents in 2015, given the lack of a Ratings Revaluation since 2017. Bills are thus out of step with the market and in some places will be higher than rents, given the rent reductions retailers have been able to negotiate with landlords during the pandemic.

The situation for retailers has been made even worse by the Government’s announcement in March that it would legislate that MCC appeals for businesses impacted by Covid-19 would not be valid for the appeal system- a move that has been heavily criticised by the profession. “It’s a double hit for retailers- first the cap on their relief and then the chance to appeal against their rates bills taken away,” said Webber.

“Latest figures from Local Data Company reveal that more than 17,500 chain outlets disappeared last year, the worst decline on record. Nearly 190,000 retail jobs have been lost. The business rates burden — for many, due to return in July — will be a factor in whether businesses survive,” continued Webber.

Colliers has campaigned for a longer 100% rates holiday. “We feel three months is not enough, given the pressure many in the sector have been through and certainly not enough time to return to normal levels of trading. Any delay to the full lifting of restrictions on June 21st will add to the pressures on those in the sector. We recommended a six months rates holiday at the least. Those who did not need to take the holiday (such as many of the larger supermarkets), would not need to.”

In Scotland a 12 months holiday was granted.

“With one month to go we urge the Chancellor to re-think his strategy, as soon as possible,” says Webber.

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