Q&A
WHAT IS HAPPENING ON OUR HIGH STREETS?
In short, a bloodbath. Nearly 6,000 shops went bust last year. And with every one that goes under, multiple jobs are lost. A total of 50,000 were axed in the first half of this year as high street chains and small shops went to the wall. According to one prediction, more than half a million could go by 2022. The collapse in retail is ripping the heart out of communities. WHY? High street shops have been hit by a triple whammy. Fewer people are buying goods, preferring instead to them over the internet. Firms have also been hit by rises in the minimum wage which hit £7.83 an hour this year.
But the issue shop owners and retail executives complain most bitterly about is business rates. Waterstones boss James Daunt said the rates were ‘hollowing out’ the high street.
WHAT ARE BUSINESS RATES?
They were introduced almost 450 years ago to fund local services for the destitute. But critics argue an ancient tax make no sense in the 21st century. They are set by the Valuation Office Agency, a quango linked to Her Majesty’s Revenue and Customs, and are charged on most ‘non-domestic’ properties including shops, offices, pubs, warehouses and factories. The money mainly goes to councils to pay for local services. Rates are even paid on cash machines which face out on to the streets. Unsurprisingly, their numbers are plummeting.
HOW ARE RATES CALCULATED?
They are drawn up using the notional rental value of the property and a multiplier – in 2018/19 set at 49.3p in the pound, or 48p for small businesses with a rateable value of £18,000 (rising to £25,500 in Greater London). The multiplier rises every year with retail price inflation. For example, a property with a rateable value of £26,000 a year would pay £12,818. Around half a million firms saw their rates rise following last year’s revaluation, some by up to 300 per cent.
WHY ARE THEY SO UNFAIR?
Several reasons. Critics say taxes on property are crude, higher than in other developed countries and, unlike corporation tax, they do not differentiate between firms which are profitable and unprofitable. At the heart of their unfairness is the fact that a tax based on property values will always penalise the high street. Firms based in traditionally more exclusive locations pay much more. Huge out-of-town warehouses in undesirable locations are much cheaper and online firms such as Ocado and Amazon – the vastly profitable American giant which is notorious for taxavoidance – pay much less.
CAN’T BUSINESSES APPEAL?
Appealing against unfair valuations can be almost impossible. The system is incredibly difficult to negotiate due to high fees and lots of technical requirements. Firms can even get fines if they make a mistake or submit incorrect details in their appeal.
Appeals under the new system reached only 12,840 in the first nine months of last year, compared with 169,300 during the first full year of the previous regime.
WHAT IS THE ANSWER?
Reform. There are any number of ways the business rates system could be reformed to take the pressure off the high street and start taxing online businesses more. There could be a greater use of relief schemes – which can exempt swathes of small firms from paying rates altogether.
Business rates are the Treasury’s ninth biggest revenue raiser, hauling in an estimated £30.8 billion this year, a figure which rises by about £1 billion a year. But critics say this is counterproductive when firms are going to the wall.