Business rate hits struggling UK High Streets hardest leading to more closures

Finding a new retailer for a prime spot in Blackpool town centre used to be easy.

In the 1980s and 1990s, firms would have been fighting over the keys to 18-22 Victoria Street, a large, modern two-storey unit directly opposite the shopping centre. Not any more.

Until last month, the property had been rented to Topshop and Topman. But their owner, Sir Philip Green’s Arcadia group, walked away when the lease came up for renewal. His shops have been struggling to keep up with the competition, and dozens, up and down the country, are being closed.

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“We are having difficulty attracting any interest, never mind a national retailer,” says Paul Moran, a ratings surveyor whose company, Mason Owen, is tasked with finding a new tenant.

Business rates, he says, were a factor in Arcadia’s decision to pull out, and they’re now a big barrier to someone else moving in.

“The first thing tenants look at are their outgoings. And when they see the rates bill, they will be put off by that. Normally you’d expect to be paying 50% of your rent in rates, but the rates bill in this shop is dramatically higher than that.”

With retail in turmoil, pressure is growing for change. So what are business rates and why are they a problem?

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Business rates are a kind of council tax for commercial property. All sorts of premises have to pay them, from offices, warehouses and pubs, to power plants, train stations and shops.

Bills are worked out based on the government’s estimate of how much the property would cost to rent on the open market. Businesses have to pay the tax regardless of whether the space makes any profit or not.

As a rule of thumb, your business rates bill is now typically half of your rent. That’s a big financial burden in itself for retailers with lots of shops. But many of our national chains aren’t even being charged the right amount to begin with. They’re paying millions of pounds more in rates than their rents would imply.

Properties get revalued every few years by the government to make sure the occupiers are paying the correct sums. Some bills go up and some go down. The last revaluation was in 2017.

For towns like Blackpool, this should have been good news because retail rents had collapsed. Their business rates bills should have dived as a result, bringing some relief to a town grappling with too many empty shops and years of government austerity.

But here’s the problem. Changes in bills, both up and down, are phased in gradually over several years to help businesses adjust. It’s like a shock absorber, and it’s called “transitional relief”.

The system is good news if your bills are going up, but not so good if you’re in a property due a big reduction. It’s a bit like being told you’re due a tax cut, but your bill will only be cut incrementally over five years, and you may never get the full reduction.

It works like this because the government wants to make sure it receives the same amount in business rates in real terms, or adjusting for inflation, each year. So rate rises and decreases must balance. This is an England-only policy.

And it’s the largest stores occupied by big chains that are the most affected. Blackpool’s 18-22 Victoria Street is a good example.

Source: BBC News

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