“The Government can no longer stall a business rates reform”

By Martin Davenport, business rates partner at Hartnell Taylor Cook

The saying goes, ‘you can’t teach an old dog new tricks.’ But I disagree.

The retail sector has battled the toughest 12 months in its history, with elongated store closures predated by years of steadily increasing competition from e-commerce. However, it can, and it will, fight back; but the business rates system must stop hindering it from doing so.

The Covid story

The UK Government should of course be praised, as it quickly rolled out vital financial support packages to retailers in March 2020 and throughout the chaotic year that ensued. A critical element of this was the 12-month business rates relief for retail, leisure and hospitality businesses. But now, in early 2021, the situation has changed, and so must the Government’s approach if retail is to stand a fighting chance at survival.

Of course, an extension of this rates relief is necessary (at the time of writing, the UK was eagerly awaiting the Chancellor’s verdict on this in the March Budget). However, extended relief isn’t a silver bullet. The Government must finally reform the business rates system underpinning it.

Calls for such reform are nothing new – most recently, Tesco, B&Q and Next joined the barrage of businesses labelling the current system unsustainable. But now, in the wake of Covid-19’s chaos, it is time for the Government to take some key steps. Doing so will give retail some breathing space to recoup profits post lockdown and allow it to create innovative new stores that entice consumers back.

1. Be more flexible

The rise of experiential retail will be well-known to readers, but are they aware of the business rates system behind the scenes, which is restricting many brands from creating such innovative stores?

In the face of online competition, retailers have long been trying to diversify their offering and incentivise shoppers into stores – imagine in-store hair salons or champagne bars. However, to do so, a retailer must become a ‘mixed-use business’ and adjust their rates accordingly. The process for doing this is known as Check, Challenge and Appeal (CCA); it is time-consuming at best and near on impossible at worst.

The burden of proof lies with the ratepayer and the process of submitting checks is complex and unpredictable. It is tricky for unrepresented ratepayers, as there is a requirement for any business to be registered on the Government gateway before making a challenge (appeal) which takes a long time and discourages applications. You also have only one chance to submit your evidence; any new evidence is very difficult to introduce to the process and is often disregarded. These are just two examples of the lack of flexibility in the CCA, burdening the lives of business owners wishing to regenerate their property. Might it be a reason why so many retailers were struggling to meet the modern shopper’s demands pre-coronavirus?

Now, in a global pandemic, the system is stifling that exact innovation we need to see in the Covid come-back. The Government must haul this bureaucratic process into the 21st century, streamline the system and ensure it is easier for retailers to create inventive in-store experiences.

2. Extend empty rates relief

Three months to find a new tenant is too short. Currently, landlords can only benefit from ‘empty rates relief’ – whereby they pay no business rates when a property isn’t occupied – for three months. However, in the current climate, a mere 12-week window is too narrow for existing tenants and their stock to exit a premise and for new occupiers to then be found.

Take a moment to think about the recent collapse of Arcadia and Debenhams: this has left a 14 million sq. ft hole in our high streets and landlords of these stores only have three months to find new occupiers before being stung by bills again. Is that fair in the context of Covid-19? Surely a six-month period would be more appropriate. These mass vacancies must spur the Government into action, and it should urgently review the empty rates relief process, or landlords may never recover.

3. Abolish downward transition

Downward transition relief is having a devastating effect on retail businesses in both the North and the Midlands. Here, rents are decreasing as a sign of difficult times for the sector, so the ratable value of shops is halving as a result. However, businesses still have to pay high rates for a considerable period of time due to downward transition. When, really, they should pay rates based on the value of their rent.

To rectify this, the Government needs to completely abolish downward transition as a priority, leaving upward ratable values to progressively increase over a year.

4. Reduce UBR

The Uniform Business Rate (UBR) is set annually by the Government and is then used by local authorities to calculate what percentage of a property’s ratable value has to be paid as business rates. Currently, the UK’s UBR is extortionately high, much higher than anywhere else in the world, at 50p in every £1. It must sit closer to 30p in every £1. This reduction would be extremely beneficial to those paying the bills and also put international retailers on an equal footing across countries in which they trade.

Better late than never

Unfortunately, the Government’s multi-billion-pound Covid care package, although to be applauded, does not solve an issue that has been hampering the retail industry for years – an archaic business rates system. Covid-19 and its lockdowns must act as the straw that broke the camel’s back and the Government must enact these key reforms now.

For our high streets to stand the best chances of survival, retailers must get creative, and we require a rates system that facilities this rather than making it near on impossible. In short, the challenge – for both Government and retail – is surmountable, but we need the right foundations.

If the Government doesn’t consider these reforms, doesn’t it risk undoing all the good work of its costly Covid support packages, as retailers will simply go under anyway?

Martin Davenport is the former President of the Ratings Surveyors Association and partner at independent property consultancy Hartnell Taylor Cook