As the post-Christmas sales figures are published, it is clear there are a few winners and a lot of losers …. written by Tim Baugh, Director of biz4Biz and Managing Director, Howardsgate.
For businesses in the retail sector, Christmas is a make or break time of the year. As the post-Christmas sales figures are published, it is clear there are a few winners and a lot of losers. A range of reasons have been touted by retailers for the disappointing sales figures – the mild winter, more people buying online, heavy discounting, more household spending on big-ticket items like cars and furniture. A KPMG/Ipsos report claims that our spending is shifting away from ‘things’ to holidays and leisure.
If retailers cannot agree on the reasons for their poor Christmas sales, there is one thing they all agree about – the unfairness of business rates. Retail revenues have been falling and, while some retailers may be able to negotiate a reduction in the rent they pay their landlords, the government still expects them to pay high levels of business rates.
Helen Dickinson, chief executive of the British Retail Consortium (BRC), believes that the chancellor needs to reduce the disproportionate burden of business rates on the retail industry. This comes at a time when the retail sector faces the prospect of higher wage costs via the national living wage and apprenticeship levy, as well as the gradual removal of retail relief on business rates.
But George Osborne has other ideas. Rather than reforming the system, he has decided to devolve the setting, collection and spending of business rates to local authorities. The £26bn currently raised may be kept and spent by local authorities, which will also be able to set local rates. In reality, there will be more scope for cutting, as Mr Osborne is keeping a cap on rate increases.
However, local authorities will be given scope to increase rates by up to 2p in the pound to help fund local infrastructure projects, subject to them getting the support of local businesses and their local enterprise partnership (LEP).
So how will this play out in practice? In theory we could see local authorities competing with each other by cutting rates to attract new businesses and more employment into their area. It also means that local authorities will have a major stake in the local economy, which could have far-reaching effects on planning applications and infrastructure projects.
For example, councils may be less likely to repurpose commercial business space and may look more favourably on a planning application from an established local business wanting to expand, or a developer wanting to build a new warehouse or office block. Local authorities will have to build closer ties with local enterprises and by working with their local LEP business will have more of a voice about decisions that affect them.
Could allowing local authorities to set business rates help rejuvenate the high street? A reduction in business rates could attract businesses that are not affected by online shopping, such as bars, restaurants and specialised food or craft shops, but I doubt that things will change significantly until the government puts bricks-and-mortar shops on the same footing as the large online-only retailers. Amazon has an unfair advantage in the retail war, as it pays a low rate of tax overall.