Retail industry warns that spike in lease expiries and rise in business rates could cause turmoil on high streets
More than 80,000 shops face closure by 2017 unless the Government drastically overhauls the business rates tax system, the retail industry has warned in a comprehensive study of the controversial tax.
The doomsday scenario could effect as many as 800,000 workers and decimate high streets across the country already struggling with seismic changes in shopping habits.
The findings are based on retailers not renewing their leases on the 60pc of high street stores that will see their rental agreement expire by 2017.
Even in the “best case scenario” there will be 8,073 fewer shops in two years time, putting 80,000 jobs at risk on the basis that the British Retail Consortium report assumes each shop closure costs 10 jobs.
The spike in leases expiring over the next few years has been caused by the wave of 25-year agreements struck in the 1980s and 1990s as retailers expanded at breakneck speed across the UK.
The jump promises to bring the debate about business rates to a head, with the rising cost of the tax potentially a key factor in whether retailers decide to extend their rental agreement.
The BRC has conducted the research as part of its submission to the Government’s review into the future of business rates.
George Osborne, the Chancellor, announced the review into the tax in last year’s Autumn Statement and promised to deliver its finding by the 2016 Budget. Business rates are estimated to bring in £28bn for the Treasury this year – more than council tax – and there are growing concerns about the burden of the levy and that it disproportionately punishes retailers with shops across the country.
The BRC said business rates are a “tax on jobs and growth”. In the report it states: “For a Government which has advocated pro-growth policies to support business and embed the recovery, business rates are an anomaly and stand out in an otherwise moderate tax regime.
“The Government can prevent store closures by putting in place both short-term deliverables and fundamental reform by 2017 beginning with the government’s vision and road map for business taxation. The current business rates system is unsustainable and requires immediate action in addition to more fundamental reform to avoid major long-term negative economic consequences for our economy.”
“Business rates are a tax on jobs and growth and when combined with structural changes to the retail industry risk leading to far more store closures, job losses and high street vacancies.
It is essential that we work together to design a tax that reflects the economic reality facing businesses.”
The BRC has made a series of short-term and long-term recommendations to overhaul the tax, which are similar to proposals from other industry bodies such as the CBI.
It is pressing the Chancellor to extend relief for small businesses, scrap the annual inflation-liked increase in the tax, and conduct valuations of property every three years instead of every five.
The trade body also wants Mr Osborne to announce by the 2016 Budget whether he wants the tax to remain linked to property in the future, or whether the Treasury will issue the tax on the basis of sales, margin, profit or employment instead. It wants the Chancellor to explain is comments that the review will be “fiscally neutral”, which suggested that the amount of tax that businesses pay could remain the same, and the layout a timetable for how and when the tax will be reformed.
If the tax does remain linked to property, the BRC adds, then the Government must consider ways to “rebalance” the burden.
The report adds: “Business rates could be reformed to more fairly distribute the burden across the economy, bringing it more in line with the ability to pay as recognised by the Gross Added Value that is contributed by particular sectors, whilst retaining the benefits of property as a mechanism for imposing liability.”
Since 2008, pre-tax profits for the largest retailers have fallen 32pc but their business rates bill has grown by 27pc. Business rates now account for 45pc of the taxes paid by retailers, up from 32.5pc in 2005.