Retailers lose £500m to transitional relief

Over fifty major retailers have called on the government to take the first steps towards fundamental business rates reform in the Budget.

The letter, coordinated by the British Retail Consortium (BRC), focuses on fixing transitional relief – a component of the business rates system.

Business rates are based on the rateable value of a property. Transitional relief limits the speed at which a firm’s business rates liability changes in response to changes in its rateable value. To achieve this, it staggers the speed at which ‘underpayers’ move to their higher business rate liability (upwards transition) and funds this by slowing the speed at which ‘overpayers’ move to their lower liability (downwards phasing).

According to the statement, this system has two consequences:

• It forces retailers to subsidise other industries: £543 million net over the last three years.
• It forces locations outside London to subsidise London businesses: £596 million net over the last three years.

Retail remains the largest private sector employer in the UK, employing approximately three million people. The industry invested over £1 billion in new technology, helping to drive up productivity growth to 5.1 per cent - versus a 0.5 per cent UK average - in 2018. Despite this investment in the future, the industry faces some of the highest taxes - retail accounts for five per cent of the UK economy, yet is burdened with 10 per cent of all business taxes and 25 per cent of business rates.

The letter has been signed by 52 retailers and associated trade bodies, arguing that the “burden of business rates has become unsustainable for many retailers” and that the system is broken – a view echoed by the Treasury Select Committee in October.

It suggested that scrapping downwards phasing would remove the harmful effects transitional relief has on retailers and businesses in the North of England – something that could be achieved by central funding of upwards transitional relief.

The letter comes two days after the BRC and KPMG retail sales monitor showed that the 12-month average sales growth fell to a record low of -0.2 per cent.

BRC chief executive Helen Dickinson said: “Northern high streets effectively subsidise London banks, forcing a £600 million transfer of wealth to the capital; this could be used to support investment in people and technology that would benefit all parts of the UK.

“Every year retail faces higher and higher business rates bills, holding back much needed investment in an industry that is transforming at a dramatic pace – swift action at the upcoming Budget would show the chancellor was serious about levelling up all parts of the UK and supporting a retail industry towards realising a brighter future.”

Eric Mazillier, UK chief executive of Decathlon, commented: “The business rates system is broken and in urgent need of fundamental reform.

“It undermines investment in shops, damaging job creation and hurting high streets and town centres – fixing the complex transitional relief scheme would be a good start.”

Nick Lakin, group corporate affairs director at Kingfisher, added: “Business rates are the number one tax paid by UK retailers – the tax rate is unsustainable, the system too complex and it does not reflect modern retail.

“Downwards transitional relief has added to this complexity and is exacerbating regional imbalances.”

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