Retail industry attacks £350m rates hike in RPI 'lottery'
By Helen Roxburgh - Tuesday, October 18, 2011 10:49
Retailers face an additional £350m in the business rates “lottery” as retail inflation reaches its highest in 20 years.
The Retail Prices Index rose to 5.6% from 5.2% , the highest annual rate since June 1991.
The September inflation figures are used to calculate rates including capital gains tax, income tax, national insurance and business rates.
The British Retailers Consortium has warned that this extra cost will hit a vulnerable retail sector which already had to cope with an increase of 4.6% in rates in April this year.
It also said that the £350m in rates increase is equal to at least 16,000 jobs in the sector and warns that there is already more than one in ten town centre premises standing vacant.
The increase across rates in line with September’s RPI will come into effect from April unless, as the retailers’ body has urged, the Chancellor decides to overrule RPI and implement a lower increase to rates.
Although the retail sector passed the most recent quarter day without the waves of administrations seen in July, the sector is still in a precarious position.
Many creditors were expected to give traders until after Christmas in a “wait and see” approach through the busiest trading period; if the seasonal sales do not meet the necessary revenues, then the next quarter date in December could pose a problem for struggling retailers.
The latest Business Distress Index from insolvency body R3 said that a quarter of retailers are having cash flow difficulties, with nearly one in ten saying they could enter insolvency over the next 12 months.
BRC director general Stephen Robertson said: “Basing business rates rises on the previous September’s RPI is a lottery and retailers have just seen a losing number come up.
“With trading conditions staying tough, an increase on this scale would have a hugely detrimental effect on retailers’ ability to invest and create jobs.
“Retailers already pay 28 per cent of all business rates, a bigger proportion than any other sector. They were expected to cope with a near-five per cent increase this year. Some didn’t survive it. It cannot be right to hit them with another massive blow next April.
“The Government should impose a much lower increase and, for the longer-term, review the system so that future increases are more predictable and more affordable.”
The British Property Federation has added its voice to those calling for the government to rethink the way tax is calculated. The BPF says a better system would be a fixed uplift rather than depending on the September tax figures.
Ian Fletcher, director of policy at the British Property Federation, said: “This is bad news for retailers, landlords and the economy and comes at a time when many High Streets are fighting for their survival. At the very least the government should not be making a windfall from business rates.
"It budgeted its sums on the basis of 5.2% this year and should be giving the difference back.
“When finances allow the government should also be considering two further reforms. The first to reinstate empty property relief – empty rates are an unjust tax on people deriving no income and who will be paying even more out now as a result of today’s inflation figure.
"Secondly, linking business rates to RPI has meant they have doubled over the last 20 years and government should provide greater certainty for businesses by fixing the business rate uplift each year, which we have suggested should be at the rate of the inflation target, currently 2%.”
All businesses face hikes in rates linked to the RPI increase, with a total projected increase of £1.35 bn next year across the business world in rates.
The Uniform Business Rate will rocket from 43.3p per pound of Rateable Value to 45.7p with businesses in London paying an additional 2p per pound as their contribution to the funding of Crossrail.
Jerry Schurder, head of rating at Gerald Eve said: “A tax rate approaching 50% whilst the country still experiences economic struggles will prove unsustainable to many businesses. Ever since the Uniform Business Rate was introduced in 1990 successive governments have linked the UBR to the previous September’s inflation figure even though the legislation permits the adoption of a lesser figure.
“The Government claims that it expects inflation to tumble next year in which case it should surely assist businesses and the struggling high street by holding business rates for 2012/13 in the same way as it found funding to freeze Council Tax for a second successive year.”
hroxburgh@costar.co.uk