Beckie Hart: ‘Invisible enemy’ that is damaging high street

It’s hardly a secret that the way we shop has transformed in recent years. The growth in online sales and web-only retailers takes the breath away and has had a big impact on how our towns and cities look.
Debenhams will remain in the hands of its lenders. Photo: Nick Ansell/PA WireDebenhams will remain in the hands of its lenders. Photo: Nick Ansell/PA Wire
Debenhams will remain in the hands of its lenders. Photo: Nick Ansell/PA Wire

Often, not for the better. High streets are the lifeblood of our communities and have an essential role in the years to come, but the sight of boarded up shops is all too common these days.

From Sheffield to Scarborough, more needs doing to strengthen these vital institutions. But not all this can be put down to the internet.

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There is an invisible enemy that is damaging many traditional retailers – a business rates system that is failing badly. Ask in your local shop and many owners will be able to tell you the trouble this has caused them.

Business rates are a tax on property used for business purposes. They are charged on properties such as offices, shops, pubs, and warehouses – most non-domestic properties will attract business rates. They are calculated based on a property’s ‘rateable value’ in an open market. But over time the system has become uneconomical, unsustainable, and frankly, unintelligible. In short, it’s a system in desperate need of reform.

For a start, the business rate system is entrenching regional inequalities. Part of this problem is the uncertainty around when the next rates revaluations occur.

The last revaluation period was extended from five years to seven. We can now expect revaluations every three years. But in practice, any longer than one year means business rates lag far behind economic cycles and – over the years – the significant rises in UK property costs.

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The result is a system that rewards those places already on their way up in the short term, but eventually pulls the rug from under them. And one that punishes those areas that are already struggling. It can mean local authorities being underfunded, in areas where businesses are on the rise. Or companies going under, creating a vicious cycle of decline and dependence.

And it’s the way that business rates currently work against the economic cycle that makes the tax uniquely damaging. Just compare this approach with other types of tax. Fuel duty, or corporation tax, for example.

They increase when business is booming in proportion to the amount of fuel you buy, or profit you make. It’s a much fairer system. One that doesn’t reinforce economic disparities – like the current business rates system.

It also puts businesses off from investing. At the heart of the problem is the way we assess property.  If you’re a climate-conscious business owner and you want to improve your office, or your energy supply with solar panels – or new energy-efficient lightbulbs. Whether it’s a large capital investment, or several smaller upgrades to existing property, any real efforts to invest will see your business rates rise. It certainly doesn’t give businesses a strong reason to invest in the UK. Let alone in areas where capital is most sorely needed.

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To understand the impact of these problems, we need only look at the headlines of the past few weeks. Debenhams, once a stronghold of the British high street, fell into administration.

Exactly ‘why’ is a complicated question. But I’ve yet to read an explanation that doesn’t cite business rates as at least part of the cause. And the same has been true of countless firms over the years.

And every year, thousands of firms try to appeal their business rates bill. It more than suggests a lack of confidence in the system. While we have seen warm words and small solutions from the Government over the years these tweaks have only served to reinforce the idea business rates are a high street issue rather than a problem for our whole economy.

And the more sticking plasters we add, the greater the signal that the system is broken and in need of a fundamental re-think. So here’s our solution. A comprehensive and independent review of the business rates system. It’s in the manifesto for both Labour and the Conservatives. Now why not follow through on that promise.