Fix broken rates system to rescue high streets – Andrew Carter
Just as England’s second national lockdown coincides with what should be the busiest time of the year for high street firms, millions of people are furloughed again – uncertain whether they will have a job to return to before Christmas.
Many high street businesses were struggling before the pandemic hit. Bricks-and-mortar retail sales, as share of overall retail sales, have been falling for years as the popularity of online shopping increased, and boarded up shops have become a common fixture on many of our high streets.
This decline in traditional retail is partly because of the change in how people like spending their time – less time shopping, and more time socialising, exercising, holidaying etc. But this is not the only reason. Our business rates system taxes city centre sandwich shops much more than huge out-of-town warehouses, putting a burden on high street firms not faced by their online competitors.
Policymakers are well aware of this problem. Last year the House of Commons Treasury Select Committee declared the business rates system ‘broken,’ and the Chancellor has just begun consulting on the changes that need to be made to fix it.
However, there’s another problem with the current system: rate bills are calculated with out of date information and so are forever playing catch up with the economic realities faced by businesses. While commercial rents have fallen substantially in recent years, and are likely to fall further as lockdowns and home working impact the commercial property sector, current business rates are calculated based on 2015 property values and won’t be reviewed again for another two years.
Additionally, because increases rise with inflation, businesses will still face increase bills once Covid-19 relief ends – even if their rents fall.
To make this situation worse, the transitional relief scheme, which helps businesses adjust to a change in their rate bill, directly disadvantages many businesses in Yorkshire and the rest of Northern England. The scheme staggers rate rises to help firms deal with an increase in their bill. Although well- intentioned, it mostly benefits businesses in southern England that stand to lose the most from upward revaluations. Meanwhile, it also staggers the decreases in rate bills owed to (mostly Northern) firms whose rates get revaluated down.
For example, the average rateable value for commercial properties in Barnsley has fallen by 24 per cent in recent years. Yet in the London Borough of Hackney rateable values rose by 39 per cent. This meant that many businesses in Barnsley overpaid business rates, while those in Hackney continued to underpay.
The result of this is that businesses in Yorkshire and elsewhere in Northern England effectively pay too much in business rates while those in London and the rest of the South-East pay too little.
If the Government hopes to support the struggling cities and towns of Northern England, then it could start by reducing the long-term burden of business rates on Northern firms.
Annual revaluations would make it easier for businesses to stay afloat during times of economic difficulty, such as right now, because their bills would fall quickly, not up to half a decade later.
This change would also make the system, with its complex web of exemptions and reductions, easier for businesses to understand and adapt to.
While annual revaluations would address the bias in the system, I would be overclaiming if I said it would, on its own, solve high street decline, as some commentators suggest.
The decline has deeper causes connected to the overall strength of the local economy. As Centre for Cities’ research shows, the fewer high paid jobs in an area the more empty units you’ll find on the high street. This is why there are three times more vacant units in Bradford city centre than there are in the centre of York.
Because of this, to secure the high street’s future, business rate reform should go hand-in-hand with substantial measures to increase the number of high-paid jobs right across Northern England. This would put more money in consumers’ pockets, and when the pandemic is eventually behind us, more money in the tills of high street businesses.
Upskilling the workforce and supporting innovation are the long-term strategic responses for turning around our struggling cities and towns. But struggling high streets are the visible, short-term problem.
So, if the Chancellor is looking to provide a quick, universally-popular fix to struggling firms right across Yorkshire and Northern England, he’ll find it in business rates reform. He should get on with it.
Andrew Carter is chief executive for Centre for Cities.
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