Nic Redfern, finance director of NerdWallet, discusses whether cutting business rates is enough to save the high street from financial trouble
The past few years have been difficult for the high street to say the least. It’s difficult to go through one month without hearing of the closure of another well-known brand.
The recent troubles facing the likes of John Lewis, Topshop and Debenhams, illustrate how even the most established of retailers have been affected by the changing retail landscape. Indeed, according to research conducted by Know Your Money, a majority (54%) of high street businesses think that trading conditions have become significantly more difficult over the past five years.
And it’s not just large firms that have been struggling. The survey of more than 300 senior decision-makers within UK retail businesses also found that two thirds (66%) have seen more local small independents being closed down and replaced by chains.
Challenges facing the high street
While difficult, it is important to note that there is a lot that can be done to improve high street businesses’ odds of survival. Action by consumers, government, and of course the businesses themselves, can turn things around.
Many retailers have been massively increasing their online presence over the past two decades. Some well-known high street stalwarts, such as Barratts, have moved their operation completely to digital. Indeed, Know Your Money’s study found 76% of firms now consider tech to now be essential for them to remain competitive.
However, the high street has also taken a beating from another angle: business rates. As all business leaders will know, it is calculated according to the rateable value of all non-domestic properties — that is, how much they could be rented for annually on the open market — and is a major overheard for many firms.
On top of that, the tax has a sting in the tail for many businesses because of how it is calculated. If there is change in the rateable value of a property, the business rate charged will not change immediately, but be staggered over five years.
This is known as ‘transitional relief’ and is supposed to make life easier for businesses whose premise have increased in value. In reality, it can lead to firms with properties of decreasing value overpaying. A Topshop on a high street in Blackpool, for example, will have overpaid the tax by more than £150,000 by 2021.
The need for government support
The recent government announcement, therefore, of a huge package for loans to combat the coronavirus outbreak, as well as a 12-month holiday on all business rates, was certainly welcome. This kind of quick policy reaction to a crisis situation must be praised, as it shows the government has prioritised the high street at a difficult time.
Of course, the situation is changing every day, and there’s no saying yet whether the action will be sufficient; indeed, some types of businesses were omitted from the business rates holiday, such as nurseries.
At a time of incredible political and social volatility, there was always going to be blind spots in Chancellor Rishi Sunak’s measures, but I now encourage the Government to consider papering over the cracks in the system.
The new loans and funding will help; any company eligible for small business rates relief is also being awarded a £3,000 cash grant, amounting to a £2 billion injection for 700,000 small businesses across the country. However, the situation is changing every day and further long-term capital might be needed to see the high street through this crisis.
Looking forward, it is now vital that there are no delays in getting this relief, including on business rates, to the high street. We have already seen many examples of layoffs over the past few days and businesses will continue to struggle until they are helped.
The Government’s new measures are being introduced on a daily basis, which is good news, but we must also consider the long-term as what is helpful now can quickly become insufficient. In these ways, whilst the business rates holiday will certainly help the high street in the short-term, the future remains highly uncertain.
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