Business rates is a topic that can turn any conversation with retailers, landlords and indeed chartered surveyors sour, as it is seen as one of the biggest issues affecting the high street.
Retailers were dealt a further blow when the Government postponed the revaluation, due in 2015, to 2017. This means retailers will continue to pay business rates based on rental values set at the top of the market in April 2008 – before the economic downturn hit – for a further two years. The cancellation of the 2015 rating revaluation and the significant decrease in rental values will potentially be the final straw for many businesses that are already on the brink of survival.
Like many, I was extremely disappointed that the revaluation was postponed as it would have realigned rateable values and therefore assist many struggling firms.
Former Wickes and Iceland CEO Bill Grimsey echoed my optimism in his report, The Vanishing High Street.
According to the Office for National Statistics (ONS), the CPI grew by 2.7 per cent in the year to September 2013, which was unchanged from August. CPIH, the new measure that includes the costs owner occupiers face in owning, maintaining and living in their own homes, grew by 2.5 per cent in the year to September 2013, unchanged from August. RPIJ, the improved variant of RPI, calculated using formulae that meet international standards, grew by 2.5 per cent, down from 2.6 per cent. These latest numbers continue the trend of broadly steady inflation seen since spring 2012.
By using the RPI, which fell slightly to 3.2 per cent in September, as a way to increase the UBR each year means business rates are being distorted and rates bills will increase by 3.2 per cent next year. There is a strong argument for using CPI figures instead. A view that was shared by Mary Portas in her 2011 Government-commissioned report, The Portas Review.
The retail guru said that, while she doesn’t think it would be realistic to freeze business rates, she did urge the Government to look at bringing business rates in line with other direct taxes by using the CPI figure rather than RPI.
The RPI is normally higher than the CPI and rises by 1.2 per cent on average each year. For 2013/14 the multiplier for properties with a rateable value over £8,000 is currently 47.1p but this can be increased next April by September’s RPI figure of 3.2 per cent, which will produce a multiplier of 48.6p with effect from 1 April 2014.
Changes in inflation can affect businesses in all areas from running costs, increases in wages due to the cost of living going up and the reluctance to plan ahead. By using the CPI figure, it could ease the costs of business rates in the future.
It has been strongly argued that CPI is a more accurate measure and actually reflects the inflation that most people experience. The RPI is more volatile and increases and decreases regularly, where as CPI changes more slowly. Changing to the CPI would also save the Treasury money, so why not?
However, Grimsey’s report suggests that changing business rates inflation from September’s RPI to CPI would make little difference.
Comparing the business rates multiplier increase for 2012/13 based on 5.2 per cent CPI instead of 5.6 per cent RPI, he calculated a CPI rise would have saved a total of £46 million. With a 2012/13 total of 1.759m business premises, each business would have had to pay £26.15 less in the increase for that year.
Instead, Grimsey supports the British Retail Consortium’s idea of an annualised CPI calculation, which in 2011 was 4.2 per cent for CPI. This would have saved £161m in terms of the increase as opposed to Portas’ £46m.
I believe that both Portas and Grimsey have the interest of the high street at heart, but the Government has failed to take up their recommendations. The increase may look minor but they all add up for retailers with large portfolios. Rental values will always vary from place to place, especially between the likes of London and the north, for example. However, if the Government continues to use RPI rather than CPI, Mr Cureton’s calculations for business rates show there are significant savings available for retailers, regardless of their location.
For example, a retail warehouse in Merseyside with a rating assessment of £88,500 will have paid an additional £2,389.50 by the end of 2015 as a result of the multiplier increasing by RPI.
On London’s Oxford Street, a store with a rating assessment of £450,000 will pay an extra £12,150, while House of Fraser in Birmingham, which has an assessment of £2,610,000, could pay an additional £70,470.
These examples are typical of the significant savings retailers could make if we changed the way we calculate the business rates multiplier, proving that there is some real substance in the recommendations people like Mary Portas and Bill Grimsey have made in their reports. It just seems that no one is listening to the experts and, more importantly, the evidence. We can only hope the 2017 revaluation does bring some rate relief for retailers.
About the author
David Cureton is head of rating at commercial retail agency Johnson Fellows @johnsonfellows
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