Currently, business rates for April are set at the preceeding September RBI figure, which are announced in mid-October. However, a petition launched by the British Retail Consortium (BRC) and magazine Retail Week is calling for rates to be determined by the 12-month average of the Consumer Prices Index (CPI) instead. By removing the “artificial and arbitrary” RPI link, retailers would be assured of “greater long-term affordability and certainty”. Retailers pay 28% of all business rates and are facing a likely £200m increase next year.
Roger Kelsey, chief executive of the National Federation of Meat & Food Traders (NFMFT) welcomed the news, saying that reform was “much-needed” and that changing to the CPI system “would make more sense than what is in place at the moment”, and reduce the increase in uniform business rate (UBR) bills in 2013 by around 30%.
He said: “Like most retailers, independent butchers are challenged by ever-increasing costs and would particularly welcome any financial alleviation at this time.
“Today, with parking restrictions, poor access and an increasing number of shop vacancies, footfall in most high streets is much reduced,” he said. “The high rents/rateable values are therefore no longer justified when compared proportionately with those of retail parks and out-of-town centres.”
However, another industry source questioned whether the change would make much difference to small independent butchers’ shops.
He said: “The impact on butchers would be marginal. There is already a rates deferral scheme allowing the increase from year-to-year to be spread over further years, although I’m not sure how widely it’s taken up. Also, most shops are small and most butchers own one shop, so they will probably qualify for rate relief anyway. They may not pay any rates at all, or at least qualify for a discount. Finally, if rates don’t go up as much, councils don’t get as much money, and they’ll all get the same percentage less, so they’ll all be equally annoyed.
“It does seem that the impact of this change is most likely to be felt on very large firms with very large premises and so very large bills.”
Richard Dodd at the BRC told MTJ Extra that the freeze would apply across the board. “There have been two years of high rises and the time is ripe for a freeze,” he said, adding the most obvious time to announce a freeze would be the autumn statement on 5 December. “The government ought to act on its pledge to change the formula to a more predictable and fair system,” he said.
Kelsey said the current system for determining the rateable value (RV) based on average market rents had locked in in three distinct disadvantages for independent high street butchers:
1) Butcher’s shops are sited where footfall is most in evident, which historically has been in town centres, where average rentals have always been high. However, footfall has been eroded in recent years and high business rents are now “unjustified”.
2) The Dept of Inland Revenue surveys market rents every seven to 10 years, but it is not clear how wide the geographical area is which is taken into account when determining this market rent.
3) The RV calculation is based on leasehold rentals which are reviewed every three to five years. These tend to remain stagnant at best during a recession, but invariably move in an upward direction. Average market rentals and RVs, therefore, tend to remain artificially high for very long periods of time and ‘stride’ the economic cycle, which retailers are much more sensitive to.
Kelsey said that a much fairer system of a ‘local tax’, levied locally, according to local circumstances and based on the business’ profits and sales, had long been mooted.
“Prior to the introduction of UBR in the 1980s, when local authorities (LAs) were responsible for levying and raising the business rate locally, they were much more sensitive and much more reactive to the circumstances of retailers. In those days (and today) LAs tended to be both sensitive to the demands of the local electorate and in competition for ‘retail facility’ with other LAs bordering their area.”