George Osborne has said he will cut corporation tax faster than planned to 24 per cent this year. But retailers were left smarting after the chancellor failed to address the eye-watering 5.6 per cent increase in business rates – a tax on commercial property linked to the September’s retail price inflation figure – coming into effect in April. It is estimated that the increase will add £350m to UK retailers’ costs in the coming year.
Ian Cheshire, chief executive of DIY giant Kingfisher, said the hike in business rates were a “back-door” rate rise, adding that they could force it to reconsider leases on some of its existing stores.
Despite issuing an upbeat trading update yesterday, Next boss Lord Wolfson said next year’s performance could be hit by the planned rise, and warned of a “very uncertain” outlook for the high street in 2012.
British Retail Consortium director general Stephen Robertson said yesterday that its members, who represent over 80 per cent of trade on the high street, “were up in arms” over the chancellor’s failure to act on business rates, saying that while a cut in corporation tax was welcome: “the burden of other taxes needs to be addressed if they are not to act as a drag on growth”.
The backlash came as figures published yesterday showed that retail sales suffered their biggest fall in nine months in February, falling short of forecasts as consumer spending remained weak.
Adding fuel to the fire were new figures from the Local Data Company, which surveys over 2,700 towns and cities, revealing shop vacancies in February reached a record high of 14.6 per cent.
And the fate of video game retailer Game – which signalled it was set for administration on Wednesday – was further evidence that the pain on the high street is continuing.
As retailers’ quarterly rent payment deadline looms this Sunday, Roberston warned that the business rate hike could mean retailers are forced to review their leases on the high street, leading to store closures if costs become unfeasible.
“It’s deeply disappointing there was nothing done to bring the imminent 5.6 per cent increase in business rates more in-line with reality,” he said. “Action on business rates is needed to show the government is serious about wanting to revitalise our high streets.”
Meanwhile, baker Greggs saw more than £20m wiped off its market capitalisation yesterday as the market responded to the government’s extension of VAT to include all hot takeaway items such as sausage rolls and toasted sandwiches.
The sandwich maker’s share price dropped five per cent to £5.20 after Osborne said he would plug loopholes that have allowed vendors of hot takeaway food items to avoid paying VAT.
High street cafes such as Subway, Pret a Manger and Eat are also expected to take a hit from the levy.
Though it is likely to have less of an impact on supermarkets given the fairly small contribution of hot items to total sales, Shore Capital analyst Clive Black said WM Morrison could also be hit more than competitors due to its “market street” format. Morrison’s yesterday spoke out against the VAT hike, saying: “This is a straight tax on our customers at a time when their budgets are already hard pressed.”