Thursday 4 April 2019 12:05 pm

The burden of business rates falls unfairly on the West End

This week, UK retailers received one of their biggest tax bills of the year. The consequences of the 2017 revaluation of business rates will again be felt, with a further hike of nearly 50 per cent for some companies.

Retailers in London’s West End and Mayfair will once again be hardest hit, paying the lion’s share of Westminster Council’s £2bn business rate collection.

Currently, London’s West End is a major contributor to the UK economy. Its retailers generate over £9bn in sales a year, and more than 520,000 people are employed in businesses throughout the district. It is also a critical factor in London’s status as the world’s most popular international visitor destination, attracting 200m domestic and international visits every year.

Read more: Tesco boss accuses business rates system of 'killing' retailers

But as a result of the revaluation, this success story is at risk. Business rate bills for West End companies have increased on average by 80 per cent since 2017, with some stores seeing a rise of over 130 per cent.

Business rates account for nearly half of retailers’ tax bills, and the sector is funding over a quarter of all business rates, even though their sales only account for six per cent of GDP. It is an open secret that the system is outdated and is helping to drive high street businesses out of existence.

High street retailers today are facing a perfect storm. The industry

is experiencing structural change with increasing online competition, changing consumer trends, falling consumer confidence (partly due to Brexit uncertainty), and the rising costs of rent, stock, and wages.

At a time when retailers need to invest in change, these huge rate increases – which unfairly hit high street businesses – are forcing many retailers to focus on short-term cost cutting rather than long-term business planning.

The money that could have been invested in stores in London’s retail heartland and across the country to give customers a better offer will instead be swallowed up by these taxes. This will reduce profits and margins, and leave retailers with far less to invest in innovation and change, leading to further store closures and job losses.

The underlying problem is that business rates are not linked to economic performance, but to the value of the property, which hits the high street the hardest. As a result, there is a growing list of retailers who’ve announced major cutbacks, with over 1,000 shop closures in 2018.

London’s West End is not immune. In a digital economy, this 20th century tax is not fit for purpose and needs changing.

Many think that business rates are a local tax, but they are not.

Despite Westminster businesses paying over £2bn in rates each year (accounting for 25 per cent of London’s total business rates and eight per cent of the whole country’s), only four pence in every pound is retained by Westminster City Council to use in the district. The rest is handed over to the Treasury.

In a post-Brexit world, if we are going to continue to attract visitors and investors from across the globe, it is critical that we enhance the West End and relieve pressures on retailers so that they do not have to make difficult choices about which stores to keep open.

We could do this by levelling the playing field with online firms, who do not have a presence on the high street but still make use of infrastructure and public services in their area.

Or we could introduce more immediate changes now, such as regular, annual revaluations, and freeze inflation-related rate rises.

But the real answer is for there to be a full review of the UK’s business tax system.

We can’t just look at business rates in a vacuum. In an increasingly digital economy, the government needs to review all business taxes – corporation tax, national insurance, VAT, and rates – to ensure that they are fit for purpose in the 21st century.

A recent report by the Housing, Communities and Local Government Committee recommended the introduction of an online sales tax to support the high street, but this does not go far enough to resolve the overarching issues of business rates.

Read more: Business rate appeals dip as industry warns of 'complicated' process

Ours is a double request. First, we want to see sensible changes now to avoid further high street closures and job losses. Second, we are calling on the government to urgently reform this outdated tax as part of a wider review of business taxation.

Action is needed to secure a future for the nation’s high streets. The government cannot sit on its hands any longer. It is presiding over an outdated tax that is causing irreversible damage to our high streets and to the people who rely on them for their daily lives and livelihoods.

City A.M.'s opinion pages are a place for thought-provoking views and debate. These views are not necessarily shared by City A.M.