One of Britain’s highest-profile retailers has written to the prime minister requesting urgent reform of transitional relief, the mechanism that prevents the business rates property levy from falling in line with rents and is blamed for many shop closures.
“The current transitional relief results in stores . . . paying the incorrect amount of rates,” said the letter to Boris Johnson from Frasers Group, which is controlled by tycoon Mike Ashley.
Business rates are based on a property’s rent. Transitional relief is designed to reduce the increment by which rates rise following upward rent revaluations. But, according to legislation, the relief must be funded from within the rates system — meaning that business rates do not fall as fast as they should in areas where rents are dropping.
Altus Group, a consultancy, estimates that as a result retailers in England alone paid a net £543m over the last three fiscal years more than if business rates had simply reflected prevailing rents.
The Frasers letter, which was sent in late December, stated that stores whose business rates were rising were benefiting from not paying as much as they should. “Paradoxically those transitioning downwards are paying far too much, and inherently these are the stores in desperate need of support,” it said.
It was signed by finance director Chris Wootton but a spokesman said it fully reflected Mr Ashley’s views.
Mr Ashley is one of the few chief executives still willing to open new stores on Britain’s high streets.
In 2018 he took a big gamble by buying department store group House of Fraser out of administration, but has repeatedly said that big reductions in overheads would be needed for all of the chain’s 54 stores to remain viable.
His retail empire, which employs almost 30,000 people, also includes over 400 Sports Direct stores and the Flannels luxury fashion chain.
Retailers quite often now pay more in rates than they do in rent. HMV’s chief executive recently said he had stores where tax exceeded both rent and profit while Tony Brown, the boss of struggling department store group Beales, this weekend described the system as “lunacy”.
Big rent reductions at many retailers should lead to rates falling sharply in many areas at the next revaluation, which is due in 2021. Jerry Schurder, head of business rates at real estate advisory company Gerald Eve, said there would be uproar if such reductions were not passed on.
The issue has shot up the political agenda since Mr Johnson called the general election last year. The large number of boarded-up shop units in town centres was a big factor on the doorstep in the general election, particularly in the so-called “red wall” constituencies in northern England that the Conservatives seized from Labour.
Mr Wootton’s letter acknowledged the “very welcome” commitment in the Queen’s Speech last month to launch a fundamental review of business rates, along with a temporary increase in the discount for smaller businesses.
But it also pointed out that the discount “does not address the dire straits many of the medium and large stores on our high streets find themselves in”. According to the Local Data Company, a business consultancy, large chains closed a net 3,500 premises in the first half of 2019. “It is the medium and large stores that drive footfall on to our high streets,” the letter noted.
Number 10 did not respond to a request for comment.
Mr Schurder said various reviews had only resulted in “sticking plaster” reliefs. “Maybe we’ve hit the crunch point, with retail going down the pan, where the government might feel something needs to be done,” he added.
Additional reporting by Jim Pickard in London