Further Pressure on the UK High Street due to Business Rate Hike
Wednesday, 23rd November 2016
The proposed tax hike, due to come into force next April, could further compound problems faced by British retailers during a time of economic uncertainty. In addition to fluctuations in currency, the introduction of the national living wage and the rising price of goods from suppliers, the government has proposed amending business rates (a tax on retailers' shops and warehouses) to the tune of £465.8 million a year, on average, for the next five years. This would amount to an aggregate of over £2.3 billion.
The business rates tax was originally based on the value of commercial property against the annual rate of inflation. However, businesses are blaming this tax on the demise of the Great British high street, as they claim that it does not take account of financial performance. Consequently, retailers feel overburdened by the tax, especially due to their reliance on property as part of their business models.
This can be seen to provide an unfair advantage to online retailers, for example Amazon, because they require far less property. High street retailers are beginning to pay more in business rates than they do in corporation tax. The financial burden on high street retailers and the slow closure of stores throughout the country can only benefit online-only retailers.
The concern amongst retailers is that, eventually, some of their increased overhead costs will need to be passed on to consumers. The price of Marmite on the shelves has risen in recent weeks and it is thought that retailers may follow suit with other popular items in an attempt to keep stores open and offset some of the additional financial burden placed on them. The national living wage, which requires that every employee over the age of 25 is paid at least £7.20 per hour, will be contributing to the increased cost of keeping shops open and running.
The cause of the increase can be attributed to the revaluation of Britain's property, which should take place every five years by the Valuation Office Agency. Two years ago the government controversially took the decision to delay the revaluation by two years. This means that it will come into force in April 2017, which will heighten the impact of the changes; it has been seven years since the last revaluation.
It is unlikely that the government will scrap its plans for the tax increase as last year it brought in £27.8 billion. This makes it the Treasury's sixth biggest source of income.
The options seem bleak for retailers: close down less profitable stores, resulting in job loss and the destruction of high streets, or pass on the increased costs to consumers, a move that would be universally unpopular among loyal customers.