High business rates and other bills have led to an overtaxing of the retail industry compared to its size in terms of GDP, according to fresh data.
The British Retail Consortium found that retail pays 7.4 per cent of all business taxes – £33bn – a share 1.5 times greater than its share of the overall economy, which is five per cent of GDP.
The tax bill is 55 per cent of the industry’s pre-tax profit, the highest proportion of all main business sectors. Business rates make up 11 per cent of this, or 5.75 per cent of pre-tax profit.
Helen Dickinson, chief executive of the British Retail Consortium, said that the government has a “golden opportunity” to fix business rates.
“Our research conclusively proves what retailers have known for years: the industry is paying far more than its fair share of tax.
“The rates bill also means missed opportunities as other investments, which would drive growth in the longer term, don’t happen.”
Widespread support for reform
Business rates, effectively a tax on commercial properties, have been a contentious subject for years, with scores of retailers – from Sainsbury’s to Fuller’s – calling for a cut or general reform.
“The current business rates system… places bricks and mortar retailers at a significant disadvantage to online retail,” General Secretary of USDAW – the 360,000-strong union which represents a number of Sainsbury’s workers – Paddy Lillis, said earlier this year.
“In effect, this amounts to nothing more than an unfair tax on shops and action has to be taken to level the playing field,” Lillis added.
The Confederation of British Industry (CBI) similarly called for the government to fix the “antiquated” business rates system earlier this month, in order to boost productivity and growth.
Labour has pledged to reform the rates regime but insisted that overall revenue must remain the same, which CBI argued makes root and branch reform almost impossible.
Firms want a fair and balanced approach, which requires ditching the revenue neutrality principle and creating a bridge from current rules to long-term change, CBI said.
What might reform look like?
Dickinson recommended the introduction of a 20 per cent retail rates corrector, which would “level the playing field between different sectors of the economy”.
“[A corrector] is the best way to achieve the government’s commitment of a tax ‘fairer for bricks and mortar businesses’”, Dickinson said.
A retail rates corrector, which the BRC has recommended for the Autumn budget, would reduce bills by 20 per cent for all retail properties.
Recommendations from the CBI include: a tailored cross-economy approach; adopting a ‘banded’ system like income tax; removing cliff edges; introducing annual revaluations; bringing in a 120 per cent green super deduction for retrofitting; boosting improvement relief; streamlining exemptions; reviewing reliefs; and excluding public buildings such as the NHS.
They also want to see Valuation Office Agency (VOA) transparency; property change notification to be delayed; and justification for changes in valuation methodology.
The cost of inaction is high, according to the BRC: they have estimated that if business rates remain the same in the coming tax year, the bill will be up to £1.61bn in England in the first year alone, with retailers bearing increases of up to £435 million of this overall total.
They have also estimated 4,300 jobs will be lost in the first year.