The government’s proposed reform of business next year is set to give a boost to companies with a large number of small stores like Halfords, Curry’s and Dunelm, according to analysts.
Despite significant backlash against the reform from large high street retailers, analysts at Panmure Liberum have suggested the move would, overall, be good for the retail sector.
“Although there is still significant uncertainty around the final design and implementation, our analysis of the proposals as they stand suggests the reforms would be a net positive for the sector,” analysts said.
Business rates are currently calculated by multiplying the Rateable Value (RV) of a property, which broadly represents the yearly rent the property could have been let for on the open market, by a business rates multiplier.
Rateable values are updated every three years. While the 2023 revaluation benefited retailers amid a drop in property values, next year rates are expected to rise significantly.
But the government plans to reform rates next year, with the multiplier for small businesses likely to be reduced and the multiplier for venues with a value of over £500,000 set to rise. The final multipliers will be announced at the autumn Budget.
“The principle underlying the proposed business rates reform is to permanently reduce the business rates bill for smaller properties… without a reduction in the government’s tax collection,” analysts said.
While there would be little change for small businesses currently benefitting from rates relief and a bigger bill for businesses with multiple ‘anchor’ stores, mid-sized firms are in a good spot.
If the multiplier for properties with rateable values below £500k reduces by 20p, and the multiplier for properties with rateable values above £500k increases by 10p, Panmure expect Halfords, Card Factory, Pets at Home, B&M and Greggs to be the “key beneficiaries”.
Analysts expect profit before tax at Halfords to get a 25 per cent boost, versus a 15 per cent boost for Card Factory, 12 per cent for Pets at Home and six per cent for Greggs.