Business rates mean nothing to most people, and most people are the voting public. And this is perhaps the reason why Government is so intransigent in its position on this year's business rate increase. Does the scale of the retail sector's business rates bill, around £6 billion / year, matter to enough people for Government to see any real value in acting in the interests of retailers and other occupiers of commercial property and intervene to reduce this tax?
Ok, intransigent is perhaps unfair. At the same time as announcing that Secretary of State Pickles was going to apply the maximum increase in this year's business rate, at an inflation busting 5.6%, his Department announced a deferral scheme to ease the pain. Those of us that were involved in the previous Government's deferral scheme in 2009 (aren't politicians only supposed to steal the opposition's good ideas, rebrand them and call them their own!?) inserted our heads in our hands for once again our political masters had missed the point. Jerry Schurder of Gerald Eve didn't hold back when he claimed the original scheme had been 'a calamity from day one' and that 'I, like many businesses, have zero confidence that it will be managed any better next year (2012)'.
The cost of business rates is a bottom line not a cash flow issue. We've already seen a number of retailers shut up shop this year as they haven't been able to balance the books due to high trading costs and low consumer demand. A large number of significant retail brands fight on but in a consolidated form. Who suffers? The high street and those communities that depend on it for jobs, the provision of services and for providing them with a positive attitude towards the environment in which they live, work and raise their families.
This week's LDC data showed that vacancy is still up around the 14% mark, up from 5.5% in 2008, and the BRC sales monitor published on the same day, showing the second worst January on record, are further evidence of the uphill battle the sector faces in 2012. As Lord Wolfson of Next (not his Debrett's reference) put it recently it will once again be a case of trying to run up the down escalator. I've tried doing this, it's very very difficult.
It is of course not just about retailers costs but investment in towns and cities. There is a general acceptance that many of the UK's urban areas are in desperate need of physical investment. Asking Mary Portas to produce a report on the high street was merely confirmation of this. High business rates constrain the ability of developers to deliver town centre regeneration schemes. As occupiers' business rates liability increases, profits and therefore potential rental values are eroded, affecting in turn the viability of much needed urban renewal. I've heard of numerous cases from investors, leasing agents and asset managers of places where rates are significantly higher than the rents achievable. This is clearly unsustainable from a property developer or investor perspective, especially given today's lending and investment climates.
So what to do? Bang fists? Well yes but we're also giving it one further push and have teamed up with ACS and a few other retail advocates to try and persuade Government to think again in advance of its Budget announcement on 21 March. We're briefing MPs and making a recommendation for an increase of no more than 2%, based on the Bank of England's target for CPI inflation, and the Daily Mail has, like others before, picked up the gauntlet and is charging towards the Treasury's door. The problem is those doors are pretty impenetrable, unless of course you are in possession of the keys to future electoral success.
To illustrate this point, and prove this is more than simply moaning farmers, Government has stated that any increase in Council Tax above 3.5% is excessive and unreasonable and has subsequently instructed local councils that were they minded to increase CT by more than this they would have to get it sanctioned by the electorate through a referendum. One rule for councils and another for the Treasury...
The main difference? We all know what Council Tax is and, if we do happen to forget, we're reminded every month.
You make a very valid argument Edward and I wish you luck with your recommendation.