Sainsbury’s has teamed up with the USDAW union to urge the new government to deliver on its promise to reform business rates following research showing that failure to act could lead to 17,300 retail closures over the next ten years.
The research, carried out by Development Economics, also raises concerns about the previous government’s decision to remove the freeze on the ‘multiplier’ – the rate in the pound at which business rates are charged.
In the first year alone, it is estimated that the increase will cost businesses £1.6bn, with over a quarter of this falling on the retail sector. The report noted that around 4,300 retail jobs could be lost in 2024/25 as a result.
The study also highlights that taxpayers could also lose out. It is claimed that if the government continues on its current trajectory of annual inflationary increases to the tax, it would make otherwise profitable retail stores unviable and result in an estimated 17,300 closures by 2033/34. Over the course of the next decade, this would cost almost £5.5bn in lost tax revenue.
The report suggests that there is a better way forward. It found that a 20% headline cut to retail business rates would actually generate more net revenue for the taxpayer because more stores would thrive, and businesses would invest more as a result. Development Economics estimates that with such a reform, within ten years, additional business rates revenues of £70m per year would be generated for the Exchequer.
A 20% cut would also protect and create over 17,000 retail jobs which might otherwise be under threat and deliver benefits to UK high streets, which rely on the pull of major retailers in order to support other economic activity in their town centres. It would also boost GVA – a key measure of a sector’s contribution to the economy – by £400m per year.
Simon Roberts, Chief Executive of Sainsbury’s, commented: “All responsible retailers want to pay their fair share of tax, but the current business rates system has become an enormous burden on our industry. It is no longer fit for purpose. It has failed to keep pace with major changes in how customers are now shopping and how much our retail industry has changed over the last decade. As a result, it is directly causing store closures and job losses across the sector.
“We believe there is a better way – one that will contribute to higher economic growth and help our communities to thrive. Today’s report shows that reducing business rates would enable businesses to invest in more stores, creating jobs and generating prosperity. We welcome the new government’s manifesto commitment to reform business rates and hope that it will move quickly to deliver on this promise, which would deliver real benefits for communities, employees and businesses alike.”
Paddy Lillis, General Secretary of USDAW, added: “The scale of the challenge the retail industry faces is huge, with very high numbers of job losses and store closures that are scarring our high streets and communities.
“A robust plan is needed for the future of retail work that addresses both the immediate and urgent priorities facing the industry and staff, as well as wider measures to help deliver better jobs. We need a co-ordinated and inclusive approach, involving all key stakeholders.
“The current business rates system is not fit for purpose, as it places bricks and mortar retailers at a significant disadvantage to online retail. In effect, this amounts to nothing more than an unfair tax on shops and action has to be taken to level the playing field.
“We strongly welcome the manifesto commitment from the Labour Government to take action on this issue. We are keen to work with government and business to ensure that business rates are replaced with a fairer system, which allows our high streets, towns and cities to thrive.”
NAM Implications:
- A significant breakthrough if government planning windows were as wide as 10 years.
- i.e. shorter time periods related to election schedules might garner more political attention.
- Online retailing now has sufficient momentum to survive sharing some of the retail business tax burden.
- (but fulfilment costs still need adequate factoring into the system)
