The British Retail Consortium (BRC) has been sounding the alarm bells over business rates as it reveals that 80,000 shops may not be able to renew their leases when they come up for renewal. Of course, the main pressure on retailers is the growth of internet shopping and other consumer habits. However, the business rates system has not been reformed for decades and many small independent stores face very high bills that they say do not reflect the demand for the retail space they are occupying. In some cases business rates are higher than the actual rent that retailers pay. This is because they are based on valuations many years ago and they are linked to the Retail Price Index (RPI) instead of the Consumer Price Index (CPI). The RPI has lost most of its credibility among economists as a measure or benchmark.
The BRC are not the only ones calling for reform. The Confederation of British Industry (CBI) also believes it is holding back business investment. They want to see more frequent revaluations, exemptions for smaller properties and for rises to be linked to CPI.
The problem facing all small businesses is that the rates are now the sixth largest revenue generator, contributing £28bn to the treasury, so almost as much as council tax - it is going to be hard to see any real reductions.
This is especially so, given that the government has pledged not to increase taxes in this parliament. George Osborne has promised a review of rates starting in the Autumn Statement but he has indicated that it will need to be “fiscally neutral”. This implies that not much reform is likely but perhaps a nod to the hard working small shop owners.