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Business rate hike may force UK’s shops to raise prices


Chancellor is urged to intervene as small businesses struggle with double whammy of bigger tax bill and weaker pound.

Britain’s retailers, already struggling with the economic uncertainty and volatile currency movements caused by the Brexit vote, face a £2.3bn tax hike next April, heightening fears that they will have to raise prices for consumers.

The amount retailers pay in business rates – a tax on their shops and warehouses – will surge by £465.8m a year on average for the next five years, a total of more than £2.3bn over that period, new research shows.

The tax increase highlights the pressure on retailers in the run-up to the autumn statement on Wednesday and has led to calls for Philip Hammond, the chancellor, to step in. As well as the rise in business rates, retailers are tackling a slump in sterling – which has made importing goods more expensive – and the national living wage, which means every employee over the age of 25 must be paid at least £7.20 an hour. Dave Lewis, the boss of Tesco, has warned that retailers face a “potentially lethal cocktail” as costs rise while profits across the sector decline.

The price of some household goods such as Marmite has increased in some shops since Britain’s vote to leave the European Union and Mark Carney, the governor of the Bank of England, has warned that retailers will eventually pass on the rise in their costs to consumers.

Business rates have become controversial in the retail industry and have been blamed for the malaise on Britain’s high street. The tax is based on the value of commercial property and the annual rate of inflation, but retailers claim it takes no account of financial performance and they are overly burdened by the levy because they rely so heavily on property. Most high street retailers pay more in business rates than they do in corporation tax and claim it hands an unfair advantage to online-only retailers such as Amazon, because they control far less property.

The tax brought in £27.8bn for the Treasury last year, making it the sixth biggest source of income.

The new increase facing retailers is due to a revaluation of Britain’s property. The country’s commercial property is supposed to be revalued by the Valuation Office Agency every five years, but the government controversially delayed the last revaluation by two years, claiming it would create uncertainty among businesses. This will accentuate the changes that will come into force from April.

An analysis by Paul Turner-Mitchell, a business rates expert, and the property agent CVS has found that the business rates for 485,435 retail premises in England, which account for more than a quarter of all properties liable for rates, will rise from £7.7bn a year to £8.2bn over the next five years.

Mark Rigby, the chief executive of CVS, said: “The retail sector is facing a significant shift in structural dynamics, with most reporting challenging conditions ahead.

“Add to the mix the already ‘lethal cocktail’ of increased operating costs from the national living wage and apprenticeship levy, and a near half a billion pounds increase in business rates per year for the next five years is simply unsustainable.

“Something will have to give – whether that’s store closures or even higher prices at the till.”

Separately, business leaders from eight trade bodies have condemned government plans to clamp down on business rates appeals, claiming it could cost small and medium-sized companies more than £700m over the next five years.

A proposed new provision in the business rates system means businesses will only be able to challenge their rates bill if the margin of error is larger than 15%.

The Valuation Office Agency faces a backlog of tens of thousands of business rates appeals. The proposals could help to cut the backlog.

Martin McTague, policy director at the Federation of Small Businesses, said: “We welcomed the government’s ambition to make the business rates appeals system fairer and easier to navigate. However, it is hard to see how this proposal helps to achieve that aim.

“We believe this clause simply fails the fairness test and could result in the door being shut on small businesses who want to correct inaccuracies in valuations and reduce their rates bills. This research shows that businesses that are already struggling could be pushed into insolvency, with smaller firms particularly at risk.”

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