18 Jul 2022

Why there must not be downwards transition following Revaluation 2023


No comment on the retail market can be complete without mentioning the “elephant in the room“ business rates which has had, in the last few years, such an impact on occupier costs, the viability of physical shops and ultimately jobs in the sector as our newly-launched Midsummer Retail Report points out.

On the plus side we at last have the rating revaluation in 2023 to look forward to - whereby rates bills should be based on rental values of 2021. In some locations retail rental levels have fallen 50 or 70 per cent since the 2015 valuation date for the current rating list - and this should hopefully mean rates bills will come down dramatically for many in the sector. This drop will make a massive difference to the business's running costs.

But this will be meaningless if the government does not allow business rates reductions to be implemented immediately rather than spreading them over the years of the list in a transitional arrangement as it did in the 2017 List.

Downwards transition meant many businesses in the sector paid too high business rates for too long. It was a key factor in the demise of Toys R Us, Laura Ashley and other high street brands and had a major impact on the high streets of many of the UK's provincial and poorer towns- areas of the country the government claims it wishes to “Level Up.”

The government now has a golden opportunity to make a difference. We suggest the government announces there will be no downward transition following the revaluation in 2023 and that rates bills immediately find their true level, comparable to rents. We are saying as much in our response to the government's recently announced consultation.

We do not think this necessarily rules out a rise cap on those sectors which will see a big rise in business rates- last revaluation some businesses saw their rates bills rise 40 per cent and this was with upwards transition! We need to be practical - any 50 per cent plus rises in year one could have a detrimental impact on business. But rather we think the government should accept that maybe it does not need to collect a full £26 billion in business rates every year. There is no legal obligation to do so.

Retailers and other high street operators are considering their business plans now for next year and looking closely at their future business rates liabilities, particularly with the Covid-related reliefs coming to an end. It is essential the Chancellor provides reassurance that rates bills next year will immediately reflect the lower rents we are seeing in the market -providing incentives for businesses to keep or expand space and for property investors to invest in the sector across the UK.

Without this reassurance, the government's “levelling up agenda” will be meaningless. And the high street unlikely to get back on its feet.

The government has a golden opportunity to make a major impact on the future of physical retail and breathe new life into the high street. Let's hope immediate and short-term gain doesn't drown out the long-term benefits.

Pictured: John Webber, head of business rates, Colliers International.