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6 August 2014

How relieving a million small businesses of business rates would help the high street

The high street is crying out for serious policy: let’s take a million small businesses out of paying business rates.

By Bill Grimsey Bill Grimsey

When David Cameron and Mary Portas strolled through Camden back in 2011 to launch a review into the future of the high street there was a sense that big ideas were beginning to take shape. Ministers were pushing the plight of our high streets up the agenda and the Government, it appeared, was ready to take serious action to support a vital British institution.

Fast forward three years and high hopes of a policy breakthrough simply haven’t materialised. Instead we’ve seen taxpayers’ money frittered away on frivolous items like Peppa Pig costumes and gorilla statues under the government’s failed Portas Pilots. We’ve seen the biggest increase in business rates in 20 years, reality TV high street makeovers that unravel as soon as the cameras leave and community institutions like the Post Office lose millions and see their existence threatened after ministers cancelled an agreed DVLA contract.

Add to this the confusing messages on planning, ministers arguing that an explosion of betting shops, fast-food outlets and payday lenders is a sign of a thriving high street and the baffling decision to cancel a much-needed business rates revaluation and the full scale of government failure becomes clear.

Today, consumer confidence and high street footfall is down, retail insolvencies have just hit a five-year high and there remain over 40,000 empty shops in the UK.

It’s time ministers stopped fiddling in the margins and faced up to the fact that high street policy under this government has been laughably lightweight. Serious policy is desperately needed and that’s why I’m calling on the government to remove over one million small businesses from paying business rates.

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There are almost 1.2m small businesses occupying properties with a rateable value of less than £12,000 and they account for approximately six per cent of the total business rates tax take. With the right political will government can remove these altogether from paying business rates with the cost to the taxpayer outweighed by the boost to enterprise and massive efficiency savings to be made.

This could not only be the difference between high streets having a fighting chance of survival but ultimately kick-start a small business renaissance.

I’ve lost count of times I’ve heard traders explain that business rates are the reason they’ve had to shut shop. I’ve met traders whose business rates bill is three times higher than their rent and listened to entrepreneurs explain that business rates are the sole reason they don’t want to open a high street venture. This is a tax that bears no relation to a business’ ability to pay, stifles investment and prevents good ideas taking root on the high street.

So let’s give small businesses the best possible chance of becoming the thriving model of a sustainable high street recovery. Exempting them from paying business rates can be done in a way that’s affordable to the Treasury by having a bonfire of bureaucracy at the outdated quango that sets business rates.

If the government were to streamline the Valuation Office Agency, get rid of the monster of administration that’s been created and introduce fairer annual revaluations like they have in Holland then they’d make enormous savings in transitional relief, reduced appeals and administration costs. In this parliament alone, the government is set to spend over £1bn on transitional relief. Council administration costs would also be slashed, as they’d no longer have to collect rates from small businesses and in many cases obtain summonses for non-payment.

So making much-needed reform to a lumbering, unresponsive quango and bringing in annual revaluations can help pay for a tax cut for businesses that are effectively the lifeblood of communities and which have suffered the worst from the economic downturn.

There are plenty more measures the government needs to take to help our high streets adapt to the needs of the 21st century. But after all the hype and headlines ministers have created around the high street there is not one bold policy of any significance to show for it.

Freeing more than a million businesses from rates would be such a policy.

David Cameron has promised to look at business rates in 2017 but that’s just too late and thousands more businesses will have gone bust by then. We should be under no illusion that our high streets will ever return to the model of years gone by, because they won’t. But if we’re going to shift to a community-led model then small innovative ventures will be vital and that’s why ministers need to change their mindset from “big is best” to “small is beautiful”. 

But above all ministers need to properly break free from the policy paralysis that typifies their approach to the high street and discover some political courage to introduce the bold policies that are needed.

Bill Grimsey is Labour’s high streets adviser and former chief executive of Wickes and Iceland