Downwards Transition (Plus Inflation) Could Cost the Retail Sector £2.7 billion in extra Business Rates Says Colliers

With high rates of inflation on the cards, ratings experts tell government it’s even more important to abolish downward transition to support beleaguered sector

Colliers’ commercial rate experts are urging the government to remove fears that the expected cut in commercial rate bills for the retail sector in England will be significantly diluted by transitional relief, at a cost of around £2.68 billion for the sector alone over the three years of the new 2023 list. And higher inflation rates since the early 1990s have made matters worse.

With August CPI announced today at 9.9% and expected to be 11% for September, Colliers urges the government to announce that it will approve expected reductions in commercial rate bills following the next revaluation in April 2023 . immediatelyinstead of slowly introducing them over the three years of the new list.

In the first commercial property revaluation since 2017, retailers currently paying around £7.625bn of the £26bn tax are expecting substantial reductions in one of their biggest expenses, as in most regions of the country values rent for the retail sector have fallen considerably. in recent years.

However, as part of each revaluation, the government decides whether to implement transitional relief that is divided into reductions and increases.

The retail sector as a whole has a total taxable value of c£15.8bn, which Colliers says is expected to drop to £12.64bn* following an estimated 20% average drop in rents.

On paper, this should mean that next year, from April 2023, companies in the retail sector will have to pay £6.46bn in commercial fees. However, if gradual reductions are introduced due to a downward transition policy, Colliers estimates that the sector will in fact pay c£8.11bn, £1.65bn more than it should be and for some companies retailers, due to inflation levels, higher bills that they are paying now.

And over the three years listed, retailers who should be paying a total merchant fee bill of c£21.45bn will in fact pay c£24.13bn if a downward transition is introduced. – an extra £2.68 billion more.

According to Colliers, the downward transition that followed the last revaluation in 2017 was one of the key factors in keeping fee bills higher than they should have been in the struggling retail sector and led to the closure of retailers like ToysRUs. and Laura Ashley, even before the pandemic. paste.

John Webber, Head of Commercial Rates at Colliers, said: “We have been campaigning to remove the downward transition and have made our case forcefully to the government in their recent consultation on the issue which closed in August.

“Many retailers have been hit hard in recent years and they really need to see reductions in their merchant fee bills immediately in 2023, not gradually. The sector is already under immense pressure following the energy crisis and high trade rates could push many to the brink. Traders in the sector will be considering their trading plans now for the year ahead and keeping a close eye on their future trading rate liabilities, particularly now that Covid-related relief has come to an end. Some may well end up making drastic decisions.

He continued: “Our figures, based on an average 20% drop in rental values, are actually very conservative. For many stores, particularly in malls and on subprime high streets, rents have fallen further, reaching drops of 40% or even 60%. For these businesses, an out-of-tune phasing out of their commercial rate bills will be disastrous.

“There is no downward transition in Scotland or Wales, so why is it considered sensible for England?”*

“It is essential that the new prime minister takes this issue seriously and ensures that next year’s rate bills will immediately reflect the lower rents we are seeing in the market today, providing incentives for businesses to maintain or expand space and for real estate investors to invest in the sector. Without this reassurance, the government’s “leveling agenda” will be meaningless and the revival of Main Street will be a pie in the sky.

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