Join our community of smart investors

Budget: Business rate cuts fail to comfort the high street

Experts are unconvinced that the chancellor's proposals will help restore the fortunes of the struggling UK high street
October 31, 2018

Will chancellor Philip Hammond’s decision to cut business rates, by a third for retailers in properties with a rateable value of less than £51,000, help stem the decline of the UK high street?

According to the Treasury, the move will result in lower bills for approximately 90 per cent of small businesses, including shops, pubs and cafés. But the extent to which it will protect against further high-profile retail collapses or correct the tax disparity between off and online retailers is doubtful. Mr Hammond reckons the new Digital Services Tax – due to be introduced in 2020 – will help even the playing field, by levying an additional 2 per cent on UK-revenues generated by social media groups, search engines and online marketplaces such as Amazon (US:AMZN).

But experts believe cutting rates and introducing a new levy won’t bolster the prosperity of Britain’s shopkeepers, nor encourage the regeneration of local town centres. That’s despite news of an additional £675m siphoned off to support plans to make town centres in England "fit for the future". And of the £400m expected to be raised by the new digital tax by 2022, it remains unclear how much if any will be redirected to make operating on the high street less onerous. Against the £8bn or so collected from retailer rates by local authorities in 2018-19, it all starts to feel rather insignificant.

Indeed, GlobalData’s UK retail research director Patrick O’Brien says physical retail chains "continue to bear a disproportionate burden of business rates" and, while the government intends to conduct a full review of the system, "it continues to avoid tackling the issue head on". These sentiments are shared by brokerage Shore Capital, which said the new policies were "not especially relevant" for larger listed retail groups, "particularly those seeking to re-engineer in these fast-moving times". As for the new digital tax, targeting companies with global revenues in the region of £500m might leave Amazon in plain sight, but smaller groups such as Asos (ASC) could find themselves exempt due to high levels of own-brand sales, which renders their ‘marketplace’ operation below the target threshold.

Hammerson chief executive David Atkins also warned about the UK trying to act alone in developing a fairer system, particularly when it comes to taxing multinational corporations. He says "an internationally agreed tax could be agreed between other countries before 2020" meaning a digital services tax "may never see light of day".