Retail’s lethal cocktail: Demands for reform as rates hike becomes the latest challenge for high street

The current revaluations of non-domestic properties’ rental yield – on which rates are calculated – are based on how the sector was assessed in 2015, with retail sales growth since then described by Mr Lonsdale as having “consistently been at a low ebb”.

The last quarter of 2016 saw a 0.5 per cent quarter-on-quarter fall in retail sales volume, as December inflation hit 1.6 per cent.

And the SRC has forecast that that almost one-quarter of all shops will close in the next decade as more shoppers migrate online. There has already been a seven per cent reduction in shop numbers, taking 10,000 jobs in the process – with areas such as Glasgow’s Sauchiehall Street seeing a raft of closures.

These changes have come in a period that has seen the tax burden on businesses continually spiral. In 2005, business rates made up one-third of all tax paid by retailers. By 2014 this was almost half.

And, while businesses account for 5.5 per cent of Scottish economic output, they pay 11.5 per cent of all business tax and one-quarter of all business rates.

“We’ve not even mentioned the cost pressures from Brexit and the sterling fall,” said Mr Lonsdale. “Costs are going up, retail sales are broadly flat or growing slowly, and retailers are grappling with that.

“Disposable income is being squeezed so are [retailers] able to pass the cost on to consumers? Do they take it on the chin through tighter margins or are they able to renegotiate with their suppliers? It’s a pretty lethal cocktail at the moment.”

The new rates, which will raise about £2.6 billion annually, come into force on April 1 following the 2015 revaluation, which was delayed two years. Given the previous revaluation took place in 2008, many retailers are facing exorbitant increases, while others – particularly in towns that have struggled in recent year – will likely benefit from reduced rates.

Mr Lonsdale said that the purpose of each revaluation is to readjust the rates burden among existing premises – with a large business supplement and small business relief scheme also playing a part – but, with confirmed valuations not expected to arrive until the middle of March, businesses were left in limbo.

“Those sub-sectors and those parts geographically of the economy that have done well over recent years, all things being equal will now find themselves paying more. If you’re in a part of the country not doing well, then in theory your rates liability will go down, or won’t go up,” he said.

That, however, is not always the case. Gary Walton, of businessratesadvice.com, which operates under Walton HPC, highlighted Dumbarton Road in Glasgow, noting: “Some retailers are facing 25 per cent increases while there are a good number of units available for let and values have generally stayed static.”

Mr Walton also cited examples of retail premises in Union Street, in Glasgow city centre, which has lost much of its attraction in recent years, and where values are widely perceived as having fallen.

Yet Game retail has seen its valuation soar from £56,000 to £66,000 and Fopp is going up from £84,000 to £100,000.

He added that there are signs of inconsistencies in the values of traditional office property, too: “In Bath Street, Glasgow, the general rental market has fallen without question yet the assessor has, in a good number of cases, pitched values at about the same level as the last valuation seven years ago, which is not based on reality.”

Glasgow shopping centre owners will welcome the latest revaluation with shops in the upper level of Buchanan Galleries coming down by about 40 per cent. Overall, the centre’s tenants will see a 25 per cent reduction, but shops on Buchanan Street itself are facing average nine per cent increases.

A property agent that represents shopping centres said that, since the draft valuations were published, deals are being discussed on vacant premises within the centres.

“Shopping centre tenants have been paying too much for too long and assessors have now corrected this and the gap between malls and high street premises has narrowed significantly,” said the agent.

Away from city centres, a shop in Monklands has seen its rateable value increase from £15,000 to £39,000, while a petrol forecourt in Ayrshire has seen a hike from £14,000 to £50,000.

Mr Walton said he was already being contacted by companies who are worried about the impact of their revaluation, and are certain to appeal. But these appeals may not be heard until 2018, leaving firms with thousands of pounds of monthly charges and no idea of when, if at all, they will be refunded.

Beyond the revaluation, business leaders have this month been giving evidence to the Barclay Review team, headed up by former Royal Bank of Scotland executive Ken Barclay. Its role is to make recommendations to the Government on rates reform.

Having described the current system variously as “prohibitive”, “irritating” and “debilitating”, Mr Lonsdale said the review could create a system that is sustainable for decades.

“For those premises affected by huge leaps in their likely rates bills, the current rates uncertainty comes on top of a system that is not fit for purpose, too complicated and too costly,” he said. “A simpler, more flexible, and more competitive rates system is urgently required.”

One of the major calls from business groups has been to reduce the revaluation period to three years, while also reducing the antecedent – the period between the valuation and subsequent changes coming into force – to one year from two. “There would be far fewer appeals, companies would be less inclined to appeal,” said Mr Lonsdale.

Pete Cheema, chief executive of the Scottish Grocers’ Federation said he also backed plans for the three-year cycle, but added that he would like to see independent businesses taken out of the rates system altogether.