'Every Little Helps' - Business Rates Boost For UK High Streets

23/12/2013 11:02 GMT | Updated 19/02/2014 10:59 GMT

There's a well-known retailer who I won't name (although if I asked you to "mind the what?" you'll know I'm not talking about Next, H & M or Top Shop...)

And, earlier this week), this retailer made a special announcement. It's 50% sale, which began over a week ago, has now become a 60% sale. Think about it, clothes which were sold for £100 just a few weeks ago are now selling for £40, and this is almost a week before the traditional Boxing Day sales are meant to start.

This shows just how cutthroat competition on the High Street has become. Every penny counts, and the chance to save those pennies can persuade people to buy, making the difference between festive tills ringing and festive tills lying empty.

One of the reasons for launching a pre-Christmas bargain drive is the rise of internet shopping. Last year, saw more than 3.5 million items ordered on the site on "Cyber Monday", the first Monday in December, at a rate of around 41 items per second. This year's figures continue this upward trend with Amazon witnessing sales of 4.1 million items. That's one present each for almost 1 in 10 of us. Or, as Selfridges have so memorably pointed out this year, some will have "spent it on themselves". Either way, that's over four million items bought from the web that five years ago would have been bought from shops.

But the internet is not the only challenge facing high street retailers. Along with rents and staff costs, one of the biggest costs to your average high street shop is business rates, a property tax to help local authorities pay for local services.

Business rates are calculated based on the value of each particular property. The thinking behind this is the more valuable the property, the more the owner should pay in business rates. While simple in theory, it does create problems in practice as property prices can go up (as in the 2000s) and spectacularly down (as we've seen since 2008). To help get round this problem, and to reflect the amount of work required to value hundreds of thousands of properties across England & Wales, every property is valued in a five year cycle, with an automatic uplift each year linked to inflation.

Again, this is relatively straightforward, but the five year programme has a problem. What happens if properties are valued at the height of a property boom? While values crash, rates are still paid at sky-high values, and, to make things worse, the rates increase each year based on inflation. That's exactly what retailers have faced in the last three years as the 2010 revaluation was based on 2008 pre-crunch values.

This may sound unfair, but the counter argument is that retailers benefit when values are pegged at recession values. There is a view that these cycles cancel each other out, so that what retailers gain on the swings, they lose on the roundabouts.

While that may be true in theory, the main beef retailers have now is that earlier this year the Government postponed the scheduled 2015 revaluation by two years. This effectively forced retailers to pay their 2010 business rates for an extra two years, so that they would not benefit from any fall in values, and would keep paying at already inflated levels. It is estimated that this decision will cost shops outside London over £200 million in 2015 and 2016. This 'moving of goalposts' seems unfair, but despite opposition from major retailers and industry bodies, the Government is not for changing its mind. Instead, in the Autumn Statement, the Chancellor, George Osborne, made another announcement, which is at least good news for most. George Osborne announced a 3% cap, and further £1,000 discount for shops with a rateable value of up to £50,000, which applies to roughly 90% of all shops in England & Wales.

This is welcome news and provides a much needed boost to the retail sector. A shop with a rateable value of £50,000 should pay £529 less in 2015 than this year.

While measures such as these do not fundamentally address the problems with business rates and the lottery of valuation cycles, I doubt many retailers will be spending too much time on the wider debate this Christmas. For retailers, every penny counts, and if the Chancellor's announcement means many will pay less in business rates, itwill surely be enough to allow the sector to raise a toast.. It's not just the Christmas sales which have had an early boost this year - festive tills will ring longer and louder now that less business rates cash will be coming out of them.