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UK retailers demand business rate cuts to save high street stores

The Guardian logo The Guardian 12/08/2019 Richard Partington Economics correspondent
a sign above a store: Bricks-and-mortar retailers have faced intense competition from online rivals over recent years. © Getty Images Bricks-and-mortar retailers have faced intense competition from online rivals over recent years.

More than 50 major UK retailers, including Marks & Spencer, Harrods and Iceland, have demanded tax cuts from the government to safeguard the future of the high street amid intense pressure from online rivals.

In a letter to the chancellor, Sajid Javid, the bosses of some of the nation’s biggest retail chains called for an urgent reform of the business rates system, which taxes companies based on the buildings they occupy.

Coming as the British economy stands on the brink of recession with the growing likelihood of no-deal Brexit, the retailers warned the strain was increasing on the sector and that greater government support was required.

LONDON, ENGLAND - JUNE 05: A general view of a Boots store on June 5, 2019 in London, England. The high street retailer, who employ over 120,000 people, have announced that up to 200 of their stores could close leading to hundreds of job losses. (Photo by Peter Summers/Getty Images) © 2019 Getty Images LONDON, ENGLAND - JUNE 05: A general view of a Boots store on June 5, 2019 in London, England. The high street retailer, who employ over 120,000 people, have announced that up to 200 of their stores could close leading to hundreds of job losses. (Photo by Peter Summers/Getty Images) In this context, the chief executives writing the letter said that Boris Johnson should place reforms to protect the high street at the heart of an economic package to boost business investment in Britain as the country leaves the EU.

Signed by the heads of Sainsbury’s, Asda and Morrisons, as well as Boots, Greggs and John Lewis, the retailers said the system of business rates was outdated and harmed investment, to the detriment of jobs and communities.

Gallery: House of Fraser and other big names vanishing from UK high streets (LoveMoney)

Retail is the largest private sector employer in the UK, employing approximately 3 million people. The industry accounts for around 5% of the British economy but pays about 10% of all business taxes and about 25% of business rates.

Bricks-and-mortar retailers have faced intense competition from online rivals over recent years, with the proportion of goods bought online rising to about a fifth of all sales. Digital retailers tend to face lower taxes as they occupy less physical space.

Amazon pays £63.4m in business rates, almost £40m less than Next, despite clocking up more than double the sales in the UK of the clothing retailer.

Shoppers walk past a branch of sporting goods retailer Sports Direct, owned by high street tycoon Mike Ashley, on Oxford Street in London, England, on July 13, 2019. New retail sales figures for the UK, covering June 2019, are to be released by the Office for National Statistics on Thursday, July 18. (Photo by David Cliff/NurPhoto via Getty Images) © David Cliff/NurPhoto Shoppers walk past a branch of sporting goods retailer Sports Direct, owned by high street tycoon Mike Ashley, on Oxford Street in London, England, on July 13, 2019. New retail sales figures for the UK, covering June 2019, are to be released by the Office for National Statistics on Thursday, July 18. (Photo by David Cliff/NurPhoto via Getty Images) According to the British Retail Consortium, which compiled the signatures on the letter, vacancy rates on the high street have risen to 10.3%, the highest since January 2015, in a sign of the gradual decline of town centres across the country. Average sales figures over the past 12 months have also dropped to the lowest on record.

Clive Lewis, the chairman of the fashion chain River Island, said: “The burden that rates places on all high street businesses not only stifles growth but is a major contributor to the closure of stores and the resulting decline in towns across the country.”

The retailers called for a freeze in the business rates multiplier, which is used by the government to raise the tax each year to reflect general inflation. They also called on Javid to alter a system of business rates relief, which allows firms time to adapt to an increase, to save companies £295m next year.

NEWPORT, UNITED KINGDOM - APRIL 19: Boarded up shops in Newport town centre on April 19, 2019 in Newport, United Kingdom. Large numbers of high street stores across the UK have closed as retailers adapt to changing consumer behaviour as more money is spent online. (Photo by Matthew Horwood/Getty Images) © 2019 Matthew Horwood NEWPORT, UNITED KINGDOM - APRIL 19: Boarded up shops in Newport town centre on April 19, 2019 in Newport, United Kingdom. Large numbers of high street stores across the UK have closed as retailers adapt to changing consumer behaviour as more money is spent online. (Photo by Matthew Horwood/Getty Images) Several major retailers have called for changes in the past in the face of rising online competition. Tesco has called for a 2% online sales tax that would help fund a cut in business rates for shops, while Mike Ashley has argued that retailers with more than 20% of their sales online should pay a 20% tax on digital sales.

Last year the former chancellor Philip Hammond announced the launch of a digital services tax from April 2020 that would hit online technology giants such as Amazon and Google.

A Treasury spokesperson said it would use its £3.6bn towns fund to support high streets, allowing them to attract greater football, jobs and investment, adding: “The chancellor will announce further details of the government’s policy programme in the coming weeks and months.”

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