Business rates: Frasers joins calls for change as Beales overpayment tops £1m

By

Sandra Halliday

Published
Jan 15, 2020

After the CEO of Beales said the company was being crushed by business rates, an executive at Frasers Group (formerly Sports Direct) has called on the British government to reform the system to help ease the pressure on retailers.

And a major real estate specialist has also called the system “absurd” and “perverse” as it forces struggling retailers to pay more than they would have done under the older system.

Frasers has written to the Prime Minister calling for changes to what's known as transitional relief. This is a mechanism that should help retailers by adjusting their rates as their property values rise or fall. 

But a letter from Frasers’ CFO Chris Wootton said that “the current transitional relief results in stores paying the incorrect amount of rates”. It added that businesses where valuations are rising “are benefiting from not paying as much", while retailers facing a downwards trajectory “are paying far too much” and are “in need of support”.

WHAT IS TRANSITIONAL RELIEF?

The transitional relief system was designed to slow down the pace of business rates rises following an upwards rent revaluation, phasing the rises over a four-year period. But to keep total business rates revenue neutral, in areas where rents were dropping, retailers had to put up with their business rates reductions also being phased in slowly. This meant many struggling companies paying more than they should be, whether or not they could afford to.

The system was originally set up when store rents in general were on an upward trajectory, regardless of overall conditions in the wider retail sector, and so made sense in some ways. But several years of retail weakness have meant rent drops in many areas. Those locations that are still seeing rising rents tend to reflect more buoyant retail activity, while those with falling rents reflect an area that’s struggling. 

A statement from real estate specialist Colliers International on Wednesday added to the calls for change saying that the fact that Beales is close to collapse makes it the “latest victim of the absurdity of the business rates system, particularly transitional relief”.

Head of Business Rates at Colliers international, John Webber, said Beales’ 22 regional stores are paying a total of £2.847 million in business rates this year. But Colliers has estimated that this is more than they should be paying “due to downwards phasing introduced following the 2017 revaluation”. 

Adding up the four years of overpayment by Beales, Colliers estimates that the retailer has paid £1.06 million in business rates more than it should have in the years since the revaluation. It said Beales saw a 14% decline in its rateable value in the 2017 valuation and therefore should have seen a 14% reduction in its rates bill. But it only saw a 3% drop in 2017/18 and in subsequent years, the drops were 1% and 2%.

Meanwhile, the Frasers CFO said the government has also been focused on helping small businesses and isn’t addressing the “dire straits many of the medium and large stores on our high streets find themselves in”.