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A group of the UK’s biggest retailers including Tesco, Sainsbury’s and Greggs have written an open letter to Chancellor Rishi Sunak, asking him to permanently cut business rates to ‘level the playing field between online and bricks-and-mortar retailers’.
The letter to Sunak, signed by 11 leaders said, ‘A meaningful cut in the shops tax would make a big difference to retailers’ ability to invest more in the shops and stores we know customers value, as well as create jobs.’
Mitigating rising costs
A cut to business rates would also help independent retailers keep costs down for customers as the rising cost-of-living crisis forces the fine food industry to hike up prices.
As Andrew Goodacre, CEO of Bira, explains, “Fundamental changes to business rates that reduce the overall burden would benefit all retailers with physical stores. Business rates deter investment, do not reflect the trends in the business and are a real drain on the resources in a business. This is even more apparent in retailers with shops where there is a more challenging socio-economic environment – and it is these areas that need investment in property and people if we are to really achieve the levelling up agenda.
“In reality, many independent retailers receive the retail discount, currently set at a 50% reduction. This saving is welcome and is offsetting some of the other business cost increases we are seeing. However, we still endorse wider changes to the system that reduce this burden even further and this would allow the smaller retailer to invest in technology and energy-reducing initiatives.”
Put simply, it’s one less thing to worry about according to Mark Kacary, managing director of Norfolk Deli. “It might not pay for a whole member of staff, but it might allow businesses to invest that money on their business to improve their services, to enhance the customer experience, to support other small local businesses.”
More government action needed
But according to Bira, independent retailers need more help than a cut to business rates could provide.
While Andrew suggests that some of the pressures being felt by retailers may be seen as beyond government help – e.g. energy, some it has been imposed by the government itself.
“Interest rates have now risen again, with inflation expected to hit 10% and a gloomy economic outlook will dampen consumer confidence and consumer expenditure.
“Interest rates make the cost of borrowing higher. Many more indie retailers have debts in the form of loans as a result of Covid and we need to see more measures to help businesses pay back the bounce back loans. We may be leaving Covid behind us but the impact on the economy is still very real. The government could also offer stronger incentives for retailers to invest in energy-saving equipment, especially as it will only become worse in the Autumn.”
When it comes to energy prices, Mark insists that independent retailers need to be protected by a cap that would prevent sky-high prices they cannot absorb. He explains, “As we know with energy costs constantly rising, private consumers are at the very least protected with some level of a cap, whereas small businesses are not.
“There is only one option therefore for a small business and that is to raise its prices. This in turn makes everything more expensive and turns customers away and towards the huge retailers who are suffering from energy costs but who will suffer by reporting their profits in the millions instead of the usual tens of millions.”
An online sales tax
The big retailers have proposed the cost to the government of removing business taxes could be recuperated by an online sales tax.
But Mark questions how this would work for fine food retail, where individual profits are nowhere near the millions reported by the big five supermarkets. “As with income tax, where if you earn below a certain level you are not liable to tax, this principle could be a model to follow as an online sales tax. Online sales are likely to be an add-on to many small bricks and mortar retailers so to tax them in the way a dedicated online retailer might be taxed could be viewed as being inappropriate or unfair. Similarly, should a business like ours pay the same level of online sales tax as Tesco? The question is, at what stage would a business selling online start paying tax?”
Bira has suggested a £2million sales threshold to be imposed alongside any online sales taxes, as it would therefore only apply to bigger retailers who can absorb this tax rather than independent businesses with much smaller profit margins.
Andrew explains, “Based on our most recent survey, our members are in favour of the online sales tax if any income is used to reduce the overall rates burden. It is true that smaller retailers are looking to create hybrid retailing offers and we would also propose a £2M online sales threshold for the OST, i.e., businesses selling less than this online would be exempt.
“This allows smaller retailers to grow their online presence and reduces the unnecessary burden on them (for instance, if OST was introduced without a threshold, small retailers would be doing a lot of admin to pay a small amount of tax).”
Whatever the outcome of the open letter to Rishi Sunak, independent retailers across the board are hoping that they are factored into the equation and not forgotten in the wake of the big five.