Dealing with the impact of business rates in the UK and globally

After key-note speeches from among others the Financial Secretary to the Treasury Mel Stride and CBI President John Allan at the Business Rates Conference it was time to hear from businesses about the impact the current business rates regime has on them.

And what better businesses than Tesco and InterContinental Hotel Group each representing sectors that keenly feel the effects of business rates to discuss their experiences. Retail having of course garnered attention over the past few months, with many high-profile stories in the media about the effect of business rates on the sector. But the burden of business rates goes beyond just the retail sector, and this piece will look at how business rates effects different sectors.

For the InterContinental Hotels Group (IHG), a multinational hospitality company, headquartered in the UK, business rates represent a unique challenge by international comparison. Matthew Woollard, IGH’s Group Finance Vice President – Europe Finance Operations, outlined the three key challenges the current Business Rates system poses for the hospitality sectors:

1) The frequency of revaluations. While this challenge affects all business, it does pose unique challenges for the hospitality sector. The hotel trading environment is a volatile one with a discretionary ‘product’ both on the corporate as well as the leisure side. The point of time at which revaluations are made, might not be reflective of the next three to four years in that industry. An additional challenge is the way the rateable value is valued for hotels.

2) Impact on investment decisions. While this may not differ too much from other sectors, the hospitality sector is often faced with a binary choice to reduce costs or save because of the cumulative burden they face partly due to the high business rates. That choice is often between cutting staff numbers or cutting investment, with the latter being the obvious one. Additionally (and paradoxically) by investing in your property you often increase the rateable value thus increasing the issue you already face – a big business rates bill. Why does this matter? With investment at an all time low in the UK, and trailing behind our international counterparts, having a taxation system that disincentives business investment is nonsensical.

3) International comparison. With hotels often operating in more than once country, there is often a direct comparison that is drawn. And while there is no need to compare business taxes like for like, there is one important point Matthew made, this just isn’t a topic in other countries. Why? Because most other taxes tend to be linked to performance and while you might have other taxes such as a tourism tax, they are linked to revenue and thus tend to fluctuate with the performance of a hotel.

For Tesco, the UK supermarket giant which is heavily reliant on property, business rates represents a key challenge and one that is increasingly weighing down on investment plans. William Heald, Head of Government Relations at Tesco outlines the three key challenges of the current business rates system for retail:

1) Retail is at the forefront of the business rates challenge. The retail sector pays 25% of all Business Rates. It’s a property intensive industry and the burden of rates is increasing falling on large retailers. As the rates bill has grown it’s been particularly hard on retail. Transitional relief means that stores that may have seen their rates bill fall but may not see that feed through for years.

2) Discrepancy between bricks and mortar and online sales. The way that burden is falling is creating a disparity between bricks and mortar and online. So, while sales in bricks and mortar stores have fallen, the rates they pay have increased.

3) The current system is just not sustainable for the retail sector. Business rates have risen faster than any other business tax and because they are not linked to economic performance they are acting as a tax on investment. In the retail sectors this manifests itself in the closures of stores across the UK. And while the government has made changes, they do not go far enough. This is very much the same picture you see across different sectors and loops back to the point around business investment.

Share your views on the business rates system

We’re calling on the government to recognise the issue and take clear steps towards fundamental reforms to business rates – creating a fair and progressive system that works for every business.

To ensure the needs of business are taken into account, we want to hear from members. Get Involved.