Transitional relief undermines the government’s “levelling up” agenda

The British Retail Consortium has analysed new data from the Ministry of Housing, Communities and Local Government which show the extent of the distorting and disruptive nature of the transitional relief component of the business rates system. The data give an indication of how just one element of business rates can create regional disparities and adversely affect store viability, particularly on the high street.

Business rates are based on the rateable value of a property. Transitional relief limits the speed at which a firm’s business rates liability changes in response to a rise or fall in its rateable value. The relief staggers the speed at which ‘underpayers’ move to their higher business rate liability (upwards transition), and funds this by slowing the speed at which ‘overpayers’ move to their lower liability (downwards phasing).

The Government’s data show that:

• Local authorities covering some of the worst affected constituencies in the North and Midlands lost out through transitional relief by up to £22m over the last three years.
• In North Lincolnshire alone, £12m was overpaid by businesses through transitional relief in 2017/18.
• Retail has contributed 37% of the total cost of transitional relief over the past three years

For retailers, the relief means subsidising other industries by a net £543m over the last three years, whilst locations outside London have subsidised London businesses by a net £596m over the same period.

Retail remains the largest private sector employer in the UK, employing approximately three million people. The industry invested over £1bn in new technology, helping to drive up productivity growth to 5.1% (vs 0.5% UK average) in 2018. Despite this massive investment in the future, it faces some of the highest taxes of any industry. Retail accounts for 5% of the UK economy, yet is burdened with 10% of all business taxes, and 25% of business rates.

Helen Dickinson OBE, chief executive of the British Retail Consortium, said:

“The chancellor must now show that the government is serious about levelling up all the regions of the country and address our broken business rates system in his Budget. While the promise of a fundamental review is a positive step in the right direction, the government’s own data show the regional disparity and perverse incentive to business created by transitional relief. The chancellor can provide much needed respite for businesses in the North and Midlands now with a simple change to the relief that would save some areas millions in overpaid rates bills. This is a real opportunity to make a firm and tangible statement of support for businesses that want to remain a central part of communities up and down the UK and to help government achieve its aim of levelling up the country.”