The West End supports more than 350,000 jobs, attracts visitors from across the world and generates significant economic activity and tax revenue for the wider UK. If the cost of operating here continues to rise, the consequences will be felt well beyond London, says Dee Corsi
Two years of Autumn Budgets have heaped costs on to our flagship high street retailers – but could the third time be the charm? John Lewis and M&S, two of the most important brands in the West End, have made their cases publicly that they cannot absorb any further business rate hikes, and there’s signs that government might finally be listening, particularly following recent reports of proposed changes to online retail VAT collection to provide funds to reduce high street business rates.
This is about more than the fortunes of individual retailers. The West End supports more than 350,000 jobs, attracts visitors from across the world and generates significant economic activity and tax revenue for the wider UK. If the cost of operating here continues to rise, the consequences will be felt well beyond London.
Timing is critical. In a recent survey of New West End Company’s members, 75 per cent of respondents said business rates were the biggest or one of the biggest challenges affecting their business. The Autumn Budget must respond to that warning.
From 1st April this year, the higher business rates multiplier came into force and its impact on the West End is no longer a projection but a reality being felt all the way from the boardroom to the high street. The West End now has 335 stores that sit above the £500,000 rateable value threshold. Their combined annual rates liability has jumped from £212m to £274m, representing an average increase of around £183,000 per property. These eye-watering sums are shaping current business decisions to invest, hire or grow in our capital.
Even for businesses on Oxford Street and Regent Street whose rateable values have not materially increased, they have still seen bills rise by around 20 per cent following the expiry of previous reliefs for retail, hospitality and leisure businesses earlier this year. That relief was also capped at £110,000 per business, which means that multi-site operators which anchor high streets across the country received the least protection and now face the largest exposure.
This is all on top of an additional £2.3bn annual cost to the retail sector from increased employer national insurance contributions, successive above-inflation rises in the National Living Wage, and new obligations introduced through the Employment Rights Act. This is not a single tax problem but a cumulative cost base that is becoming unworkable for many businesses.
What our members say
The evidence from our members could not be clearer. We heard from a selection of the West End’s largest retailers representing over 1.6m sq ft of retail space, and a number of property owners, which re-emphasised that business rates are a dominant concern. Every single business said the current rates environment would affect their business, 60 per cent have seen their rates bills rise by more than 10 per cent and 25 per cent have seen rates bills rise by more than 20 per cent.
The consequences are predictable and already unfolding, as rising rates suppress recruitment and investment, businesses are far more likely to delay growth than absorb costs they cannot pass on. The West End is the first-choice destination for millions of domestic and international tourists seeking world-class retail, leisure and entertainment in London, as reflected in our recent global benchmark report, Unlocking The London Advantage, but its global position is at risk without a tax environment to support its growth.
Calling for reform
The Autumn Budget is an opportunity for Andy Burnham’s government to understand what is at stake for retail, for high streets and the wider ecosystem that depends on them.
Firstly, in the short-term, we need to see a freeze to the higher multiplier immediately, with no increases to the so-called “warehouse tax” which disproportionately impacts flagship destinations including the West End. Second, and more medium term, movement from a slab-based to a slice-based multiplier system would mean that liability rises progressively rather than at damaging cliff edges, removing arbitrary limits on business that are detrimental to growth. And, finally, we need to see a longer term approach to the current three-year business rates review cycle to give businesses the long-term certainty they need to plan investments that typically span ten to twenty years.
Businesses in the West End and beyond deserve a rates system that is fair, proportionate and fit for purpose. The Budget is the moment to deliver it.
By Dee Corsi, Chief Executive, New West End Company