West Midlands businesses forced into drastic action to slash their cost base as they battle to survive may be missing a trick, according to a Birmingham-based rating specialist.
Retailers have been shedding staff, closing shops and attempting to renegotiate rents as they struggle to make ends meet in the wake of the worst recession for decades.
However, there is one cost-cutting measure they may not have considered which could prove to be the difference between life and death, between survival and collapse.
According to Colin Whelan, the new head of rating at Birmingham-based chartered surveyors Johnson Fellows, reducing the business rate burden could save entire companies at a time when every job is a precious commodity. He has urged business owners to consider appealing against the level of business rates they are being charged.
He said: “Johnson Fellows advises many occupiers and landlords of stores throughout the UK and most, if not all, retailers are looking at ways to reduce their cost base at the moment. What we have found with many of our clients is that rates seem to be put on the back burner. Everyone looks at reducing rents and staffing costs but many have ignored their business rates as a potential source of cost savings.”
Rateable Values are set at a point in time every five years. The current list is based around rental figures as at April 1st, 2008, the antecedent valuation date. Businesses began paying rates based on these figures from April 1st, 2010.
“The problem we have got with the current list is that the 1st April 2008 was before the current tough economic conditions kicked in. Therefore, properties were valued at the peak of the market and the resulting rates introduced when the country was in the depths of the recession. It is fair for landlords and tenants to tell the Government that they are enforcing costs based on a market that doesn’t exist,” said Colin.
Nick Wint, partner at Johnson Fellows, said: “Business rates are a major expense for businesses. It is the second highest occupational cost. There is no doubt in my mind that reducing this cost could save jobs.
“The giants of the High Street understand that they are entitled to appeal and may be awarded significant reductions but the majority of small businesses don’t know they can take this course of action. The appeal process can take from eight months up to five years, so the sooner an appeal is lodged the better.
“Remember, a business rate appeal is in effect fighting against the Government – it is such a slow process and in the meantime businesses can go bump. We would call for the Government to speed up the process to help businesses survive.”
Grounds for appeal are varied and can include situations where a large business or shopping development has opened nearby, having an impact on stores in the neighbouring areas. Examples include Touchwood in Solihull and the Bull Ring in Birmingham.
Colin, who will lead the company’s drive to help businesses reduce their business rates burden, added: “The ratings system is not conducive to being easily understood. We may still be a nation of shopkeepers but very few of those shopkeepers understand the appeal process. As agents of the Government, the Valuation Office is going to defend its tax take but we are saying that they are taking too much because they have either made mistakes in their assessments or they are not taking certain mitigating factors into consideration.”
Historically, two thirds of the High Street is occupied by independent retailers who are facing increasing competition from supermarkets, out of town retail parks and the internet. National shop vacancy rates are currently at 14.5% (February 2011), which is a drop of 2.5% from the end of 2009 [information from the Local Data Company].
Meanwhile, yet more pressure is being created by the scrapping of empty property relief next month. As consumer confidence appears to crash with the increasing threat of a rise in interest rates, it is hardly the ideal time for the Government to pull the rug on its empty property rates scheme.
In April 2008, the government cancelled relief from business rates on empty non-domestic properties in the Rating (Empty Properties) Act 2007. Since then we have gone through a recession where the Government has assisted small businesses with various alterations to the thresholds.
With a recession looming, the Chancellor announced in the 2008 Pre Budget Report that a one year holiday would be given to assist small business with vacant buildings. The threshold was increased, exempting empty commercial properties, up to £15,000 RV, which it stated would benefit 70% of property owners.
In the midst of a recession, in the 2010 Budget, it was announced that the empty rates holiday would be extended for another year, 2010/2011 rates year, and the threshold would increase from £15,000 to £18,000 RV.
In the 2010 budget, Chancellor Alistair Darling announced that empty properties with a rateable value of less than £18,000 would be exempt from paying business rates for the 2010/2011 period.
However, from April 1st vacant properties will be hit with a double whammy as the threat of a double dip recession still lingers.
“The current empty rates scheme was brought in by the Government to help small businesses through the hard times. With banks refusing to help small businesses at present and Birmingham currently having one of the highest unemployment figures in the country, now is not the time to impose higher costs on businesses.
“If only the Government could see that by helping small businesses through these hard times it would also help the region grow,” added Colin.