The CEO of Sainsbury’s and the General Secretary of Usdaw have issued a stark warning: without urgent reform to business rates, up to 17,000 shops face closure.
This dire prediction highlights the significant impact that increased business rates have had on the retail sector.
The Key Barrier to Growth
Sainsbury’s CEO and Usdaw’s General Secretary stress that the outmoded business rates system is the biggest barrier to growth in the retail industry. Increasing business rates have surged in recent years, leading to financial pressures that could result in tens of thousands of job losses.
The No 1 barrier to growth in our industry is the outmoded business rates system, they argue, noting the system has only seen minor adjustments rather than meaningful reforms. This has led to declining high streets, stunted economic growth, and widespread job losses.
Research Supports Concerns
Research by Development Economics supports these concerns, suggesting that a 20 per cent reduction in business rates could save retailers £1 billion in the first year alone. This cut could safeguard or create over 17,000 jobs.
While a substantial rate cut might initially lower tax revenues, the boost in economic activity could generate a net positive return of £70 million annually for the government within a decade.
Economic Impact
Without intervention, Development Economics warns that 17,300 stores could close by 2033-34 under a worst-case scenario.
This would mean an average of 15 shop closures per town across England.
Approximately 42,000 jobs would be lost without action.
Not a Silver Bullet, but Crucial
Roberts and Lillis argue that while business rate reform isn’t a silver bullet for all economic issues, it is a crucial first step. Reform is necessary to stimulate growth, increase employment, and secure sustainable public funding.
The current system has seen the multiplier rate rise from 51.2p to 54.6p, significantly increasing financial strain on retailers.
Retail Sector Contributions
Although the retail sector represents just 5 per cent of the economy, it contributes roughly a fifth of the £32.1 billion in business rates revenue expected by the government this year.
These figures highlight the disproportionate burden placed on physical retailers compared to their online counterparts.
Political Pledges for Reform
The Labour Party, in its manifesto for the upcoming general election, has pledged to overhaul the business rate system.
The goal is to create a fairer environment that levels the playing field between digital and bricks-and-mortar retailers.
Digital retailers, due to minimal physical footprints, face much lower business rates, creating an uneven landscape.
Treasury’s Role
With the Treasury facing pressure to manage tight public finances, Chancellor Rachel Reeves must balance cuts with potential tax increases.
As part of a commitment to reform, the Treasury has pledged to replace business rates with a fairer system.
This reformed system aims to incentivise investment, address empty properties, and support entrepreneurship.
The warnings from Sainsbury’s CEO and Usdaw’s General Secretary underscore the urgent need for business rate reform.
Without action, thousands of shops and tens of thousands of jobs are at risk, threatening the future of the retail sector.