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Tax Cut Gifts British Retailers Much-Needed Breathing Room

U.K. retailers received an early holiday present from the British finance minister, who cut the business rates tax by 50 percent—but only for one year.

U.K.’s finance minister Rishi Sunak has been reviewing the business rate system, which many retailers have described as burdensome in light of the shift in consumer purchases from brick-and-mortar to online. On Wednesday, Sunak presented his budget to parliament and said there would be a discount of 50 percent for hard-hit businesses, such as retailers, for a period of one year. The rates were suspended during the pandemic for retailers. Her Majesty’s Treasury, the equivalent of the Treasury Department in the U.S., said that there would be two budgets in 2021 and the budget Sunak presented was the second of two for 2021.

“We’re introducing a new investment relief to encourage businesses to adopt green technologies like solar panels,” Sunak said, according to a Reuters report. The finance minister added that while he could try to ease the burden, he couldn’t abolish a tax that brings in 25 billion pounds ($34 billion) to the treasury’s coffers.

In another change, Sunak said the property valuations would be reviewed every three years instead of every five, and that the business rates multiplier would be frozen in year two of the cycle under the new system. He also put on hold a planned annual increase in the rates.

The country charges business rates on commercial property based on the property’s valuation. The rates are essentially a tax in exchange for the right to occupy the commercial space. Rates are typically 50 percent of the annual rate, according to real estate firm Knight Frank.

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Sunak has been under pressure from retailers to ease their tax burden. The pandemic’s after-effects worsened store vacancy rates along the U.K. high streets and retailers say the legacy business system no longer reflects digital’s place in retail.

Frasers Group in particular has been vocal about the need for change in how the U.K. government assesses the business rates. David Daly, Frasers’ chairman, called the current rates “excessive” in August, when the company report full year results for the period ended April 25, 2021. He even stated that an outdated business rates system could even possibly jeopardize some House of Fraser locations.

Also in August, the British Retail Consortium (BRC) said that while retail sales remained strong, it saw signs that the rate of growth is slowing. BRC’s CEO, Helen Dickinson OBE, said that the broken system continued to hold back retailers, and hindered vital investment into retail innovation. At the time, she was asking for a permanent cut to the business rates.

Just before the Autumn Budget was published on Oct. 27, the BRC submitted a report from WPI Strategy to Sunak’s office in support for a cut in the business tax burdens to prevent further store closures and job losses. In the BRC budget submission, Dickinson noted that without substantial reductions, “four out of five retailers would be forced to close additional stores across the country, further eroding the fabric of local communities.”