U.K. Retailers Won’t See Major Tax Reforms in March Budget

  • Hammond has little room for maneuver in March budget: official
  • U.K. retailers railing against proposed tax hike on stores

U.K. Chancellor of the Exchequer Philip Hammond will be unable to offer significant concessions for retailers in his budget next month, according to an official familiar with his plans, though Prime Minister Theresa May promised relief for those hit hardest by increased taxes on their stores.

There is little room to help high street traders on March 8 as the scale of reform needed is too broad, the official said. With Brexit set to be triggered by the end of March, Hammond has limited capacity for giveaways, according to the official, who asked not to be identified because the talks are private. May told lawmakers in Parliament on Wednesday she will “make sure there’s appropriate relief” for those taking the biggest hit.

“We want to support businesses,” May said. “I recognize there has been particular concern."

Business rates, a tax on commercial properties, earn the government about 26 billion pounds ($31 billion) a year, according to real estate advisers Colliers International. A revaluation of the levy, determined by the rental value of the premises, rather than the sales generated by the site, is set to come into effect in England, Scotland and Wales in April.

“The business rates system is out of line with any other developed country, it’s no longer fit for purpose,” Helen Dickinson, chief executive of the British Retail Consortium, said in a telephone interview. “The government is persisting with this system because it’s a great revenue generator. From the Treasury’s point of view, it’s a lovely tax.”

Reform Recommendations

The House of Commons’ cross-party Treasury Committee said on Wednesday it will make recommendations for the reform of business rates in its scrutiny of the March Budget and will ask Hammond for details of the fiscal impact of possible changes.

A boom in property prices -- particularly across London and the south east of England -- means many businesses will suffer dramatic increases to one of their largest outgoings. The rental value on shops in some central London districts has jumped by more than 200 percent, according to Colliers.

U.K. retailers -- from multi-billion pound businesses such as J Sainsbury Plc to small independents -- have pressured the government to reform a system which they claim doesn’t reflect their industry in the 21st century. Lawmakers, including some from May’s Conservative Party, have been vocal in their support for the campaign.

Online Retailers

Store-based retailers say they are being unfairly discriminated against because business rates have little impact on online-only retailers such as Amazon.com Inc. Online sales account for over 12 percent of all retail sales in the U.K., the highest proportion globally, according to Mintel.

Retailers hoping for significant reforms may have to wait till later this year. The Treasury official acknowledged that the current system is out of step with the rise of the digital economy, saying Hammond is in “listening mode.”

Changes to the tax system could be introduced at the autumn budget, which will become the chancellor’s main fiscal event of the year, the official said. In the meantime Hammond will seek to soften the impact of the increases.

Business rates are typically revalued every five years. The government delayed this year’s review by two years, claiming it would create uncertainty among businesses, in the process making this year’s increases more dramatic.

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