Who Would Be A Retailer?

10 December 2011

There is no doubt that the current state of the retail sector in Northern Ireland is dire with relentless pressure assailing shop owners from all directions. The current depressed economic climate dictates significantly lower disposal income with spending in the shops directly impacted and retailers having to sacrifice margin due to the highly competitive environment. Add to this the diminished cross border trade arising from increased competitiveness and pricing south of the border and weaker currency margins coupled with the continued growth of internet sales, and you can begin to appreciate the pressures that are worryingly building within this sector.

There is a further factor lurking in the background that may be potentially the biggest threat to the retail sector – rates. Rates are a tax paid by all occupiers to reflect a contribution to public services and the principle of this is long established and accepted. However, rates are based on a rental valuation at a particular point in time and therein lies the crux of the problem. Currently all commercial rates payable are based on rental values assessed in 2001. Since that date, and more significantly over the last four years, most retail rental values have fallen by as much as 40% - 50% while the rates liability has remained fixed (subject to annual increases in the rate in the £). Rental values have not fallen to the same extent in the other key commercial sectors of office, industrial and warehousing therefore creating a significant imbalance against the retail sector. To date, Stormont has yet again postponed the revaluation of rateable values until 2015 at the earliest.

Therefore, many retailers are having to pay rates greatly in excess of what would be expected had a revaluation taken place in the last couple of years. The rates levy, more commonly known as the "Tesco Tax", is an attempt to deal with this imbalance but it is clearly a very blunt instrument and a cop out by Stormont rather than pushing ahead with a revaluation.

In effect, the rates levy as currently proposed targets increased rates payments from approximately 50 large retail stores. These funds will then help provide a subsidy to small business occupiers including office occupiers, banks and financial services therefore subsidising businesses probably less deserving than the retail sector!

Unless Stormont takes urgent action, I can only see very dark times ahead with many retailers unable to sustain this level of rates burden and ultimately being forced out of business. Even if Stormont were to suddenly wake up to this problem, I fear that it would be too late for many retailers as early 2012 will clearly be a critical time for many of the independent Northern Ireland retailers as they try to battle on in the aftermath of a difficult Christmas.

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