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One in five London shops to go bust, warns tycoon
David Cohen16 Feb 2009
London's high streets are set to take on the appearance of boarded-up wastelands as the number of retailers expected to go bust rockets.
City analysts BDO Stoy Hayward forecast that around 36,500 UK businesses will fail this year. That's 100 a day - more than double last year's figures - but some retailers such as Lush founder Mark Constantine say even this is conservative and that one in five London shops will be shuttered by the end of 2009.
You might expect the Government to give business all the help it can in such desperate times. Instead Gordon Brown will push shops to breaking point by raising a further £1.15 billion in business taxes from this April - a five per cent increase based on a statistical blip at a time when the inflation rate is heading into minus figures.
London's Mayor Boris Johnson, the Conservative Party, business leaders, trade federations and top retailers are united in accusing the Prime Minister of being gravely out of touch with the bloodbath on the high street and hsay that to impose a rise at this time is "perverse".
Mayor Johnson said the information he has shows that "for many businesses, the proposed increase in business rates could prove the final straw, making the difference between keeping going and folding".
He urged the Government to ensure there is powerful transitional relief so that rates are either frozen or kept to an absolute minimum while the downturn lasts. "We must do everything we can to keep companies going and people working," he said.
The CBI, which today published forecasts that the economy will contract by 3.3 per cent this year with unemployment rising to 2.9 million, said that a freeze in business rates is a "relatively quick and painless thing the Government can do to immediately boost business" and said that an "inflation-busting rise will hit cash-strapped firms at the worst possible time".
But the Government, which already collects £17 billion in business rates nationally and is set to raise more than £4.5 billion from London businesses this year, a 65 per cent increase on £2.7 billion collected 10 years ago, is determined to ignore their pleas.
A spokesman for Hazel Blears, Secretary of State for Communities and Local Government, said the Government has "no plans whatsoever" to freeze business rates.
It would stick to its formula in which rates are adjusted by the previous September's inflation (retail price index) rate, which in September 2008 was five per cent [a 17-year high], although the RPI fell to 0.9 per cent in December and is expected to hit -4.4 per cent later this year.
"If inflation is still low this September, companies will get the benefit in next year's bills," the spokesman said. "In terms of the credit crunch, the Government is providing real support, including free business health checks, skills training, and debt advice."
Free health checks? Critics say it beggars belief to think that this is its attempt to help the high street when businesses rates, which currently range from an average per firm of £39,578 in the City of London to £6,599 in Waltham Forest, are set to drain stretched bank balances still further.
Caroline Spelman, shadow communities and local government secretary, said: "This is the worst possible time to ratchet up taxes on London firms. Labour ministers have their heads in the sand over the effects of this rise, which has come about because of a statistical blip in the inflation figures.
"The Government needs to look again at the methodology, otherwise it could be the nail in the coffin for many struggling firms across London."
The CBI said it had written to the Prime Minister calling for a freeze on business rates as part of a 10-point plan to ease cash flow for business but its advice had not been heeded.
A spokesman for the Institute of Directors said the Government missed a trick when it "wasted £12.5 billion on its silly VAT cut" and that a business rates freeze, which would have cost only £1 billion, "would have provided a far more powerful fiscal stimulus".
A firm's business rates are calculated as a fixed percentage (currently 46.2 per cent) of its "rateable value", broadly the open market rental, so that larger shops such as supermarkets pay proportionately higher rates than smaller outlets such as newsagents.
Paradoxically, smaller businesses are most affected by the rise in rates, which is one of their biggest expenses and typically represents eight to 10 per cent of turnover, compared with just two per cent of turnover for large outlets.
Nevertheless, top retailers say business rates are a huge burden and have pressed the Government to reverse what they think will be a disastrous mistake. Stuart Rose, executive chairman of Marks & Spencer, said that given the extraordinary current trading climate, anything that adds extra costs to retailers is unhelpful and he would welcome sensible intervention.
Asda chief Andy Bond added: "The merits of raising business rates during the most challenging trading conditions experienced for decades are incomprehensible."
Ian Cheshire, chief executive of Kingfisher (owners of B&Q), said: "For retailers to be facing a five per cent increase at a time of falling inflation is perverse.
This could place some smaller retailers under real pressure, jeopardising their future and raising the prospect of more job losses."
CENTRAL LONDON
Mark Constantine, 56
Owner of eco-cosmetics chain Lush, with 600 stores worldwide
Business rates: Covent Garden store £40,848, King's Road £40,631
Why is it that our stores make an excellent profit in Japan and America but in Britain, despite having similar sales and costs, many of our 90 stores are loss-making?
The main difference, I have discovered, is business rates. In Japan and America, retailers pay business rates - or property tax, as it's rightfully called - only if they make a profit, whereas in the UK it's a fixed cost and we pay irrespective of whether we are profitable.
If the Government wants to prevent huge numbers of retailers going bust, it has got to urgently address this.
At my King's Road store, which is currently loss-making, business rates are our third biggest expense (after salaries and rent) and amount to 21 per cent of my turnover, which is huge.
Now they're set to rise another five per cent in April because the Government insists on applying an outdated measure of inflation that makes no sense in the current economic climate.
I had two shops in Carnaby Street that we left last summer because occupancy costs became too high. On the high street, rates can be the difference between life and death.
All around us, retailers are struggling to survive and I expect one in five retailers to be gone by the end of the year.
It beggars belief that Gordon Brown has not thought this through, and that instead of helping to regenerate business, the Government is actually making our survival harder by going ahead with the rates increase this April.
SOUTH LONDON
Kamal Patel, 50
Owner of newsagent News Studio at London Bridge
Business rates: £6,500
The five per cent rise in business rates this April comes at the worst possible time for small retailers like ourselves.
In the past when rates rose, we could make it up by putting on sales or increasing our prices but in today's business climate that is quite impossible. Our sales have slumped badly this year because of the credit crunch and it has become extremely tough to survive.
All around me shops are shutting down and it makes you scared you will be next.
I don't know what benefit we get for these rates. Unlike householders who have their rubbish collected, we don't even get that and have to pay another £300 a year for business waste collection.
The system lacks accountability: the local council has no say in how much tax is collected from local businesses and redistributed to the council, so there is no incentive to be efficient.
The Government needs to rethink its approach to business rates to prevent a bloodbath on the high street.
WEST LONDON
Jane Bourvis, 60
Owner of vintage and wedding-dress shop on the corner of Portobello Road and Golborne Road in North Kensington
Business rates: £3,924
I've been here nine years and in that time my rates have gone up 50 per cent. Together with the rent, we are paying more than £24,000 but with business down 30 per cent we can only afford half that.
Local traders are up in arms over the rates rise and when I spoke to the rates guy at the government office, he said he had the most depressing job because he sits on the phone all day hearing how family businesses are closing because of increases in rates and rent.
It's crazy: rather than fund bankers' bonuses, the Government should freeze rates to help us but there's zero inclination to do that. We've sort of given up round here. It's so sad.
Around 30 per cent of the shops in this northern part of Portobello Road have quietly gone. It's become a ghost town.
I work seven days a week but we work to pay the rent and rates with nothing left for ourselves.
NORTH LONDON
Graham Powell, 45
Gallerist and owner of Graham Fine Art in Crouch End
Business rates: £7,200
My fellow traders and I are pulling our hair out as to what the new business rate increase will mean for our cash flow.
Business rates are our third biggest cost after salaries and rental and my rent has risen 70 per cent in recent years, to £21,500.
Together with the rates, it's got to a silly level that shopkeepers around here can't sustain. I mean, this is Crouch End, not Knightsbridge!
It's all a bit scary. Just on this strip, an art supplies shop that's been here for 30 years is up for sale, and in two months, three restaurants, a toy shop, a bookmaker, a furniture retailer and Woolworths have all gone bust.
We're in freefall — one in eight shops in this area is going out of business.
Yet instead of the Government doing something to lighten our load, it's adding to it by putting up rates. It's so stupid, it's depressing.
Reader views (7)
When I had my shop in 1985 in the King's Road the rates were £ 1.250. The rates for the same shop is now £ 13.000. There was ample and free parking ,now there is very little parking and both customers and shop owners have to pay for this.In 1985 we did good business and the rates were easily affordable. Now the shops are empty.
- Paul, London, 17/02/2009 11:04
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Please let us have a general election! This Government is so out of touch on so many issues, it has just got to go; and the sooner, the better.
- Adam, London, UK, 17/02/2009 10:29
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Convienince store
rates £7000
Its a state of double standards. On one hand the Goverments states it wishes to help business on the other they are increassing indirectly with these taxes. All we have had under Labor is indirect taxes and it has got really out of hand, the thing is what to do? and where there will be a fine line, that enough is enough!
All we'll for the larger more protected business but what about the smaller business that are Sole Traders who risk all to make a living.
The whole of 2008 has left me in debt and nothing else and when we ask for avenues of help we get only increase in business cost.
I sum it all up by saying i work so that people will be in work, if i stop working and opperating my business to pay the bills people shall be out of work. The cycle stops but like always the small ones die.
The Goverment doesnt care about Small business.
- Shaz, Cricklewood London, 17/02/2009 08:12
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One interesting question to ask is whether there were too many small shops springing up in the boom times? Lets face it, when there's cash seen to be 'spare', it can be, and frequently is spent of the frivolous once the necessities have been bought. It is probably the shops that had built their sales around too many frivolous stock items that felt the pinch first and worst.
If nothing else, idle curiosity begs the question.
- Rogan, Irving, 17/02/2009 04:30
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Those with longer memories will recall that it was a Conservative government that removed the right to collecy business rates from local councils because some were abusing the right.
In the short term, businesses may be under pressure, but when the next rent review comes round they should have the upper hand - an empty shop makes the landlord no money and depresses the value of the adjacent ones. As for local councils, if they really cared about high streets and small shops they could stop treating parking charges and penalties as a cash cow.
- Tonyb, Melbourne, Australia, 16/02/2009 22:05
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Mr Constantine seems to be earning enough money to fund Plane Stupid, so what has he got to complain about?
- Alan, Brighton, 16/02/2009 21:56
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Unless you're corrupt, well connected or pre-loaded, it is very hard to make a good living in the UK as a small to medium sized business. High taxes, rates, greedy landlords and other issues are why. In the US, if your hard work pays off, yes, you get to pay, but you can afford it. Effecively, the system adjusts to your means. Here's, it is collective punishment, something that is bad for the economy for all the obvious reasons. Something has to change, fast. Like the conservatives need to win and create an environment that encourages and rewards hard work.
- Vision Aforethought, Oxford & London, 16/02/2009 13:34
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