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Business rate cut: a drop in the ocean? John Ryan asks: at first glance, a 50% cut in business rates looks like it could be heaven-sent help for toy indies - but is it too good to be true?
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t may not be helping you just yet, but in Chancellor Rishi Sunak’s Budget speech in October, he unveiled a package that will allow retailers (among others) to benefit from a 50% cut in business rates, up to a maximum of £110,000. On the face of it, this would seem like pretty good news. But (and it’s a substantial but) what remains unclear is how this will be applied. If the view taken is that every store in the land is a business in its own right, then the measure would be something of a jamboree, and even with price pressure on everything from utilities to the products that go on the shelves, there might even be a net gain in all of this. Sadly, this seems unlikely. More likely is that the tax cut will be applied per business as a whole, meaning that single store owners will breathe a massive sigh of relief. But if you have just a few shops, let alone a chain, then this will be a drop in the fiscal ocean. The physical toy retailing business actually has relatively few large players, with much of the sector being the preserve of the standalone store. The other point is that the 50% cut is only temporary and will hold good for the tax year 2022-23. Or put another way, that’s a year from next April - and meanwhile the heavy hand of the taxman will continue to feel your collar. But look on the bright side. At least the shops stand a good chance of being open right through the festive period and beyond - and you don’t need to have a terribly good memory to remember when this was not the case. The real question is: will the business rates discount be a temporary one-year stay of execution as toy shop proprietors face a bewildering array of costs that may not have been anticipated at the beginning of the year? And the answer is, as almost always, it depends. Success in retail used to be contingent on there being enough left over, after product costs and the price of operating from your own premises was taken into account. As such, it was fairly predictable, and the real operators put themselves in a position where they were able to buy products for less and sell at the same price as others. That was largely in pre-branding days and the whip hand has long since passed to the supplier as far as the cost of things is concerned. Brands worked out some time back that by limiting the supply of specific items, they can control demand and, where something is sold below the price they expect it to be retailed at, they
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limit that supply (or cut it off entirely) accordingly. It’s simple economics - as is the business rates cut that Rishi has dished out. In Micawber-like fashion - as tends to be the case with governmental balance sheets - the Chancellor has looked at what has been spent and has divvied up what he can hand out, in the face of an economy that has performed slightly better over the past six months than had been predicted. Yet the apparent similarity between running a toy retail business and macro-economics is not as straightforward as it might appear. The major difference between the two is that if the Government overshoots, it just borrows some money and, over time, it may not even have to pay it back. Not so if you happen to be a single store owner who has to make ends meet. Head down to the bank and ask for a loan extension, but patiently explain that you’re not quite sure when exactly you’ll be able to pay it back, and you’ll not be entirely surprised to be politely shown the door. In the real retail world, if your store doesn’t show a net profit, the premises are likely to end up in the hands of somebody else who can make the space work a little harder. But back to business rates. The 2022-23 cut is still a positive move and, given the notoriously short-term view of finance taken by all retailers, from toy shops to supermarkets, it should be welcomed. A year is long enough to make changes, and who knows, the constraints on utilities, inflation and the cost of materials might all be unpleasant blips by the time April 2023 hoves into view. In the meantime, it’s heads down and get on with it. Don’t expect things to be easier, but Rishi might just have offered enough leeway for things to rumble. Be positive: around this time a year ago, it continued to look as if the world might be heading for a total crash. That has not materialised, and it is certain that after a difficult year, shoppers will be looking to treat their loved ones - and that will mean sales… I may have omitted to mention the little matter of getting goods off the boats and into the shops, but this seems almost a minor consideration when set against what’s been going on. You wouldn’t be in retail if you weren’t something of an optimist, and there do seem to be, in spite of everything that suggests the contrary, grounds for cautious optimism. If you don’t agree with any of this, Seasons Greetings to you, as one door shuts...
Be positive: around this time a year ago, it continued to look as if the world might be heading for a total crash
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John Ryan is Stores Editor of business magazine Retail Week. He has worked for the title for more than a decade covering store design, visual merchandising and what makes things sell instore. In a previous life, he was a buyer.
