Daunt slams 'injustice' of business rates for bricks and mortar stores

Waterstones has a “major hurdle” to jump in April, when the introduction of the UK government’s “unjust” business rates re-evaluation will leave the company with a £2m-a-year shortfall, which could jeopardise the retailer’s recent return to profitability.

The government recently released new rateable values for tens of thousands of businesses in England and Wales, effective as of April, in its first overhaul since the recession in 2008. Businesses in London and the south-east will bear the brunt of the changes, with rates set to soar because the rentable value of properties in those areas have increased, where in other areas they have fallen.

Waterstones has been stung with “an increase in the order of £2m per annum”, James Daunt, m.d. of the chain told The Bookseller, because the chain retailer over-indexes on stores in London and the south-east in comparison to the rest of the UK. The rate change comes at an especially delicate time for the business, which is on course to return a pretax profit in its next set of accounts. It would be its first time in the black since Russian businessman Alex Mamut bought the bookseller five years ago, after recording an operating profit of £5.2m in its last set of financials and improving its pretax losses, from £5.4m to £1.9m. Daunt said the new, “short- sighted” and “unjust” hike would reduce the retailer’s profitability “substantially”.

“We have not done the full sums yet, but it will certainly result in much increased rates [to pay],” he told The Bookseller. “The estate is skewed towards London and the south-east, and we will especially suffer in central London. We have budgeted for an increase in the order of £2m per annum. I regard the taxation of physical retail businesses in this way to be short-sighted and regrettable; that the burden is to be so sharply increased simply exacerbates the injustice.”

He added: “It will reduce our profitability substantially. Because our business is particularly weighted towards London and the south-east, we have a major hurdle on our hands.”

The controversial business rates system is considered outdated by many commentators. In an evidence session of the Business, Innovation & Skills Select Committee Digital Economy Enquiry in March, Conservative MP Richard Fuller cited the example of the taxation Waterstones faced in comparison to that of rival bookseller Amazon to justify what he perceived to be an unfair penalisation of bricks-and-mortar retailers. He said: “[Amazon’s Bedford site] Marston Gate Distribution Centre…is 67,000 sq m and pays £52.50 per sq m in business rates. In Bedford we are also fortunate to have a Waterstones…Its adjusted business rates are £850 per sq m: that is 16 times what [Amazon] pays per square metre at Marston Gate.”

The same point was raised last month by Big Issue founder Lord John Bird in a House of Lords debate he called to discuss the decline in bookshop and library numbers. “Before Waterstones Bedford has sold one book, the ground is uneven,” Lord Bird said. “If someone down the road can sell a book for much less, that is not fair competition.”

When asked about the disparity of rates between the two companies, Daunt said: “It is completely ridiculous that Amazon has to pay a fraction of the rates Waterstones does when it offers far fewer high-quality jobs, and it does not serve the role that other retailers do being in the heart of the community. These rates are not just a risk to bookshops, but a risk to high streets.”

In March, the then chancellor George Osborne announced a reform which meant around 40% of indie bookshops would pay no business rates at all in the 2017-18 financial year, after he increased the rateable value threshold from £6,000 to £12,000. Meanwhile, properties of a rateable value of between £12,000–£15,000 benefited from “tapered” relief. Despite lower bills for some smaller retailers, Giles Clifton, head of corporate affairs at the Booksellers Association (BA), has told The Bookseller that business rates are a “millstone around the necks of our members”, branding it a “20th-century tax on bricks-and-mortar businesses that takes no account of the 21st century”.

However, the Department for Communities and Local Government (DCLG) has said that nearly three-quarters of all UK businesses will see no change—or even a fall—in their bills. It estimates that from April, 600,000 will be exempt from paying business rates altogether. “Firms need to be confident that the rates they pay are accurate and fair, no matter where they are in country, and these updates will give them that reassurance,” a DCLG spokesperson said.

“For those rate-payers facing increases, London will benefit more than anywhere else in the country from the transitional relief scheme with almost £1bn of support [for properties with a rateable value of £12,000– £15,000] over the next few years.”

Read a blog from Giles Clifton on how business rates are affecting BA members here.