Government policy 'without doubt' putting retailers out of business

Debenhams is in the doldrums, yet another established retailer having a shocker.

The department store chain scraped a profit in the six months to March, debt is rising and the finance director has quit.

As one of Debenhams fashion designers might put it: this is not a good look.

This morning, the company’s share price headed further South.

Christmas was disappointing, the recent snow caused havoc but the management team is clear that the big problem is the upheaval the internet is causing.

“The retail market is changing faster than we expected” explains Debenhams boss, pointing out the ultimate convenience store today is the mobile phone.

Shopping is moving online and at pace. Established retailers suddenly find themselves with more store space than they need and are struggling to adjust.

This morning Debenhams accused the government of making the transition more painful than it needs to be.

Segio Bucher said Business Rates tax is handing an "unfair" competitive advantage to his online rivals.

The former boss of Sainsbury's, Justin King agrees.

Indeed, he goes further. In an interview with ITV News, King said it was "without doubt" the case that government policy is putting established retailers out of business.

"Consumers will tell you that one of the main reasons they use the internet is the prices are more competitive. And one of the reasons they are more competitive on the internet is there are taxes that other retailers pay that they don’t."

I first had this conversation with government, I remember very particularly, 10 years ago sitting with Ed Balls, the chancellor at the time, and saying Business Rates are creating an unlevel playing field.

They are accelerating the decline of the high street and eventually you will have to level that playing field."

Business Rates are a tax on business property. They raise almost £30 billion a year for the government and, inevitably, get paid by retailers with stores rather than those who don't like Amazon and ASOS.

"Property was not a bad proxy for business activity several hundred years ago, it’s a terrible proxy for business activity today", argues King. "If you’re Amazon you basically don’t pay Business Rates and you’re competing with businesses that do. The government needs to raise £30 billion in a different way."

  • King advocates two solutions: a tax on deliveries or an increase in VAT (a tax on sales)

"About 2 or 3% on VAT (to offset a fall in Business Rates) would be the kind of change that would allow you to really level the playing field across retail activity, be it on the high street or the internet".

In the Conservative and Unionist Party Manifesto, published last year, the government pledged a "full review of the business rates system to make sure it is up to date for a world in which people increasingly shop online". There's not been much action since.