Luke Johnson: Shops now make less profit than they pay in business rates

The serial entrepreneur says business rates have been 'rising relentlessly' and something needs to be done.

by Elizabeth Anderson
Last Updated: 15 Dec 2014

Business rates collect £20bn for the government each year even as firms struggle to stay afloat during tough economic times, and according to Luke Johnson it’s ‘wrong’.

‘They’ve been rising relentlessly right through the recession, even as the high streets have been in decline because of online shopping and a generally tough retail market, and I think it’s wrong. The government should reassess the tax burden on physical retailers because not only do they provide jobs and pay a lot of taxes, but they are also a crucial part of village and town centres,’ Johnson told Management Today at the recent MT Live conference.

The serial entrepreneur behind the success of chains including Pizza Express and Giraffe floated his Patisserie Valerie cake chain in May, raising £33m. In recent times, he said he had found it hard to keep up with ‘pricey’ rents in London and had focused on expanding Patisserie Valerie across the rest of the UK.

‘When I first started in retailing 25 years ago, it would be very rare indeed for a retailer to have a shop that made less profit than the business rates. Now it’s very common for the business rates to cost more than the profit contribution that business owner makes after all the effort of stocking it and employing people,’ Johnson added.

Business rates are charged to retailers based on the value of their shop or other commercial property. Around £20bn is collected each year, accounting for 4% of the total UK tax income. In March this year, a report from the Commons Business, Innovation and Skills committee said that the property tax is no longer fit for purpose, and is among the single biggest threat to the survival of the high street.

Critics argue that HMRC sees small shopkeepers as 'easy targets', compared to big corporates who are able to employ accountants.

Johnson’s private equity firm, Risk Capital Partners, recently invested in Brighton-based Laine Pub Company, which currently has 45 city pubs and a growing presence in London.

Despite issues with property tax for retailers, Johnson said the UK has seen the return of opportunity and now is a good time for businesses to expand: ‘The UK should show growth of 3.5% this year, the highest rate of growth of all the G8 countries. Interest rates still remain low, unemployment is coming down, investment is rising. Confidence is strong. The housing market is strong. The animal spirits of entrepreneurs and investors across the country are better than they were. And yes, business opportunities are there.’

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