Sports Direct tycoon Mike Ashley came to the rescue of House of Fraser last week, buying the struggling department store chain out of administration.
He has since said he hopes to keep open 80% of House Fraser’s 59 stores, turning the chain into the “Harrods of the High Street” with more luxury brands, such as Gucci and Prada, and a concierge click and collect service.
Prior to Mr Ashley’s intervention, House of Fraser had put forward a rescue plan that would have seen 31 stores close including its only Cumbrian outlet in Carlisle. The Carlisle store’s future remains unclear and is likely to be resolved only after negotiation with the landlord who paid £13.3m to acquire the building as recently as 2013.
Rob Johnston, Chief Executive of Cumbria Chamber of Commerce, said: “We very much hope that Mike Ashley will find a way of keeping it open.
“It’s a destination for shoppers and, if he realises his plan to take House of Fraser upmarket, it will complement the existing offer in Carlisle alongside the budget retailer Primark and mid-market Debenhams.
“But if the store does close, it will almost certainly be down to the excessive costs imposed on businesses, in particular retailers, by government.
“Retail employment is relatively low paid, which means the sector is exposed to increases in the National Living Wage. This jumped by 4.4% in April, well above inflation, following increases of 4.2% and 7.5% in the previous two years.
“Employers’ minimum auto-enrolment pension contributions doubled in April and will go up again next year.
“But the big cost remains business rates. Business rates are throttling retailers, especially those with highly-valued prime sites such as House of Fraser.
“The business rates payable on House of Fraser’s Carlisle store are more than £250,000 a year. That’s an intolerable burden.
“Business rates are fundamentally flawed because they tax businesses on the value of the property they occupy, not their profitability. When a business is struggling, they can tip it into insolvency.”
Prior to last year’s General Election, the Chamber sent a Manifesto for Business to all six of the county’s sitting MPs. One of our top priorities was the abolition of business rates and its replacement with a fairer tax.
Since then the Government has made one concession, switching the annual increase in business rates from RPI inflation to CPI, which is usually lower.
Rob added: “One of the craziest aspects of business rates is that plant and machinery are included in the property valuation for business rates purposes.
“So if you invest in your premises, plant or machinery, your tax bill goes up.
“It is in effect a tax on investment. Is it any wonder the UK is lagging on productivity when productivity-boosting investment is discouraged?”
Research carried out last year by the British Chambers of Commerce – to which Cumbria Chamber is affiliated – found that business rates was the number two concern for businesses, cited by 39% of those surveyed, second only to the weakness of sterling following the EU referendum.
Rob believes that business rates are the prime reason why so many charity shops have appeared on our high streets.
There are more than 11,000 across the UK, up 40% in 10 years.
Click here to listen to Julian Whittle from the Chamber talking about business rates and charity shops on BBC Radio Cumbria
Rob said: “There is nothing wrong with charity shops. They are part of a healthy retail mix.
“But the explosion in numbers we’ve seen in recent years hasn’t been driven by consumer demand but by market distortions caused by business rates.
“When a shop is trading, the occupier is liable for business rates. If it closes, three months later the landlord becomes liable to pay rates in full.
“Rather than have no income and a large rates bills, landlords have been approaching charities inviting them in as tenants, often for a peppercorn rent.
“The charity then claims Charitable Rate Relief, which means they have to pay only 20% of the rates bill, and in some cases local authorities top-up this relief so the charity pays nothing at all.
“We’re not knocking this. It’s certainly better to have a charity shop trading than a boarded-up empty unit, but it underlines the inherent flaws in business rates and reinforces the case for fundamental reform.”© Cumbria Chamber of Commerce