In last week’s Budget 2020, Chancellor Rishi Sunak announced a one-year business rates holiday for retail premises with a rateable value under £51,000. This would have primarily benefitted small and independent retailers, while those occupying larger premises, often retail chains, would have missed out. As larger UK retailers were already affected by the challenging market conditions caused by a mixture of structural, cyclical and temporary changes, the continued weight of business rates amid the Covid-19 crisis would have been too much to bear.
To address this and provide near-term relief, the Chancellor extended the one-year business rates holiday to all retail, leisure and hospitality businesses. In addition, the Government also announced liquidity measures for UK businesses with loans and guarantees £330bn. While these are important measures, there are likely to be further concessions in the emergency bill to counteract the economic impact of Covid-19, under the Chancellor’s 'whatever it takes' rhetoric.
Loans and grants will be available through two schemes – one for larger businesses, which will be through a new Bank of England lending facility; and the other for small and medium size businesses, which will be a business interruption loan of up to £5m with no interest payable in the first six months. Cash grants to the smallest businesses was increased from the recently announced £3,000 to now £10,000. Furthermore, this is higher at £25,000 for those business with a rateable value of below £51,000 and are in the retail, leisure, or hospitality sectors.
This provides a much-needed lifeline in the near-term, but the consensus in the market appears to be that more, much more, needs to be done to return the sector back to sustained health over the medium-term. Retailers may welcome the Chancellor’s financial support as a step in the right direction, but the stock market’s reaction implied it lacked any real potency, given the background of a dramatic fall in footfall, tourism numbers and, since last week, store closures.
The latest footfall volumes across European cities, between 10 March and 16 March 2020, show a sharp decline in footfall compared to the week between 1-7 February 2020, with expectations of it deteriorating further before it gets better. Springboard’s latest UK footfall figures for Sunday 15 March 2020, reported a year on year decrease for high street footfall of 31%, while this fell 21% for shopping centres, and 7% for retail parks. Retail parks were comparatively less impacted due to many being anchored by large supermarkets when people started buying products in mass.
Source: CBRE Consumer & Supply Chain Advisory, 2020
Due to the significant decrease of footfall and retail sales, retailers have also started asking landlords for rent holidays, some are up to five months to mitigate losses. It’s expected that more retailers will do the same. The pain for retailers, landlords and property investors will ultimately have to be shared. It is also increasingly likely the Government will have to provide further near-term assistance and find a more equitable solution on business rates in the aftermath of this crisis. This, together with an eventual (potentially sharp) rebound in sales when the Covid-19 clouds lifts, is the silver lining many market participants may find difficult to see in the current environment.