Scottish councils count cost
Debenhams CVA wipes £8.5m from council income
Keeping stores open has involved reducing costs (pic: Terry Murden)
Debenhams’ success in renegotiating its rates bill will leave an £8.5 million revenue hole in local authority budgets, including £265,035 lost to three Scottish councils.
The struggling department store chain secured a company voluntary arrangement with its creditors last week which will drastically cut the £17.3m rates revenue that 59 councils across the UK had expected to receive.
The hardest hit is Hammersmith and Fulham which loses £715,729 of the £1.54m it was expecting. Newcastle Upon Tyne will lose more than £543,236 of an anticipated £1.169m. Guildford will see its £811,440 income reduced by £446,070. In Scotland Perth will lose £83,827 while there are losses in Dumfries (£61,249), Falkirk (£35,549) and Kirkcaldy (£68,210).
The terms of Debenhams’ CVA, backed overwhelmingly by its creditors on Thursday, will mean Debenhams will eventually close a third of its 166 UK stores to allow the chain to continue to trade. The firm last month announced that the names of 22 stores it would be closing.
John Webber, head of business rates at Colliers International, said it sets an uneasy precedent for the finances of local authorities which have similar struggling retailers in their boroughs.
“This news is yet another twist in the long and tortuous Year of CVAs,” he said. “Debenhams claims its new arrangements will offer a better return for the rating authority than going into administration, where after a short trading period the premises would be closed and no business rates would be paid under the exemption for empty properties. And to some extent they are right- stores are kept open, jobs are saved and at least some business rates are paid to fund public services.
“But, leaving aside the irony that it is the iniquitous business rates system that has been one of the major reasons for this mess in the first place, this move by Debenhams has far reaching implications.
“In the long run, if by using a CVA a retailer is let off the hook of some of its business rates liabilities and this practice is followed by other struggling retailers, we will see the public purse massively compromised. Local Authorities will not have the funds they have budgeted for to run local services, which we already know are tightly stretched.
“And on the business side we may see the emergence of a two-tier high street with those stores who have been run efficiently and have embraced the changing retail market place paying much higher rents and rates, than those like Debenhams who have not followed such a prudent path. The well run will be subsidising the poorly run.
“Looking at Westfield (west London), for example, one might question the ethics of the rate payers of Hammersmith and Fulham subsidising the Debenhams’ store in such a prestigious location.
“It has been well documented that these CVAs have led to grumbling creditor landlords, not happy that that their rents are being reduced. But this takes the problem one step further as the man in the street is now adversely affected too.
“Not an ideal scenario for UK High Street going forward – it will be interesting to see how long such a scenario can in actual fact last.”