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Business Comment

James Moore: Osborne needs to rescue retail from rates regime

Outlook Shoppers, you've never had it so good. Well, that might be over-egging the pudding just a bit, but in austerity Britain where wages are down, taxes and most bills are up, at least the shops are cheap.

So says the British Retail Consortium anyway.

The BRC will today unveil figures showing that shop price inflation came in at just 1.2 per cent for the year to the end of February, the lowest for two years.

Food prices are continuing to rise rapidly, by 4.2 per cent. But that doesn't include various "money off your bill" promotions, and pretty much everything else (clothes, furniture, electricals) is actually cheaper than it was last year.

Retailers have had to learn a hard and expensive lesson: If you aren't willing to tickle their fancies with promotions and deep discounts, shoppers will stay at home. And offline while they're there.

But there is trouble brewing. Retailers already have scant room for manoeuvre, and the problem is going to get worse in April when business rates are due to rise by an eye-popping 5.6 per cent.

The flawed way that this levy is collected – it is based on premises' rateable value – is part of the reason so many high streets have become virtual deserts, populated only by pound shops, pawnbrokers, bookies and boarded up fascias.

Anyone who can has fled out of town, where landlords are a might picky about the sort of companies they rent to but where rateable values tend to be much lower.

What this tells you is that the whole system is in a bit of a mess. However, sorting it out is likely to take some doing.

In the meantime, some rate relief is due because it isn't just retailers who will be clobbered by its rise. Dishing out a clobbering like this at a time when growth is anaemic – where there is any – would be deeply counter productive.

The Chancellor doesn't have much room for manoeuvre himself, as he has been keen to remind us. But with so much sound and fury about how "counter-productive" it is to levy a 50p top rate of tax on people who can readily afford to pay, it might be worth paying attention to this more damaging charge, the impact of which is felt far more widely.

With growth desperately needed, perhaps the call from the BRC to act on business rates is one of the few that George Osborne should heed as he finalises his budget.