Local authorities braced for budget hit as Debenhams demands business rates cut

Cash-strapped local authorities are set to become the latest victim in the demise of Debenhams, as the embattled retailer embarks on a turnaround plan that includes a controversial move to cut business rate bills that it owes. 

New research shown to City PM estimates local authorities will no longer receive £8.5m of the total £17.3m in rates bills which they were set to be paid by Debenhams this billing year.

Read more: Debenhams gets green light for CVA

The department store chain is set to gain business rate discounts in a move that is expected to impact nearly 60 local authorities after creditors voted overwhelmingly to approve the group’s Company Voluntary Arrangement (CVA) last week.

Along with store closures and rent reductions, Debenhams is expected to secure a 50 per cent cut in business rates from local authorities at a swathe of its most unprofitable stores following the approval of its CVA, which is a form of insolvency process.

John Webber, head of business rates at Colliers, fears the business rate discounts could set "an uneasy precedent for the finances of local authorities which have similar struggling retailers in their boroughs".

"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," Webber told City PM

He added: "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."

Read more: Debenhams to remain under control of investors

The business rate discounts, which are not permanent and are only set for this billing year, will particularly hit the local authority of Hammersmith and Fulham, which is expected to lose £716,000 of the £1.5m it should have received in 2019/2020 due to the chain's Westfield store.

Newcastle Upon Tyne will lose over £543,235 of the £1.2m it was expecting to receive this billing year, while Guildford will £446,070 from its original £811,440 bill.

The beleaguered department store chain said late last week it had acquired "significantly above the required threshold of 75 per cent" on its proposals, setting in motion the group's Company Voluntary Arrangement (CVA).

The decision came hours after Celine, which is a consortium of Debenhams investors, said that bids received following the retailer’s administration "were not at the level required to be taken forward".

Some 50 closures are expected as a result of the CVA, with the identity of 22 stores having already been made public.