Debenhams Closure to Cost GBC Nearly £500,000 in Rates Loss

Published on: 16 May, 2019
Updated on: 17 May, 2019

Guildford Borough Council will lose nearly £500,000 in business rates it was expecting, due to the  financial difficulties Debenhams is suffering.

The retail chain is closing its Guildford store in the new year. A third of Debenhams 166 UK stores are being shut to allow it to continue to trade under a Company Voluntary Arrangement (CVA).

The ratings experts Colliers International have estimated this will affect 59 councils who will lose £8.5m of the £17.3m rates bills Debenhams would be paying if all stores had remained open.

The Guildford Dragon posed the following questions to Claire Morris, finance director at GBC.

Q. Is it true that Guildford will lose £446,070 from the £811,440 it was expecting?

A. Yes, the CVA agreed by Debenhams’ creditors included a proposed write-off of £446,070 of business rates on its Guildford store.  Due to the nature in which business rates system works, the write-off is shared 50% with central government and 10% with Surrey County Council, therefore Guildford Borough Council will need to absorb a 40% share of the cost.”

Q. What impact will this have on GBC’s finance planning?

A. As the cost of the write-off will sit within the Council’s Collection Fund (a ring-fenced account) the impact on the general services of the council will not be felt unless the collection fund itself makes a deficit, at which point money will need to be diverted from services or raised through council tax to repay our share of the deficit.

We assess the overall surplus or deficit on the Fund as part of our annual budget-setting process, then budget to repay or recover the surplus or deficit in the following year’s budget.

Q. Given that there are other reported cuts in business rates, are the predicted amounts of revenue from this stream having to be revised?

A. We are concerned about the growing use of CVAs across the industry and will discuss the matter with the Local Government Association and the Ministry for Housing, Communities and Local Government to see if we can lobby for reform of the CVA regime to protect local authorities and public services.

Due to wider changes to the funding of local government and the business rates retention system, when we presented the medium term financial strategy to council in February 2019, we forecast that GBC would see a 100% reduction in its business rate income over the next four years due to the anticipated need to redistribute more of our business rate income to other local authorities.

This is, in part, what has led to the council forecasting its £10 million budget gap over the next four years and is why we have therefore set our Future Guildford Transformation programme to find £10 million of on-going revenue budget savings.

Colliers International is quoted in the LGA News saying: “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.”

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