Debenhams’ CVA costing region’s councils £430,000

Debenhams’ successful CVA is a “double edged sword” as it may have saved some of the high street retailers sites, but it will cost Yorkshire and other UK councils hundreds of thousands of pounds in lost business rates.

A total of £430,843 will be owed to councils in Yorkshire that are affected by the deal which will see the stores in their districts pay 50% less of their business rates, according to Colliers International.

By the terms of Debenhams’ CVA, announced last Thursday (9 May), the retailer will close a third of its 166 UK stores. It named 22 stores that would be closing, including those at Bradford, Harrogate and Monk’s Cross shopping park in York.

According to Colliers International, Debenhams plans to reduce its rates bills by around 50% in the current billing year. The properties have been categorised in five groupings, and the two that will see business rates cuts are considered to be “materially underperforming” or in “small, weaker tertiary retail centres”.

Bradford Council will reportedly lose out on £197,860 in business rates, York Council will lose out on £151,029 as Debenhams’ Monks Cross site is included in the deal, and in Harrogate, the council will see £81,954 less from Debenhams.

Overall, said Colliers, 59 local authorities will lose out on £8.5m of the £17.3m business rates bills Debenhams should have been paying on these properties.

Other councils facing serious drops in their collected business rates will be Newcastle Upon Tyne, losing over £543,000 this year of the £1.169m it was expecting to receive.

John Webber, Head of Business Rates at Colliers International, said: “This news is yet another twist in the long and tortuous Year of CVAs.

“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.

“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.”

The creditors of Debenhams have been contacted for comment.