Thursday, 12 June 2014

Tory MPs know much less about business than man who used to run a large retail chain: shock

From The Daily Mail:

The tax plans are part of a report by Labour adviser and former Wickes DIY store boss Bill Grimsey, aimed at reviving struggling town centres.

His blueprint would impose new levies on shop owners and businesses in the prosperous South of England – in addition to all farmers – to provide extra funds to run-down towns, mainly in the North...


Suffice to say, the plan is stumbling vaguely towards tweaking Business Rates to make them a bit more like LVT.

Anyway, here come the KLNs:

But the Conservatives last night claimed the plans would set North against South, lead to a rise in high street prices, including food, and hit rural areas. In addition, they said the proposals would mean a return to Labour’s failed high-tax policies of the 1970s.

... Business Minister Matthew Hancock said: "Labour tried this flawed and divisive approach in the 1970s. It didn’t work then and it wouldn’t work now. It would increase rents, raise rates and cost residents.

"Instead of penalising those who are doing well, Mr Miliband should focus on helping others learn from their success. Labour has no ideas other than taxing and spending more. If shops and farms have to pay more tax, shopping bills will go up, making a nonsense of Mr Miliband’s talk about cutting the cost of living."


We can safely assume that Mr Grimsey, who ran a national chain of retailers, in low-rent and in high-rent areas, knows perfectly well that rents and taxes on rents have absolutely no impact on retail prices.

We don't have to theorise and waffle about this, simple fact is, retail prices are pretty much the same everywhere in the country. They are the same in shops in good, high rent locations in a prosperous town as they are in shops in less favoured locations.

We also know that taxing the rental value of farmland would have no impact on food prices, because the rental value of farmland is dictated by the value of food which can be grown on it and not the other way round. They are mixing up cause and effect.

For more examples and explanations, go to the Killer Arguments blog.
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UPDATE: Bob in the comments misses the point gloriously and points out that goods and services consumed at point of sale (pubs, restaurants, cinemas etc) are more expensive in expensive areas.

Which is quite true and I have often mentioned this, I refer you to my posts Embedded rents and Embedded rents (2).

But...

a) I specifically referred to retail prices (which are uniform around the country) and proved that rents have no impact on retail prices. That is a fair comparison and a good control experiment.

b) The relationship between pub prices and rents is exactly the same. Rents have no impact on pub prices. High pub prices lead to higher rents, not the other way round. Cause and effect.

c) If the freeholder of a restaurant generously halved his rent, the occupying business would not drop their prices one penny. If he tried to double the rent, the occupying business would not increase their prices by one penny, they would go out of business.

d) I explained all this on the Killer Arguments blog.

I would have thought this is all blindingly obvious, but clearly Bob, like so many Tory MPs does not understand it. Or perhaps he's trying not to understand it?

10 comments:

bob said...

"We don't have to theorise and waffle about this, simple fact is, retail prices are pretty much the same everywhere in the country. They are the same in shops in good, high rent locations in a prosperous town as they are in shops in less favoured locations."

Bollox

Kj said...

They are. For goods that have anything to do with location, stuff that is consumed on site etc., they may vary quite a lot. On the margins, in places With very little choice in retailers; tourist outposts, some rural grocers with high transport costs, normal retail goods may vary some. But on average what Mark says is fact.

bob said...

What he says is fact, apart from all those things I listed where it is wrong.

http://www.dailymail.co.uk/news/article-2141536/It-IS-cheaper-North-Price-divide-pub-food-film-tickets.html

And its the daily wail so must be true.

Retail prices vary significantly.

The Stigler said...

Generally agree, but I thought food was cheaper outside the South East?

ThomasBHall said...

bob,
Go into a B&Q in South London or B&Q in Derby and the cost of practically everything will be near as makes no differnce the same. The fact the B&Q pay massses more rent for their South London premises is off-set not by higher prices to consumers, but by access to more and higher spending consumers... That is why the rent is higher.
Any "product" where a significant part of it is actually use of a location- e.g. restaurant, cinema, hotel, parking space, even public transport- the price paid will vary in line with rental prices as the product consumes rental value itself.

Dinero said...

Woops I had Scotland and Wales in the reverse order.

The ONS have for

London
England excluding london
Scotland
Wales
Northern Ireland

Prices relative to the National price = 100

Food & non alcoholic beverages
105.7
99.4
99.5
98.5
97.0

Alcohol & tobacco
101.3
100.5
100.9
98.3
99.0

Clothing and Footwear
105.7
100.3
97.8
99.0
97.5

Household & housing services excluding rental costs and costs associated with ownr ocupied housing
107.4
101.4
94.1
99.9
97.6

Furniture & household goods
109.1
101.5
101.3
91.3
97.6

Transport
102.8
99.7
98.8
98.0
100.6

Communication
100.0
100.0
100.0
100.0
100.0

Recreation & culture
111.0
101.3
103.3
95.4
90.3

Restaurants & hotels
112.8
96.3
96.5
99.9
95.5

Miscellaneous goods & Services
111.2
102.5
103.8
90.2
93.7

All
106.7
99.8
99.0
97.6
97.1

Mark Wadsworth said...

Bob, I find it's best not to swear at people if I don't know what I'm talking about. See update, especially for you!

Kj, TS, TBH, thanks for back up.

Din, as you can clearly see, the differential is much larger for "goods and services consumed at point of sale".

Dinero said...

Yes the first three groups are the most illustrative in this context.

Mark Wadsworth said...

Din, thanks for the list, by the way.

I used the same figures as the basis for the Embedded Rents post now added in the footnote.

The first three categories show the smallest differences and "Recreation and culture" and "restaurants and hotels" show the largest.

Exactly as predicted. The Embedded Rents post also links to a Daily Mail article saying that normal shop goods are actually slightly cheaper in London.

Mark Wadsworth said...

Actually, the DM article saying stuff in London was cheaper is here.

Either way, that article shows a difference of only 3.5% between cheapest and most expensive areas, i.e. pretty much bugger all.