Thursday, 23 March 2017

Anti-Business Rates propaganda doesn't even make sense.

From page 8 of Monday's City AM:

SIX OUT of 10 firms facing increased business rate bills are already planning cutbacks, new figures reveal.

The revaluation of business rates is due to come into force next week, and amid building pressure chancellor Philip Hammond introduced some transitional protection for firms in his spring Budget. However, a survey of London’s firms has now laid bare the number of businesses forced to find savings.

A poll of 500 firms commissioned by the London Chamber of Commerce and Industry (LCCI) has found 60 per cent of businesses facing bigger bills will make cutbacks, including downsizing or relocations. Just over one in four of the London firms planning savings expect to look at reductions to capital investment, while a fifth say they plan to look at reducing staff numbers.

And 17 per cent say the increases, which are expected to hit firms in London and the south east hardest, could see them move some activities outside of the capital...

Yes, Business Rates are inferior to proper LVT in many ways (the legal liability is on the tenant not the landlord; they include the value of the building; revaluations are too infrequent etc), but they're the closest we've got.

Anybody whose done more than five minutes of micro-economics knows that proper businesses try to maximise profits (including a notional cost for proprietor's own time, effort and capital). Decisions on staffing levels, pricing, opening hours, whether to do up the premises etc are all geared up to this.

A change in fixed costs (rent and rates) does not change the profit-maximising mix of staffing levels, pricing, capital investment etc one iota. Why would it? So an increase in fixed costs does not change it either. Day-to-day business decisions remain unaffected, unless the increase is so large as to make the whole business unviable (which will only happen in 0.1% of cases).

In some cases it would make sense to relocate to cheaper premises or start selling online. Great, that means more jobs in lower rent/wage areas (hello Amazon!) and more profitable businesses move into the newly vacant premises in high rent/high wage areas. Win-win, what's not to like?

I could understand if a small business owner on The High Street says "Shit, I'll have to extend my opening hours to generate enough money to keep my business afloat" that's not so nice for him, but good for his customers and the economy overall, so still a win-win.


Bayard said...

"....has found 60 per cent of businesses facing bigger bills will make cutbacks, including downsizing or relocations." etc etc , wail wail

If there are big savings to be made from this, WTF didn't they do it long ago?

Mark Wadsworth said...

B, that was sort of my point.

Physiocrat said...

If an owner occupier cannot pay the higher UBR his business is not viable. The profits are imputed rental income. He would bee better off closing his business and letting the premises.

I once advised someone with a shop where customers were rarely seen to check his accounts and charge himself a rent at the going rate for the parade of shops he was in. A couple of months later the shop was let to a tenant who was doing a roaring trade and my friend had retired at the age of 35, so he wasn't complaining either.