Friday, 12 July 2019

Can Someone Tell Me the Truth About This?

Madeleine Grant, on High Streets, wrote this

Our business rates, levied on the rental value of the premises, penalise physical shops in favour of e-commerce and price many out of trading on the high street altogether. Charity shops are exempted from paying the majority of these fees, which explains their proliferation in recent years. Any relief here would be of great assistance to Britain’s ailing high street, as would a rethink of other ill-advised tax policies.

First of all, I don't see anything wrong with e-commerce not paying the same rates. They use cheap land that no-one is fighting over, so they pay cheap rates. They do their thing without scarce resources.

And yes, I know charity shops get some exemptions

But other than that, is any high street half empty because of business rates? What's the mechanism for setting them, because if I was a council, I'd rather get £100/yr of rates than £0/yr of rates. Having empty shops because you set rates too high would seem to be shooting yourself in the foot.


Mark Wadsworth said...

It's just land owner propaganda. From the point of view of a tenant, rent and rates are the same thing.

The rules is, rates are set at about 50% of the rental value net of the rates, i.e. for every £1 rents tenant should be paying about 50p in rates.

So claiming that rates are too high is the same as saying rents are too high.

Mark Wadsworth said...

These people could just as well say "Amazon have an unfair advantage because they use cheap land and pay low rents".

But that would be giving the game away.

On average, UK retailers pay about 2p rates for every £1 of sales, i.e. bugger all.

ThomasBHall said...

Interestingly, I was talking with a friend who runs a few retail chains in the UK, and have put this business rates thing to him a few times. He told me something last weekend that I found very interesting.
His latest tenancy agreement works like this: he pays a % of turnover/profit as rent, which includes Business Rates and service charges. What this means, is that if his shop makes no money, the landlord still pays the rates.

Mark Wadsworth said...

TBH, did he give you any clues how many p in the £ he has to pay for a typical sort of high street?

ThomasBHall said...

I believe about 12- although could be mistaken

ThomasBHall said...

He did specifically say that if his shop didn't make as much money as predicted, the rent would be "negative"- it was the use of that word that made me question the detail.

Lola said...

TBH / MW. There are quite a few incidences of negative rents in shopping centres. (From memory) it was important to get someone like M&S into your shopping centre to increase foot fall and hence attract other smaller tenants and the developer/landlord would give M+S (say) an incentive, not necessarily just a rent free period but an actual cash back. Not sure that happens now though.

Mark Wadsworth said...

L, yes, they are called 'anchor tenants'.

Apparently Harvey Nick's got decades of rent free in a new shopping centre in Leeds.