Saturday, 4 January 2020

That's the spirit! (fixing the High Street)

Emailed in by Lola from Ipswich Star:

The Edinburgh Woollen Mill, in Buttermarket, Ipswich, looks set to be the latest national brand exiting the town.

Large signs have appeared in the store's windows which state: "This store is closing down - all stock must go". owever, the store's message is somewhat contradicted by a much smaller sign underneath which reads: "Subject to landlord negotiation". This is a tactic The Edinburgh Woollen Mill has employed before and used at dozens of stores across the country.

Earlier this year similar signs appeared in the windows of Peacocks fashion store, in Carr Street. But despite having the signs up for most of the year the store, which is owned by The Edinburgh Woollen Mill, still seems to be going strong.

It appears the signs are introduced as a result of annual negotiations of new leases in a bid to strike a better rent deal with landlords.

Retailers are gradually cottoning on to this tactic, in the medium term, it will work, hopefully.

LVT (as opposed to Business Rates) would give landlords the required kick up the arse and accelerate the process. LVT on any high street would be based on average rents being actually paid by normal tenant businesses. For charity shops (which are arbitraging the 80% Business Rates reduction for charities) and vacant premises, each landlord would be asked how much rent they are holding out for (assuming the premises were rented to a normal business) and would pay LVT based on that amount. If they pitch too high, they will be overpaying LVT; if they lowball, then the council can ensure that the premises are actually rented out for that amount and a local business gets its foot in the door.

The theoretical optimum rent (and hence optimum LVT receipts) on any high street is the highest figure that landlords can demand before shops start falling vacant, which leads to a downward spiral. In the real world, the optimum is "a bit less than that".

LVT will encourage landlords to find that optimum:
- LVT will tend to push rents down a bit. A rational landlord is indifferent between a) charging £40/sq ft rent and paying £30/sq ft LVT and b) charging £35/sq t rent and paying £25/sq ft LVT, either way, the landlord nets £10/sq ft.
- LVT will also push rents up a bit. If all other landlords are charging £35/sq ft, fixing the LVT on all shops at £25/sq ft, clearly a minority of landlords will go for £36 or £37, while still only paying the £25 LVT and thus netting £11 or £12.

But so what? If rents fall below that theoretical optimum, at least there will be shops and jobs in the area; the council's loss is local business' gain, and not local landlords' gain.

Presumably, there are some High Streets where the maximum rent that can be demanded is less than it costs to maintain the buildings, these areas are beyond the margin and are very difficult to revive. Reducing other taxes (in particular VAT) would revive at least some of them, which is all part of the plan (LVT could largely replace VAT).


Andrew Carey said...

Brilliant by Mr Wadsworth. And unlike the Council Tax equivalent of this you're not at risk of losing your own home if you misjudge the market rent.

Mark Wadsworth said...

AC, ta for first part of comment. I've had a think about the second part of your comment and have replied in full in the next post.

Robin Smith said...

Why not abandoning the idea of forced LVT. And make it voluntary using Location Value Covenants?

MikeW said...

Why not abandon the idea of forced LVT. And make it voluntary via folks voting for it (or not) at the ballot box in a mature Democracy?

Robin Smith said...

Not a bad idea. You mean in a referendum? Speaking personally to many MPs of all party's, they tell me their voters would never sell their vote in exchange for it, more than any other economic policy

What's your view on LVC's? They don't need statute to be adopted as does something done by force

MikeW said...


'Not a bad idea. You mean in a referendum?'

Not in particular. Through the normal party structures, but any legal mechanism is fine.

'Speaking personally to many MPs of all party's, they tell me their voters would never sell their vote in exchange for it, more than any other economic policy'

This seems entirely correct to me (except 'sell' we are talking about citizens in a democracy not consumers in a market). Further, didn't Wadsworth warn you of this political reality cira, 1910 to 2020, when you once stood for the YPP? He tells everybody else.

'What's your view on LVC's? They don't need statute to be adopted as does something done by force'

None. But can you tell me how it is going for you and your rental 'business' if you own one?

Robin I am always interested in alternatives to the the Henry George 'basic model'. What I would say to you is that you are putting up a false enten/eller. Rather than go around the houses, let me just demonstrate my criticism with a quick example (one of many).

One of the greatly missed posters here is DBC Reed. His great contribution, was to outline the LVT of JS Mill, and demarcate this model that with George. Read up on it. But the point is that his advocacy was welcome and is now missed. Thus, rather than shutting down alternatives, Wadsworth/ folks here - want to discuss them. So I just don't recognise what you say.

So if you can now say something outside your normal mysticism, I will put up a link here to a brilliant academic paper that refers to George as a 'little sister model'. But you still won't like it! Or - we can go back to ignore mode - I dont mind. Happy New Year.

Robin Smith said...

@The GateKeeper. :)

Wow, that was a lengthy confession. And I sympathise with your loss.

"Robin I am always interested in alternatives to the the Henry George 'basic model"

Let me know what you make of all the data points here:

Golden Hints: Think of them like a mortgage contract. Try not to allow "punishment first" to be informing your thought as you go through them. Avoid focus on taxation or rent.

I'm curious you've never heard of them. I took them to market many times across the G community, globally and in person, not from an arm chair. Where have you been?

After several years marketing LVCs, Dr. Wrigley and I realised they were an excellent way to identify if the Georgist is truly serious about their doctrine. The effect is easy and obvious to see from the response after the first intro.

You may not rate "mysticism". I recommend it as a way to identify why the collective keep rejecting something rational/beneficial. It doesn't need to be taken literally to work. Marmite though.

No need to apologise for Wadsworths behaviour, I fully understand it - mysticism or psychology - "what's in a name?"

I look forward to your considered response.

Robin Smith said...

@MikeW how are you getting on with Location Value Covenants?

I hear you when you say you are reluctant to consider any new idea when hidden demands have not been precisely met by the unwary messenger.

But why not step out of the arm chair and have a go at it?

I'm going up to the BBC tomorrow to propose them to Mr. Corbyn at his fruitless demonstration of victimhood.

Want to meet for coffee?

MikeW said...

@ Robin,

I had a look at this,

Thanks for your input alerting me to LVC. Your job is done.