Wednesday, 5 March 2014

Business Rates

From Sky (h/t tip Bayard for pointing me to this):

The Committee urges ministers to give a six-month business rates amnesty for firms occupying empty properties and there should be an examination of whether retail taxes should be based on sales rather than the rateable value of a property.

The MPs also suggested that retail needed its own system of business taxation, adding that a six-month amnesty would encourage new businesses to the high street.

No, you cretins, no. If you base it on sales then owners are more likely to leave shops empty. No sales, no tax.

Retail is at its most successful with a full town centre/shopping centre/retail park of varied shops . If you encourage people more to leave shops empty, they're more likely to do so. But it doesn't just affect that shop - it makes all the others less valuable too.

Mark's covered this in posts about agglomeration, but in a nutshell, someone looking for a pair of spectacles, a new coat and some shoes for the kids would much rather go to one place with a number of providers so they can do it all in one trip. If you lose the kids shoe shops from your town, the shopper might decide to go to the next town because they don't want to do the specs and coat in one and then go to the next town for the rest.

It's also why the death of bricks and mortar retail hasn't been uniform. What we've seen is some places are still doing fine and others are struggling. As bricks and mortar reduced and travel got easier, it agglomerated in fewer, better places. A woman looking for a coat would much rather travel half an hour to have a huge range of coat shops than waste their time with a small number of shops.

This then has a snowball effect that the losing towns/cities lose shops and go downhill. That's why Bath has a thriving shopping centre and Swindon and Chippenham don't. Bath was always a better but it's now a lot better.


mombers said...

I'm writing to the MP heading the committee to see if he can commit to putting in some sort of safeguard to ensure that any reduction in rates doesn't lead to an increase in rents (which will happen in the long run but will be interesting to see if he can explain to me how he can prevent this or if he just wants to help owner occupied shops and commercial property fund managers). Will let you know if I get a reply. Out of interest, any readers live in the West Bromwich West constituency? More likely to get a reply if it's from a constituent...

Bayard said...

"there should be an examination of whether retail taxes should be based on sales rather than the rateable value of a property."

Their front man on the Beeb didn't mention that bit. Perhaps he realised it was a crap idea.

"any reduction in rates doesn't lead to an increase in rents"

Well, that's the whole idea, isn't it? The point is that the landlords are having to pay the increase in rates by lowering their rents more than what they would have done simply because of the recession. Unless you are of the opinion that landlords are scum and deserve to have every penny they make taxed out of them, this is manifestly unfair. It is also unfair on the owner-occupiers, as the business rates should be based on the rentable value of their properties, and not be some unrelated, index-linked tax. The tenants, by and large, haven't been losing out and so they won't be standing to gain, either.

Dinero said...

If you take that proposal on face value then buisiness rates would apply on empty properties, after the three month exemption, and then a sales related retail tax once occupied.

Mark Wadsworth said...

Good point about agglomeration and better transport leading to a smaller number of larger and more varied shopping centres. It seems pretty obvious now you say it like that.

Kj said...

I was thinking about this recently. Around here there are a couple of market villages near the town I live in. One has aroud 10K population, and had a dying high street until it got a shopping centre that at least got some trade back. The other is 3K population, and has an exceptionally thriving high street, multiple actually. They are no significant differences, other than both being similarly close to the larger town with a very big shopping centre, and both have similarly large catchment areas, with proportional populations adjacent to both towns. The only explanation I have is the effect you talk about, that the smaller town have never lost a shop without adding a new one, and there is such a large coverage of goods including the supermarket and wine-shop, in close distance, that it has maintained it´s status (good parking ofcourse). If a shopping centre would be built however, I´m quite sure it would be dead quickly, that much the high street defenders are correct. The advantages to the shopping centres are so large that they will win out anyway.

The Stigler said...


"If a shopping centre would be built however, I´m quite sure it would be dead quickly, that much the high street defenders are correct. The advantages to the shopping centres are so large that they will win out anyway."

It's more complicated than that. Adding a shopping centre makes a visit to a place, as a whole, more valuable.

Bath and Reading have both added shopping centres in the past decade and it's boosted their shopping. It may mean that someone local goes to the House of Fraser for a jumper instead of John Lewis, and deprives them some trade, but it also means that people outside think "hey, Reading has both a House of Fraser and John Lewis, I'll go jumper shopping there instead of Oxford".

Kj said...

TS: that entirely depends on where. Slightly out of town, not in walking distance from high street = high street dead, shopping centre on high street = everyone wins.

mombers said...

@Bayard I kind of see what you're saying. In an area where rents have crashed, rates have been going up with RPI for 5 years so they've not adjusted. The burden of rates is borne by the landlord even though it is paid by the tenant so they have had to cut their rents more than they would have had to had rates fallen at the same time as rents. Everything would be rectified when revaluations were done but that's only once every 5 years IIRC. Solution is to revalue every year, not an onerous task in this day and age with some much data available. An even better solution is to exclude the building value of course so you don't even need to look at each building.
I know that you can challenge your council tax banding, is there a way to challenge your business rates in between valuations? I assume not as that would be the obvious solution for the problem for areas where rents have fallen sharply

The Stigler said...


Agreed. Councils sometimes give Ikea the go ahead because it will bring visitors to town, when actually, people just go to Ikea (which doesn't mean you shouldn't build Ikeas).

Mark Wadsworth said...

Kj, yes, best place for shopping centres (or new supermarket with lots of free parking) is in or near the middle of town.

M, yes of course you can challenge your Business Rates assessment, but you can only challenge the rental value as at the revaluation date, so once that is agreed, you are stuck with it for the next five years.

Dan said...

The other thing to look at when trying to predict how successful a town will be at remaining viable is car parking. If a council makes parking a car a nightmare of extortionate fees and swinging fines, then a lot of people are simply going to go somewhere else. Car park fines only work as a revenue source for a short time, until the population gets heartily fed up and begins to do their shopping in out-of-town shopping centres which do not charge for parking.

At this point, the town council are normally locked into a death spiral. Councils rarely attract the best and brightest thinkers, more petty power-crazed bureaucrats too inept and unlikeable to rise any higher than minor local politics. As a result, they tend to lock into the concept of fines as a revenue source, and make their chosen arena so unpleasant that it slowly goes bust.

mombers said...

@MW Here's the info:
A 'material change' is a physical change to an area or property or to the way a property is used.

Examples of material changes include:

Alterations to the property itself, or how the property can be used.
A new development in the area
Redevelopment in the area of the property
Changes to the access routes to the area or property (such as road improvements/closures, or a new pedestrian footpath that improves footfall)
Changes to the way other property is occupied in the area.

If we become aware of a material change we will look at how it affects the rental value and whether this means the rateable value needs to be adjusted.

So you can say that there are a bunch of unoccupied shops maybe? But not just 'rents have gone down in general'. Nonetheless, I'm surprised that lots of businesses haven't challenged their rates on this basis - empty shops will drop rents, although not as much as if there were no exemptions for empty properties...

Bayard said...

"you are stuck with it for the next five years"

The man on the Beeb said that the re-rating had been last done in 2008, so it seems that the government is assuming that, now they have the automatic increase in place, re-rating of commercial properties can go the way of re-rating of residential properties.