We Need Rates Reform Not Magic Rabbits

Pulling a rabbit out of a hat.

Maybe it has something to do with the proximity of Easter, but it’s long been the tradition for chancellors to pull a rabbit out of the hat during a budget speech, and last week there were leporidae leaping about all over the place in Westminster.

Speculation is that the abundance of feats of fiscal phantasmagoria this time, were simply there to divert attention away from the fact that George Osborne has spectacularly failed to hit any of his own arbitrarily set targets which we are supposed to be judging him on.  But whatever the reason, the showstopper for most retailers was the changes to business rates.

As usual, in the run up to this budget, there were calls from retail pressure groups for  there to be some serious moves towards rates reform, rather than yet more promises of reviews and recommendations.  I, along with other campaigners, joined that chorus, although I have to say that this time round I wasn’t expecting much in the way of harmony.  I thought the indications were there that we’d not see any real structural  change in the current broken system of local taxation.

On the whole I think I was right, but there were some more helpful than usual measures in George’s big red box this year.  Unfortunately though, on closer scrutiny they’re not quite as positive as they first seem.

Move to CPI

The one element of the package that could be described as structural was the move to CPI from RPI in the setting of rates multipliers.  CPI is the main indicator used in most other government departments to set things like pension increases, so it’s long been indefensible to use RPI for payments going the other way.

Indeed the last government’s own tame celebrity consultant, Mary Portas, had this as one of the key recommendations in her high street review back in the heady days of 2011.  Although, like many of her recommendations, this was also ignored.

So on the face of it, it’s a good move, until you realise that it’s not going to be implemented until 2020.  The subtext of that for me is that we’ll be keeping the same anachronistic system of setting a tax using notional valuations for at least another 5 years.  Something I had hoped would have been consigned to history some years ago.threshold-graphic-zoom

Revaluation Cycles 

More evidence supporting that depressing assumption came with the plan to change revaluation cycles to 3 years rather than the current 5.  Again reaffirming that the Chancellor sees a long term continuation of the current arrangements, albeit in a slightly more responsive way.  Although, as he’s been seen to play fast and loose with these cycles when it suits him, including delaying the 2015 revaluation by two years, one wonders how much value there really is in this commitment.

Doubled Thresholds

The other course in this smorgasbord of rates tweaks was the doubling of the threshold before properties become eligible to pay business rates.  This was increased from £6000 to £12000 in one fell swoop, with tapered relief on properties up to the £15000 mark.  Something I’m sure Osborne hoped would give him the wow factor with the small business community.

And yes, it’s a bold move.  But considering the speed with which rental tones have continued to move, even through the recession, this change means the system will have just about caught up with reality only to see it speed off into the distance again.  This is especially true of the very high rented areas like London where decent retail properties below £12000 are going to be even rarer than magic rabbits.

The subtext of that for me is that we’ll be keeping the same anachronistic system of setting a tax using notional valuations for at least another 5 years

And let’s not forget that there are still many relatively small retailers who will continue to fall between two stools, in premises too large and over-rented to benefit from these changes and yet not large enough to have the economies of scale to cope with other challenges on the horizon, such as changes to pension liabilities and the new National Living Wage.

Someone Else’s Money

We also need to remember that in these times of austerity and dwindling local authority budgets, Osborne announcing these generous reductions in tax take is really him writing cheques he knows he’ll never have to cash.  As we all know, it’s always easier to play with someone else’s money.

Having told councils last year that they will be retaining 100% of business rates in exchange for further reductions in central government grants, making changes that will significantly impact that income seems like a breathtakingly cynical bit of game playing.  And this will have a knock on effect in town centres and local communities where small stores are trying to do business.

So, as much as I’m pleased that, by some estimates, as many as 50% of smaller retailers could be taken out of the current business rates madness altogether, I’m struggling to accept these measures as anything other than a sop to distract us away from the real prize of proper, lasting and equitable local taxation reform for all on the high street.

Piecemeal

Until we do have that, I can only see more piecemeal concessions being bolted on to a system already creaking under it’s own inefficiencies.  We still need a mechanism that’s responsive to local business conditions.  One that can be influenced for good and bad by local council policies and can be applied equally across all types and sizes of business.

all-or-nothingMy personal preference is for a system of local purchase tax, similar to what we see in many US stores.  But I know I’m in a minority in favouring that.  Indeed the very idea was discounted early on in discussions over reform last year.

Much as I support small retailers, I also believe that all sizes of business should pay into the local economy through such taxation.  But a system that took proper account of trading patterns, would mean that smaller businesses would pay an amount appropriate and, above all affordable, in their particular circumstances.

My personal preference is for a system of local purchase tax, similar to what we see in many US stores.

I’m happy for those businesses that will benefit from these changes, and I hope that they will stimulate local economies and help small independent retailers weather the continuing storm on our high streets.  But I remain concerned that these measures are not going to divert us from the goal of seeking a root and branch reform of a rotten system that should have been retired many years ago.

If anything I think the measures announced in the budget suggest that rates reform is going to be kicked into the long grass for at least the term of the current parliament.  If that’s the case I guess all we can expect in the immediate future are a few more rabbits emerging from that undergrowth, making a leap for the Chancellor’s top hat.

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Our Willy Wonka Chancellor Feeds Us More Fudge On Business Rates

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Six and a half years after promising to reform the UK’s arcane business rates system, Chancellor George Osborne announced some sweeping changes at the Conservative Party conference on Monday.

However, instead of a carefully thought out progressive revision of local business taxation, we had yet more fudge from a Willy Wonka chancellor, eager to impress the party faithful with a plan so fiendish even Blackadder would blush at its audacity.

Currently business rates are levied by central government and collected on its behalf by local authorities who then pass the money to the Treasury. A portion of this is subsequently returned to councils to fund local services. This is the process of the Uniform Business Rate system, or UBR, a scheme instigated by Margaret Thatcher, partly with the intention of evening out disparities between richer and poorer areas of the country and re-distributing that wealth more fairly. Yes, even Maggie was a little bit commie on the quiet.

The problem in recent years though has been that rates have sky-rocketed in line with the rental valuations to which they are inexorably tied. The retail boom in the early part of the new century drove landlords to expect more and more returns on property. With large, heavily-leveraged retail chains eager to stump up ridiculous amounts of rent to be in key locations, the market mushroomed.

red_toryConsequently business rates have generated massive piles of wonga for central government and successive chancellors of every hue haven’t exactly been itching to relinquish the embarrassment of riches they’ve had bestowed on them. Indeed in 2012 alone, £350M was added to the rates liabilities of businesses amidst one of the worst recessions on record. During the last parliament the business rates take ballooned by over £1bn and the situation has been further exacerbated by the arbitrary postponement of the regular 5 yearly rating revaluation which should have taken place this year.

Pressure has therefore been mounting on government from businesses and retail campaigners like myself to do something about the damage this system is wreaking on our local high streets. This reached something of a crescendo prior to the general election, when once again the Conservatives promised that improvements would be made, even though they’d singularly dodged the issue throughout the previous five years.

So it was surprising that there was scant mention of rates in the emergency budget cobbled together by Osborne just after The Conservatives shock victory in May. I think I now we see the reason why. He’s obviously confused his party conference with budget day.

Devolution Illusion

Rather than kick this thorny little ball into the long grass for a few more years, Gorgeous George included in his keynote speech the wizard wheeze of passing the problem back to local councils under the guise of localism. The plan is simply to abolish UBR – the one part of the current regime that actually has any merit – and allow councils to hang on to all the money they collect from local businesses, regardless of the disparity that will result.

Apparently eschewing any further rounds of tokenistic consultation with business leaders, he’s neatly avoided central government having to find a solution to the whole soggy mess. In a move that sounds like it was thought up after a particularly good session in the House of Commons bar, he’s dropped the problem into the lap of local councils and walked away. Bang! Sorted!

However, Osborne’s claims about the benefits of his grand idea show just how staggeringly little he understands about the way the system actually works. Something that’s probably a teeny bit worrying coming from our Chancellor, considering we’re talking about a major plank of our national fiscal structure.

Bold Claims

He claims that giving Local authorities the power to reduce rates will help them attract new businesses to the area. In this bold statement he seems to be lamentably ignorant of the fact that councils have had the power to reduce rates since the Localism Act was introduced by his government in 2011. But like so many of these devolution illusions, giving people the ability to do something doesn’t mean they can actually do it.


He’s dropped the problem into the lap of local councils and walked away. Bang! Sorted!


Most councils struggle on the budgets they have already, any decreases in rates payments have to be taken out of that already dwindling sum and so hardly any have availed themselves of their new powers. Sweeping away the last vestige of Thatcherite socialism will only serve to exacerbate these problems, not make things better.

The Chancellor also seems to be unaware of the fact that empty properties still attract a rates liability. Landlords continue to pay rates on voids with only a small amount of relief in the early stages of a vacancy, so there’s little incentive for councils to reduce rates on empty properties. A problem that I once tried to explain to our erstwhile minister for the high street, Grant Shapps, without much success. It appears that obliviousness to the principles of local taxation goes even higher than I thought. Which explains a lot.

SNN2252GXA-620_1791255aRates will therefore continue to be an unavoidable burden weighing particularly heavily on small retailers, especially as, under Osborne’s new scheme, it appears that central government will still be setting the national levy as it does now. I say ‘appears’ as the details seem to be thin on the ground right now. Perhaps George lost the fag packet he wrote them on somewhere between the conference podium and the bar.

There is some talk about a system of re-distributing funds between richer and poorer councils, but again there are not many specifics beyond the idea that city councils who agree to have an elected mayor will be allowed to impose small additional levies for infrastructure projects, again something they can already do now.

There may be some scope for individual councils to adjust liabilities between different types and levels of business, but without the ability to increase rates on others beyond government limits, that will only work in one direction.

Rich and Poor

Well heeled and over-subscribed areas like London’s West End will reap huge rewards from this new regime, hanging on to far more money than they ever received in government grants. But they’ll have little reason to reduce rates liabilities. They will simply, and sensibly, bank the extra cash for a rainy day.

Meanwhile poorer authorities will continue to languish in the doldrums. After all, why would anyone want to set up business in a depressed area that is destined to become even more dilapidated as council budgets are swept away in the dust of the government’s on-the-hoof policy making?

With the balancing principle of the UBR gone, richer areas will become even richer and the poorer even more impoverished. Most councils will probably just hope that the amount they receive in newly retained rates payments will at least offset the amount that will be missing from their government grant. But in the most desperate areas that’s likely to be a forlorn hope. It’s a quid pro quo where the quids will only be going one way.

If nothing else I suppose Osborne has at least affirmed early on in this parliament that we’ll see just as little meaningful progress on local taxation reform as we did during the last. And while he basks in the glory of grand gesture politics and party political back-slapping, it seems our high streets and local services will have to continue to cope with this government’s ignorance and avoidance of the real issues for at least another 5 years. A prospect I doubt many people will find particularly sweet.

Unrealistic Rents Are Risking The Future Of Our High Streets

high-rentThe British Retail Consortium warned recently that a failure to deal with our broken business rates system could have a devastating impact on our economy.

In a stark prediction to the Chancellor, they estimated that up to 80,000 shops could fall empty over the next 2 years, putting 800,000 jobs at risk.

This is based on the assumption that 60% of stores facing lease renewals over the next 2 years may simply walk away from what has become an unsustainable commercial property model in the face of climbing rents and falling sales.

I’ve previously highlighted the perfect storm that is brewing up towards the end of 2015, with 40-50% of commercial leases falling due to for renewal.

The BRC’s predictions may be pessimistic, but there’s every reason to believe that a huge dent could be put in the retail economy very soon. This is especially worrying, considering consumer spending and the associated debt shift to private borrowing is what appears to underpin much of George Osborne’s plans for our economy over the next few years. Likewise many local authorities now rely more heavily on business rates as cuts in central government funding bite even deeper.

I’ve often been critical of the BRC. I see them as an organisation geared heavily towards protecting the big boys in the retail hierarchy, with only the odd glance back down the ladder towards small independents and medium sized chains. But on this occasion I’m in complete agreement with them, although for slightly different reasons.

Rates Burden

Business rates are of course a huge burden on high street operators and an issue that urgently needs to be addressed by the Chancellor – indeed it’s something I rarely tire of saying myself. But this has been the case for at least the last 10 years now.

However all this is largely irrelevant to the overall problem. The main reason why many store leases may lapse at the end of this year has less to do with rates and more to do with the ridiculously out of kilter valuations of the properties themselves.

It’s often conveniently forgotten that business rates are based on historic rent agreements. Many of them made by companies financed by the very same people who also bankroll mall developers and institutional landlords, both of whom have a vested interest in keeping rental expectations unrealistically high.

The driving force behind our inflated rating valuations are the equally avaricious demands by landlords who would rather see a store empty than see it’s theoretical value fall.

Bluff And Deception

Anyone who has had experience of lease renewals over the last 5 or 6 years will tell you that there’s very little sign of pragmatism from landlords or property advisers. Any hopes of the market being reset after the financial crash have long been abandoned.

This is partly down to the way that commercial property has become the vehicle of choice for the disconnected behemoths that are multi-national investment funds, but mainly because most such organisations are hip-deep in the same quagmire of over-leveraged debt that led to the spectacular economic swan dive we all witnessed a few short years ago.

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There has long been a fragile framework of bluff and deception underlying the retail property market. More than any other commercial property transaction, store leases and rents are teetering on the edge of an abyss created by property advisers and fund managers who simply refuse to give any quarter to such mundanities as fiscal viability or long term tenant relationships.

The general principle seems to be that as long as they can keep the music playing, no one ever has to count the empty seats. The problem now of course is that a raft of impending lease expiries means there may soon be a lot more chairs and a lot less people willing to play the game.


The driving force behind our inflated rating valuations are the equally avaricious demands by landlords who would rather see a store empty than see it’s theoretical value fall.


There was nothing tangible in the recent budget about business rates reform, and that’s something that we must continue to demand from a government that has been consistently phlegmatic about, despite promises of action.  But that’s now only half the story. Without effective commercial rent and lease control, or some voluntary injection of common sense into the equation, these other costs will simply expand to fill the vacuum created by any reduction in the rates bill.

If we’re going to avoid thousands more empty stores and hundreds of thousand of lost jobs, we need a comprehensive review of the entire bricks and mortar proposition. In the meantime property taxation will only be a part of any retailers decision to stay or walk away.

Pressing The Reset Button On The Commercial Property Market

reset-przyciskI have this annoying habit of confusing two recently formed organisations.

Firstly there’s the Future High Street Summit, set up by high street campaigner Clare Rayner to bring together experts and activists concerned about the state of the great British town centre. It currently takes the form of a conference, open to anyone, but especially grassroots imagineers looking to contribute to process of re-building communities around a social and commercial hub.

Then we have The Future High Street Forum, set up by the government, supposedly to build on the work of the 2012 Mary Portas review. They have a smattering of academics and some fringe involvement from trade bodies, but largely it’s composed of vested interests, property investors, large corporate retailers and politicians appointed by a government department with no readily apparent clue about what is actually needed to deal with the problems in our town centres.

As you may be able to tell, even though they have similar names, there is a big difference between the aims and achievements of both bodies. I was fortunate enough to be invited to the first Future High Street Summit earlier this year and found it a very interesting experience. Rather fittingly held in the futuristic environs of the National Space centre in Leicester, it comprised of two days of speakers, discussion groups and networking opportunities.

A number of knowledgeable speakers shared experiences and insights over the two days I was there. Some I agreed with, some I didn’t. But overall there was a good cross-section of exemplars and I’d imagine everyone found something to inform their own activities and responsibilities. I certainly enjoyed the networking sections, chatting with people I already knew and making a few new acquaintances, some of which I’m still in touch with.

Where’s Brandon?

One notable absence though was the then Minister for High Streets, Brandon Lewis. He’d been billed as a speaker for some months, and having missed my opportunity to fire a question or two at him at his whistle stop visit to Retail Week Live conference a few weeks earlier, I was looking forward to getting a second chance in Leicester.

Brandon-Lewis_2886856bSadly though, at the last minute he discovered he had to somewhere else to be on that day. An important matter of state perhaps, or maybe it was just his turn to polish the Westminster cat. I remember checking his Twitter feed on the day to find out what could have been so important for him to break such a long standing engagement. I can’t remember it being anything earth shatteringly important. Certainly not as important as a conference bringing together people to discuss options for the very thing he was supposed to be responsible for at the time. Perhaps, like me, he got the two similarly named organisations mixed up and only realised his mistake at the last minute. That might have been an embarrassing admission for him, considering he was the chair of the government forum.

Whatever the reason the DCLG sent along a polished civil servant stand-in to read a prepared speech in impressive cut-glass tones. Rather more of a political treatise than an engaging presentation, it sounded like a lecture he’d already given a dozen times to the politically faithful. The questions piled up on my notepad, poised for moment when he would finally shut up. But, as his boss had done a few weeks before, he scuttled off with no time for in depth discussion of government policy. In the final analysis, perhaps the lack of engagement with attendees on both occasions speaks volumes about the government’s genuine attitude towards the issues.

We’re All Forum

Over the past year or so we’ve had a number of announcements from the Future High Streets Forum. Last year Government Minister Nick Boles suggested that hard to let stores could be re-tasked as residential properties, thus neatly erasing the problem of abandoned high streets and giving property developers free reign to make a lot of money out of the plight of inner cities.

No matter that the Forum was set up to help get these areas back into retail and other community uses. Let’s just solve the problem of over-rented, over-rated retail locations by turning them into luxury pied de terres. In one fell swoop this would provide hope to perfidious landlords who’ve backed themselves into a corner with fantasy loan to asset values and reduce the pool of available retail properties, thus inflating the market even more.

Their latest wheeze yet again involves the property hue of their spectrum of responsibility. A joint announcement from the Forum and the British Property Federation set out a plan for what Liz Peace of the BPF called a ‘collective ownership scheme’. The driving principle being that the disparate nature of property ownership on our high streets didn’t lend itself to the same sorts of controls available to the operators of shopping malls. Unusually for me, I agreed with Liz on this point. We do need curation on the high street. So many towns now are clogged up with the same usual suspect operators. from the ubiquitous mobile phone stores to the omnipresent coffee bars, many high streets are just plain boring.

Attack Of The Clones

The principle of the clone town is not new. It was identified some years ago and the phrase has long since slipped into the national lexicon, in many cases without much concern for what it actually means. Shopping centres have been quick to capitalise on this phenomenon and have applied fairly rigid tenant mix policies within their specific fiefdoms. I say ‘fairly’ rigid as it’s not unheard of for a big bucks offer to banish all concerns over duplicate use. You only have to look at Covent Garden and count the number of multinational perfume and body products brands selling virtually the same thing to see that.

p1060068-480x321But this more ordered approach to the shopping experience has paid dividends for mall operators and their tenants so it’s sensible that the idea should be applied to the high street. Of course the stumbling block is still the fractured nature of property ownership. Ultimately each landlord is more concerned with getting the best deal from a tenant, regardless of the type of use. What do they care if there’s already 6 other mobile phone store in town. If number 7 is prepared to a ludicrously speculative rent they’ll take their money.

The BPF’s solution to this is a system whereby landlords would pool resources and agree a common lettings policy. In one model being proposed they would each have shares in an overall property portfolio, shifting the focus away from individual lettings to a more holistic trading environment.

Curated High Streets

The idea of a curated high street is something I’ve long championed. But I’ve always proposed controls via more detailed planning laws. Instead of broad brush usage classes being factored into local plans, I’d have specific operator types defined by an elected team of high street managers, drawn from various parts of the property spheres. Town planners, local retail groups, landlords, property advisers and local consultants, maybe something like the town teams we already have, but with more accountability. There would be zoned areas within a well defined tenant mix policy which any new tenancy would have to comply with. This would prevent disconnected property interests simply chasing the money, regardless of duplicated use.

Of course this is something that could be handled by a self regulated body of property owners, but there would be a risk that vested interests could ultimately over-ride the what’s best for the local trading environment. Even if the income from these property groups was pooled by way of a shareholding collective, as suggested in one proposal from the BPF, There would always be potential for larger shareholders to dominate the group. And as I’ve described above, self regulation becomes rather malleable when there’s enough money on the table.

The other danger that I see from allowing such a collaboration between property managers is the possibility of terms fixing. Rents and other leasing policy issues could easily become entrenched, leaving tenants little room for negotiation in a target area. Instead of dealing with one landlord, they’d be dealing with a cabal. Lease negotiations are already skewed enough in favour of the landlords. We don’t want to be fomenting conditions for the construction of a cartel in all but name.

The Big Idea

Fellow town centre campaigner Dan Thompson and I have recently been kicking about a more radical solution to the problem of restrictive practices on the high street. We’ve posited the idea that empty properties could be purchased by a retail property trust and let to independent operators on a non-profit basis. That’s not to say the rents would be at giveaway levels – the idea would be to generate funds for other local projects as well as to expand the property portfolio – but rents would be kept sustainable with respect to other costs and the profitability of tenant’s businesses.

There would be some element of profit sharing involved along with principles of tenant mix, competition, and the curation of the overall trading environment. But small businesses and a variety of uses could be encouraged to keep an area varied and vibrant.

Rents would be pegged to factors other than the usual relentless pursuit of asset valuation. That way we could ensure some longevity for both the local trading environment and the businesses within it. Moreover pioneering entrepreneurs who move into the poorer trading zones, and then revitalise them through their own creativity, innovation and bloody hard work would get to reap the benefits when the locale becomes trendy and profitable. Rather than landlords immediately following the money and moving in yet more coffee bars, mobile phone shops and anyone else who dangles a big wad of cash in their general direction.

Ultimately the goal would be to press the reset button on the commercial property market, providing some alternative dimension to the rental tone and thus undermining the closed shop rent review stitch ups that usually lead to ratcheting rents and more literally closed shops.

Rising-RentI’m proposing a return to the days when landlords and property owners worked in conjunction with tenants to foster a long term relationship. Both were happy to receive realistic returns on their investments and were able to plan for the future, rather than constantly watching over their shoulder waiting for the next rent review or feverishly calculating the chances of your own survival when the shop next door is let at a blue sky rent that you know you’ll never be able to afford.

You can call me naive – indeed somebody did on Twitter shortly after I revealed this idea in my Retail Week column last week – but I really believe that if we’re to encourage future generations of high street pioneers, we need a cultural shift away from the idea that commercial property is the investment gift that keeps on giving.

In my view, the day landlords swapped the value of a solid reliable tenancy for beliefs in such fairytale concepts as upwards only rent reviews and ever increasing portfolio values was the day our high streets started to die.

So there you have it. A brief taster of my idea of a high street utopia. Somewhat different from that proposed by the future High Streets Forum and the BPF, but something that would be about long term, sustainable revitalization, not just a valuation on a balance sheet.

I believe that if the high street is to have a future, in whatever form, we need to be thinking these seemingly impossible thoughts. And if the government and their various advisers are serious about revitalisation they should be encouraging concepts that do more than prop up the property status quo. If anyone else wants to get step outside that box with me, please get in touch.

This blog was originally published as a guest article on the Future High Street Summit blog

Councils Should Stop Using Retailers As Bait In The Parking Trap

parking_signParking in town centres is a particularly thorny issue for me. As a Green I believe that we should curtail car use, especially in congested cities. But as a town centre retailer I know that cars remain the preferred choice of travel for the vast majority of shoppers, and as a pragmatist, I see that we need to balance the needs of local commerce with the modern world’s addiction to the internal combustion engine.

Parking has also been something of a luke-warm potato for local authorities for a while now. Told as they were by the last Labour government to push up the price of town centre parking, many of them saw this as a way of offsetting the swingeing cost cuts now being imposed by a government of a different hue. This has laid the foundations for cost hikes by many a cash-strapped council, and the opportunity to make a political point into the bargain has also not been lost on them, in particular by councillors in Oxfordshire where I’m based.

An RAC survey recently reported that councils taking Labour’s advice to heart have raked in some pretty impressive surpluses as a result. Oxfordshire alone netted a whopping £7.52M last year with the city centre trousering £4.56M after a 15% increase in charges over two years.

The predominantly Labour run city council, points to this as a successful part of a low carbon Oxford policy, something which I support in principle. But as a city centre retailer, I simply see them jacking up parking costs under a nebulous green smokescreen, with little concern for the impact this has on my small business. Whatever the true motivations, it’s inarguable that current policy does little to generate widespread consensus for a business friendly, green agenda.

The same can be said for the other side of the argument. Communities Minister Brandon Lewis recently engaged in an acrimonious and unedifying exchange on Twitter with Labour’s Hilary Benn over claims about their previous guidance to local authorities. Labour’s rebuttal saw them accusing Conservative councils of making more money from parking than Labour authorities, based on figures that are still hotly debated. Whatever the true position is, I imagine most local government officers would have found these criticisms a lot easier to swallow had Brandon Lewis not gone on to announce a further budget cut of 2.9% shortly after his exchange with Benn.

Worryingly, the RAC claims that Oxford is only 32nd out of 353 councils in terms of surpluses being made from parking across the country. Suggesting that many local authorities are now just as dependent on the teat of the parking cash cow as motorists are on the petrol pump. Stories of increases are now emerging on an almost daily basis across the country as councils are placed under further pressure to balance the books.

Underlying effect

Brent Cross Free ParkingTaken in isolation, parking seems less consequential than pressures such as spiralling business rates or rents. But the underlying effect of high charges and swingeing fines are just as corrosive to the goodwill we all work hard to foster. Any retailer will tell you that parking is vital to their business and they feel the pain when this is made more expensive or less available.

Those that question the advantages and disadvantages of parking provision only have to ask why, if it’s such a side-issue, do out of town shopping centres and even some city centre malls invariably include some element of free or cheap parking as part of their DNA? It’s because they know that, given the choice, most car borne visitors will gravitate to the areas that offer the best deal on parking and access, leaving towns where parking is restricted or overpriced playing on a distinctly bumpy playing field.

Convenience

People expect the convenience that easy parking offers and feel very much used by any town that fleeces them for the same service. Most will only be caught out once and then choose to shop elsewhere in future, even if that involves significantly more travelling. And let’s not forget that by pushing shoppers to take longer journeys to reach further flung destinations, we’re increasing the carbon emissions that we’re all supposedly trying to prevent.

Most retailers and restaurateurs have come to regard themselves as the bait in the parking trap and look on with impotent dismay at the damage being wrought on a town’s reputation by local councils with an apparent disregard for the principles of supply and demand. Decisions about parking provision are usually taken in spite of the businesses that rely on them, rather than in consultation with them.

Yet as businesspeople we’re pragmatists and understand the fiscal imperatives. For example, many would be happy to be involved in some sort of parking validation scheme, whereby we contribute to the cost of a customer’s parking if they make a purchase. This is a well established practice in the USA and yet is something that is rarely available here.

Solutions

In the end though, we have to tackle the environmental damage being caused by cars and the most sensible compromise in the cases of over-congested cities is the excellent Park & Ride concept. Even though research in Cambridge has raised doubts about how much reduction in car use they contributed to, Park and Ride is usually pointed to by campaigners as a good first step towards car free cities. This has to be backed wholeheartedly by the local authority though and be integrated as part of an overall strategy that both encourages visitors to the town and ensures they leave their cars on the outskirts.

validationHere Oxford fares rather miserably again. The council has of late chosen to treat the P&R facility as cash generator in it’s own right. After successive hikes in bus fares and the introduction of a parking fee as well, the cost of short term parking is now roughly equivalent to the cost of parking in the city centre for the first few hours. Such a shame that after leading the way as one of the first such schemes in the country, the council has basically reneged on the bargain with motorists who had hitherto been persuaded to leave their car behind. An example yet again of an ostensibly green policy being perverted as a means of raising cash off the backs of motorists, shoppers and retailers.

Cities can also be made more pedestrian friendly in themselves.  Living Streets, a charity focussing on improving pedestrian usage of cities and town centres, published a report last year that suggested people on foot spend significantly more than those who travel to an area by car. This of course relies again on sympathetic urban planning and a good local residential base. It’s a model that has great merit in many circumstances, but in terms of larger cities who need to attract people from farther afield to justify their higher overheads, it may not be as workable.

A radical idea?

Another option I’ve proposed in the past is a compulsory national parking tariff where public and private parking areas would be legally obliged to charge for parking at a rate set by central government, calculated in a similar way to business rates, depending on location and amenity.  This would have to be charged direct to motorists and not offset by mall landlords against service charges to tenants.  Such a scheme could generate funds from all locales and enable councils to level the costs of parking in their districts, thus reducing the bias towards shopping centres.  It would be a tricky thing to implement, but it might be an interesting exercise to at least consider.

Repeated studies, reports and polices have sought to address the issue of parking.  Many have agreed that it’s one of the most important factors underpinning high street revival.  Yet neither local or national government have seriously grasped the nettle and demonstrated a willingness to sympathetically combine the competing pressures of local finance, business and environmentalism into a coherent policy.

Ultimately the answer to parking, our reliance on car usage, and ways of encouraging pedestrians back into town centres has to be tackled on a holistic basis across the country. It should be seen as part of a commercial eco-system in itself, along with the businesses and services that depend on encouraging visitors to particular areas.

It’s most likely that the answer will lie in a combination of approaches, but it’s certain that it’s not to be found in simply changing a tariff notice and waiting for the obliging motorist to magic away the impecuniosities of local government. That’s an idea that’s already overstayed it’s allotted time, and for which there’s eventually going to be a hefty penalty due from all of us.

When is a U-Turn not a U-Turn? The Parallel Universe of the BRC

300541Last week’s sudden abandonment by the BRC of calls for a rates freeze came as something of a surprise to most of us, especially those of us who saw a freeze as a compromise anyway.

With business rates increases over the past two years adding over half a billion quid to retailers overheads bills, it didn’t seem too much to ask for government to allow us a bit of breathing space.  Even more so in the face of flatlining high street sales and the erosion of margins by other taxes such as VAT, which have already caused multiple failures this year.

A freeze was never going to be the final solution though.  The growing clamour for a complete revision of local taxation must by now be reaching even the lofty heights of the ivory towers inhabited by the Chancellor and his advisers.  Even so, it seems nothing is to be done to offer a helping hand to retailers.  The closest we’ve come to any direct action on high streets in the last 2 years was planning minister Nick Boles recent proposal that they should effectively be sold off to residential developers and forgotten about.

Now the BRC, an organisation I’d have expected much better of, has not so much blown the idea of a rates freeze out of the water, it’s sent it into orbit!

The reasons for this about-turn, according to Director General Helen Dickinson, is government claims of a potential £1Bn hole in the country’s finances.  This, she says, has led her to see the error of her ways and ally the BRC with the CBI who have been calling for a 2% cap on rates increases, rather than a freeze, for some time now, arguing that this is a more achievable goal in the short term.

Indeed Dickinson came out fighting very soon after the announcement of the BRC’s change of heart, with talk of a ‘step up’ in their campaign over rates reform with a pronouncement that this will be a long term goal.  The obvious disconnect between those two statements didn’t seem to occur to her at the time, or as far as I know, since.

Realistic ideals

Yes it can be argued that in any negotiation there’s little point in holding out for an outcome or a deal that you’re unlikely to be able to achieve.  Asking for the impossible does make you look unreasonable and in some cases faintly ridiculous.  But a freeze was not an unrealistic ideal.  Certainly not if it was applied to retailers only.

The figure of £1Bn loss to the treasury was, it appears, a little over-egged anyway.  The true loss is predicted to be around £840M and that’s only if the freeze was applied across the board to all businesses.  Taking into account rates relief, that figure could be as low as £700M.  But I suppose a figure like £1Billion represents a powerful headline grabbing number, supporting a Treasury polemic that the BRC appears unwilling to challenge.  After all what’s a few hundred million here or there?  Not much it appears, unless you happen to be trying to get the government to reduce the rates burden by a similar amount.

Special Case

In any event, I’d argue that retail is a special case, carrying as it does multiple burdens both in duplication of the charge over multiple locations, and with deference to the amount it contributes in other ways to GDP, not least in terms of employment.  In those circumstances, if the government really wanted to help,  retail could be singled out, thus significantly reducing the overall impact of a freeze.

In fact based on last years increase of £175M, if the reduction was applied to retailers only, it would take something like 5 years before we got close to £1Bn, unless inflation moves drastically northwards.  That’s plenty of time to bring in a new and fairer form of local taxation.

Although I suppose with predictions of next year’s increase running at anything up to £300M it might not take quite so long.  Even a cap at 2% would leave us facing an uplift of around £200M showing just how little would be gained, even if that could be achieved.  Either way the point is an overhaul of the rates system should already be a government priority.  A freeze for a year might sharpen the minds and pencils of those who talk about reform without ever actually doing anything about it, and with potential rates revenue likely to continue declining as many more stores close for good, the need is becoming more urgent every day.

percentageHelen Dickinson herself has acknowledged that :

[a freeze] “wouldn’t be enough to address the significant impact that business rates are having on local jobs, town centres and communities”

Yet somehow she seems to be arguing that a 2% increase would be a better option.  Perhaps that makes sense in some quirky, mathematically challenged, parallel universe, but until the Large Hadron Collider breaks through to a dimension where a 2% increase is better than no increase at all, we may have to file that comment under ‘S’ for Slightly Silly.

Simple ideas like adding ring-fenced increases to VAT or corporation tax might even net a greater income for the exchequer.  But perhaps there’s a hint at what lies behind the BRC’s change of heart.  Would it be outrageously cynical of me to wonder if all those large scale retailers that have the ear of the organisation have just realised that a turnover or profit based taxation system might actually cost them more?  Especially if effective action was taken to reduce tax avoidance schemes at the same time.  Just a thought.

Incredibility

From the comments I’ve received on this move so far it’s done serious damage to the credibility of the BRC, certainly with small businesses.  There’s always been a belief that as a trade body the BRC were rather more concerned with the fortunes of larger retailers, especially supermarkets, than with those of smaller independents.  This wasn’t a view I supported, but this capitulation on one of the most pressing issues on the high street will do nothing to dispel that belief.  The alignment with an institute like the CBI also pretty much puts the lid on any claims that could be made for the BRC being in touch with the grass roots retailers.  That’s all very disappointing, to put it mildly.

Happily though the Federation for Small Businesses does seem to have remained on the side of the little guys and coincidently launched their own campaign for a rates freeze on almost the same day that the BRC backed away from theirs.  I’d urge everyone to sign their petition and get involved with the campaign.

Not a negotiation

And there’s the difference that Helen Dickenson, the BRC and the CBI doesn’t seem to have noticed.  This is a campaign, not a negotiation.  We don’t need to achieve the best result we can by simply asking for what we think we’ll get.  We should be stating a position that is defensible and then fighting for it.  Yes, ridiculous expectations are a waste of energy and resources but we’re not expecting cash handouts to private businesses, jet packs or for Vince Cable to actually bother to research the difficulties that high street retailers face before he makes yet another dismissive speech.

protest-is-beautiful-free-2007This is a about taking a lobbying stance based on principles and fairness in the same way that campaigners have fought down the years to reform other unfair social inequalities.  Small retailers and their staff depend on the high street for a living.  In many ways reforming the inequities of an unfair taxation system is every bit as important as the fight against sex and race equality, or other socially corrosive political stances.  You can’t negotiate those values and aspirations away just try to save face and score an easy win.  Certainly not if you want to remain relevant to the people you claim to represent.

High street decline – Re-task or re-think?

6741713-a-decaying-and-rusty-street-sign-for-a-high-street-representing-commercail-and-retail-in-decline

There’s been much talk  from various quarters about needing to come terms with the idea that the high street is dying.  Bill Grimesy has set this as the starting point in many discussions, and more recently the head of Ocado, Tim Steiner, expounded pretty similar views in a rather unhelpful gush of vitriol to the national press.

The rhetoric characteristically continues along the lines that we’d all better get used to it and deal with the reality.  ‘Dealing with it’ usually involves tacit agreement that shopping malls will be the main destination for consumers of the future and the rest of the slack will be taken up by the direct internet purchases, click and collect and m-commerce.

Ailing high streets, we’re told, will need to re-imagine themselves into areas that will attract people for a variety of reasons rather than just shopping.  Empty retail properties will be re-tasked into other uses, primarily residential.  There’s usually a raft of other ideas that come along in this mix.  Crèches, art galleries, community centres and various other esoteric uses are floated as essential ingredients in a new-age municipal Mecca that will sweep away the tumbleweeds and revitalise areas that people that are staying away from in droves right now.

It’s a view predicated on pragmatism that has some merit.  But I’d ask at what point does pragmatism slip into the realms of defeatism?  I think we’re a long way off from throwing in the towel on the high street, we just need the political will to deal with the underlying problems that have dogged it since investment landlords, property developers and city councillors first crawled out of the primordial slime.

Logical

I don’t argue with the logic of mixed uses in any retail environment, based as it is to a large extent on models already in existence in the shopping centres and mega-malls that are now a ubiquitous part of the UK consumer landscape.  It’s a truism that shoppers don’t just want to shop these days.  They want to drink coffee, browse the internet, have a free makeover or a life-changing experience on a climbing wall.  But with all this already available in the big  retail and recreational cathedrals, one has to wonder why exactly people would return to high streets, even after the proposed transformations are complete.  If all it’s going to take to bring these people back into their local areas is a few new service providers and a community centre, why hasn’t this already been done years ago?

parking_1879549cThe answer lies in the roots of all the problems currently besetting local high streets.  That of high rents, high rates, poor provision of expensive parking facilities, and the lack of a co-ordinated approach to tenant mix and shared space management.  Yes the same boring old issues I’ve been going on about for years, but they haven’t got any less injurious to retailers fortunes with age.

These shortcomings have already been trumpeted by various commentators and pundits, not to mention being detailed chapter and verse in the Portas Review.  It’s likely that Bill Grimesy will cover some or all of this same ground again when his own report is published in a few weeks.

None of this is news, certainly not to those retailers struggling in such areas, or to the landlords faced with empty properties as a result of previous failures.  The answer is to deal with these issues, not just talk about them.  The answer is not to give up on the high street model and dismantle it by stealth.

Small high streets are incubators for fresh retail ideas driven by entrepreneurs with a good idea and not much capital.  The fall in real terms value of commercial property should be a positive benefit in those circumstances, but by and large this is being undermined by landlords and developers who are desperately holding on, waiting for the boom times to return.

Add to this a government equally addicted to milking the high street cash cow through an iniquitous business rates system, and you don’t need to be an economic whizz kid to see why high street property has become toxic.

Re-model Re-task

By making a case for re-tasking or re-modelling empty shops we simply lay the groundwork for landlords and developers who would love to be able to turn empty shops into ‘luxury flats’ or demolish problem locations altogether and start again.  And who could blame them?

imagesBut in doing so we risk losing a valuable resource that we’ll probably never get back.  Stores that right now that could, and should, be let on viable rents to small retailers eager to get a foot on the commercial property ladder.  And I mean on proper long or medium term leases, not the fudgy panacea of the pop-up.

Once these units are gone those opportunities will disappear too.  The large malls aren’t interested in small retailers in the long term, no matter how much they might say they are, and once there’s no other alternative where will independents have left to go?

Yes some small retail units will likely be left in town centres, or included in redevelopments.  But then the reduction in availability will simply serve to support the high aspirations of landlords that have led us down the road we’re currently coming to the end of.  The fact that there are large numbers of empty units being left languishing by landlords and letting agents asking for frankly stupid rents should be seen as a potential resource, not a problem to be erased by sending in yet more deep pocketed developers.

Opportunity knocks

There is an opportunity right now to rescue the situation by forcing landlords back into the real world.  I’ve long advocated imposed rent control and local retail zoning, similar to the systems put in place to deal with down at heel areas in the USA in the 60s, 70s and 80s.  If a property is empty for a certain period of time, local authorities would be able to take over the administration and let the unit on a fair rent.  Landlords would be offered a return on investment at a set level above the current base rate and would of course lose liability for empty business rates.

This would go hand in hand with new planning powers to ensure a sensible tenant mix within given zones, thereby reducing the ‘usual suspect’ nature of small high streets, often populated with the same facades of betting shops, charity shops, coffee bars, mobile phone operators and the like.

atla-rent2-0120I’m all for the free market economy but high street decline is a socio-economic issue that needs to be managed at a local and national government level.  It has knock on effects to the well-being and safety of local citizens and the monetary and social costs associated with those factors.

I’m not averse to seeing retail units turned into other service type uses, but I am very much concerned that once permanent changes are made to retail properties, especially into residential, we’ll see a decline in the small independent sector that will simply strengthen the dominance of  large malls and developments that are far less supportive of those types of operations.

Re-tasking retail into other uses is certainly going to be an interest grabber for politicians and developers keen to make a killing out of empty units in town centres.  But if they also kill off the high street in the process I think they rest of us will all be the poorer for it. As Joni Mitchell once sang, “you don’t know what you’ve got ‘til it’s gone”

Internet Purchase Tax ? Be Careful What You Wish For

Funny_Internet_Tax_Cartoon

Sometimes I’m baffled by the workings of the human mind.  For example, why would a retailer in the UK, already burdened with some of the most onerous and inequitable taxes imaginable, not least business rates, actually propose to the government that they introduce a new one, specifically aimed at retail?

Well it seems that’s exactly what Justin King, the Chief executive of Sainsburys has done.  He’s recently called for an internet purchase tax to be applied in the same way he thinks it’s being applied in the USA.  I say ‘he thinks’ because he seems to have misunderstood the reason this tax is being called for over there.

As I’m sure many of you will know, the US don’t have business rates like we have.  They have local purchase tax, which is often added only at the time of purchase.  Items are priced ‘plus taxes’ which are often variable from state to state and region to region.  Because websites can make sales across state and regional lines, many of them have been charging a different rate of tax to what should be paid in the areas where the purchase was made.  In some cases they haven’t charged the tax at all.

Is this right?  No of course it’s not.  But it has pretty much zip to do with the way retailers pay local taxes in the UK.  In the US they are probably quite right to be considering the Marketplace Fairness Act in order to ensure online retail is contributing to local coffers in the way it should.  Here we pay business rates at a flat rate based on the valuation of the property you occupy.  Internet retailers pay these too for distribution warehouses, offices and the like.

What gets up the nose of many retailers, me included to some extent, is that these companies can be based in locations where local rents and by association, local business rates are lower.  Whereas anyone in a high profile high street location would pay a lot more.  That’s because we pay rates based on notional valuations and not as a tax on revenue.  I’ve gone to some lengths to explain how batty I think this system is, but I don’t think introducing a completely new tax is going to make it any more sane.

Golden Goose

Yes it’s annoying and yes it seems unfair, but in essence it’s not.  Online retailers are still paying rates and taxes, but just not at the same level as a normal retailer.  I agree taxes and overhead costs for bricks an mortar retailers are too expensive, but I don’t agree that we should fix that by making online retail just as ridiculously costly.

That’s not levelling the playing field, that’s digging ourselves into a hole in the middle of the penalty box.

Many online retailers are golden eggalso bricks and mortar operations who already pay a fair share of business rates.  Their online sales may to a large extent be supporting other parts of their business.  Taxing them more isn’t going to improve that situation.  Increased taxation would also have to be passed on to customers, hence neatly strangling the golden goose that may be keeping many parts of the retail industry aloft.

There also seems to be some sort of naïve belief by Justin that ministers will conflate this new tax with business rates and seek to reduce one at the cost of another.  Whereas I don’t have quite the same touching faith in any chancellors spirit of fair play.  Especially not one who’s faced with the biggest book balancing challenge since Margaret Thatcher left charm school.

I’ve been warning about the prospect of an internet purchase tax for the past couple of years.  It’s low hanging fruit that I’m surprised the chancellor hasn’t already started to salivate over.

Governments consistently support the mantra that taxing success should not be the way to go and I largely agree.  Why apply what amounts to a punitive tax on internet based operations rather than reduce the taxation being applied to bricks and mortar?

Yes, retailers in the UK pay far too much tax, well the ones who actually pay tax do,  and certainly far too much in business rates.  But adding to the tax burden elsewhere is not going to solve that problem.  Even if such a tax was sold on the basis of a reduction in business rates across the board, it’ll be a safe bet that pretty soon afterwards that whole relationship will slip into the same grey area that local taxation resides in now.

Sunlit Soccer Net

Leveling The Playing Field?

It’s more likely that an internet purchase tax would be applied in the same way as airport tax, or insurance premium tax.  Just slapped on at a nominal rate which will then be increased gradually in successive budgets.  Pretty soon we’ll just see it as another one life’s certainties, just like any other stealth tax.  We’ll moan but we’ll pay it and maybe a few more businesses will go to the wall.

Moreover any government that introduces such a tax is effectively agreeing with me and many others that applying a flat tax business rate to every other business premises in the country is wrong.  If online retail should pay an overhead tax based on revenue then why not the same for bricks and mortar retailers?

If the conclusion to this debate is a fairer system of local taxation based on ability to pay and it’s applied to ALL retail operations, then I’m all for it.  But I very much doubt there’ll be any change to business rates as they stand now if such a tax were introduced. Maybe I’m just not very trusting of government ministers.  Or maybe I’m less naïve than Justin King.

Either way, let’s stop putting such ideas out there shall we?  After all you have to be careful what you wish for in this life, as sometimes you might just get it.

Boiled Frogs and Business Rates

tax_1815371b

Amid all the recent furore over tax evasion or avoidance and the barely distinct line between them, I thought I’d throw my two penneth in, which of course I will fully declare to HMRC.

Let’s consider a new form of income tax.  One that simplifies all twists, turns and nuances of the current system.  A more straightforward tax that’s easier to assess, quicker to collect and almost completely unavoidable.

My proposal would be that everyone pays tax based their theoretical ability to earn.

HMRC could look at various parameters such as age and general health, but the most important of these would be your past employment history and your level of qualification.  Both of these would of course be indicators of the kinds of salary you could command on the open employment market.  We’d naturally have to assume the market was buoyant and that there would be an infinite number of suitable jobs available for every person able to take such a position.  But as we all know, assumption is the lingua franca of the taxman

I’d propose that specialised analysts would set a tariff for each person, based on what they could earn in these idealised set of circumstances.  This would effectively give a figure that each person should be paying, assuming they were working and in a job equivalent to their experience and education.  Then HMRC could simply issue demands based on these notional figures.  If, for example, you qualified as a teacher, you’d pay what a teacher should be earning.  If you’d qualified as a solicitor or a doctor, you’d pay based on that ability to earn a salary consummate with your potential.

Now the controversial bit : My system would mean you’d pay these taxes regardless of if you were actually doing the job you were qualified for or not.  If you trained as a brain surgeon, but decided that delving around in someone’s skull was no longer for you, no matter, you’d still pay the tax on a brain surgeon’s salary.  Even if you went off to work as a shelf stacker in your local caring, sharing supermarket, you’d still be expected to pay the brain surgeon’s tax.  Remember, your liability would be based on what you could be earning, rather than what you actually made.  Likewise, if your only qualification was  a silver swimming certificate but you somehow ended up as a city trader, you’d only pay tax based on your notional earnings potential, for example as a street cleaner or a career politician.  On second thoughts, scratch the latter example as that screws with my argument.

Fair’s fair

3123_tradersI know that all sounds terribly unfair, but  I’ve got that covered.  Returning to my city trading, swimming certificate holder, he would have his potential earnings re-assessed every 5 years or so, and if it was shown that he could now command a higher salary, due to a newly gained experience at pushing buttons and answering phones on the trading floor, he’d have his taxation level increased, usually to that of the highest paid city trader in operation.  He’d then pay tax at that level forever, even if he lost that fire in his belly and decided to pack it all in and wash cars for a living, he’d pay the tax of a top city boy.  Moreover all this income flowing to the chancellor’s eager grasp would be adjusted annually by the rate of inflation, just to make sure they kept up with current standards of living.  It’s only fair.

You see, under my system there’d be no need to fill out complicated tax forms, no necessity for tax allowances or adjustments based on your true circumstances.  Everyone would receive a tax demand calculated for them by HMRC and they’d have to pay it.  No arguments.  Even if you weren’t in work or you earned far less gross pay than the tax being demanded, you’d still have to find the money – Somehow.  After all, you’d have the ability to be able to earn the going rate for a particular job, so why should the tax inspector have take into account what you actually earn.  That demands far too much thought, effort and energy on behalf of busy government departments.  If you earn less than what you’re qualified for then that’s your decision. Your problem. You still pay the tax.

Sound equitable to you?  No, I thought not.

But then this, in case you haven’t already spotted my laboured attempt at a parallel,  is exactly the way the current system of business rates works for retailers, and other businesses.  It’s essentially a system of taxation based on a notional ability to earn money, regardless of the actual circumstances at the time or of our actual income.

The arguments for such a system as we were told last week on Radio 4 is that it’s easy to assess, easy to demand, and simple for businesses to pay.  Brandon Lewis went to some length in his interview on the BBC’s Face The Facts programme to stress just how important he thought certainty was for businesses, even if that certainty is that you’re being mercilessly ripped off by a complacent under-informed government.  To anyone outside the commercial property world, the idea that you’d pay a tax with no direct connection to actual revenue would seem ludicrous.  Yet it’s something retailers face every month when they have to find the money to pay this fixed, non-negotiable charge, regardless of how much money they’ve taken in the preceding weeks.  This ridiculous conceptual levy is now contributing to the fastest decline in the history of high street retail, yet it’s continuance is defended rigorously by ministers on a regular basis and apparently accepted as a reasonable proposition by the rest of us.

Our current system of business rates is a twisted perversion of what was originally a property tax intended to ensure local residents and businesses paid into local coffers for the provision of the local services they consume.  Refuse removal, emergency services, council officers and the like.  The simple idea being that the size of the property you occupied gave a rough guide to how much of these resources you’d call on in any given year.  It was a bit of a blunt instrument but it was broadly fair and of course we all accepted it as a civic responsibility.

Community Chest

Dem Monopoly Community Chest

That really went out of the window when the current system of Uniform Business Rate or UBR was introduced in 1990.  Under this system all businesses across the country paid into a central pot which was then shared out between local authorities across the country based on budget and need.  This took into account that some areas may have a lower potential to earn rates from business which meant that more central government subsidies were required.  Under UBR the richer areas would to some extent help support the poorer.  A fair and equitable system, in theory, except that under UBR the rates you paid were now assessed on the value of your property, rather than it’s area.  And there, hiding in the little detail of an adjustable annual multiplier linked to inflation, was the devil.

Now, instead of paying a proportion for your local facilities, you paid a property tax based on a deal you did with landlords on a commercial level, sometimes years in the past.  You were no longer paying into a community chest for your local hospitals and lollipop ladies, you were paying a tax to central government.  Not only that, it was a tax based on an assessment of the value of your property made by another, separate, government authority : The Valuation Office (VOA).  They assessed the rough value of your property based on an aggregation of the local rental ‘tone’ and set a tariff on each property to which the annual multiplier would be applied.  If this wasn’t complicated enough, the government then varied the annual multiplier based on a measure of inflation at an arbitrary point in the calendar, currently six months before any new charge would be due.

kneelingThe principle of course was that deals agreed to acquire a property in any area would give a rough guide to the affluence of the local population and their likely spending, which in turn would give some indication of the potential turnover of the business paying the tax.  A tenuous correlation at the best of times, one largely based on expectations and aspirations at a given moment.  Even so this probably kept rough pace with reality during times of normal trading, although it was hardly the basis for a fair and equitable system of taxation.  In fact it had more in common with more notorious historical levies such as the window tax or feudal tributes paid to Norman lords.

So, as with my mischievous suggestion in the opening paragraphs above, we have a system of taxation based on a theoretical assessment of earnings potential with no direct connection to ability to pay.  The really odd thing is that we all seem to accept this as a fair arrangement.  The various campaigns launched over recent years don’t seem to focus on the one salient point that for any tax to be fair it has to be related to actual earnings, not the murky notional musings of various self regulated government agencies.

The dictionary definition of a tax is : “a compulsory contribution to state revenue, levied by the government on workers’ income and business profits, or added to the cost of some goods, services, and transactions”.  Perhaps this is why the government continues to call them business ‘rates’ ; Harking back to the original principles where your property was ‘rated’ in relation to it’s consumption of local resources.  That’s plainly no longer the case, even more so now after recent revisions to rules that allow central government to hold on to a proportion of the rates collected by local councils paid into the central government pool.

Business rates are self evidently a tax in all but name, something we’re expected to overlook as an artefact of historical inertia and semantic subterfuge.  After all, if it was correctly named, we’d all expect there to be some deference to the normal rules by which taxation operates.

Alternatives

Most proposed alternatives to business rates seem to be founded on tweaking what we have now.  Base the annual multiplier on CPI rather than RPI has been the most popular to date, whilst the proposal to change to a land tax rather than a property tax has been around for a good while too.   In fact Green Party MP, Caroline Lucas recently launched a Private Members Bill to that effect.  There have also been a plethora of rebates and deferral schemes down the years for various business types or uplifts for others, none of which really fixes the inherent problems, especially for those businesses that don’t fulfil the very limited criteria.

One partial solution mooted several years ago was to carry out annual re-assessments using the £10M computer system developed by the government at the time, based on the principle of Computer Assisted Mass Appraisal (CAMA).  Although, like something from the Hitchhiker’s Guide the the Galaxy, that apparently now lies unused, gathering dust in the corner of a VOA broom cupboard, probably in a locked filing cabinet beneath a sign saying ‘Beware of the Tiger” .

The most likely shift that anyone has remotely expected from successive governments has been the shift from RPI to CPI, a principle that’s lately been applied to other government measures where it works to their advantage, most notably things like pensions .  It’s also proposal was included as one of the recommendations in the Portas Review (recommendation 8) that the government has assured us all it’s  ‘accepted’ it still seems a long way off.  Yet more semantic tap dancing demonstrating that there’s a big difference between acceptance of an idea and actually doing anything about it.

Personally I think we’re well beyond the point where this would make any significant difference to the problem.  In what is an inherently unfair system we appear to be focussing on degrees of unfairness, rather than pressing for a complete overhaul.  To me that seems like playing into the governments hands.  The difference is marginal.  In January for example RPI stood at 3.3% while CPI was 2.7%.  When and if ministers do finally bend and shift to CPI, are we really all going to breathe a collective sigh of relief over a difference of 0.6% in our annual rates bills?

Keep On Squeezing

art-1024_251299kNone of these, with the possible exception of the land tax idea would re-establish the link between local service provision and the payment that was originally designed to cover the costs for these.  Neither would any of them have any relationship with ability to pay, as with virtually every other fair system of regular taxation.

We all seem to have blithely accepted a liability that has been foisted upon us all by a process of stealthy evolution from a simple local levy to a full-scale income tax.  Collectively we hand over billions to the government on this basis, calmly and with little protest.  The only reason we’re all getting out of our prams about it now is that falling commercial property values are no longer being reflected in this thoroughly disconnected system.

While property values remained flat or were adjusted in line with gradual increases in yield, UBR just about kept pace with turnover.  But the commercial property boom of the past 15 years pushed retail rents beyond sensible sustainability, which in turn drove comparable increases in rateable values.  The property crash of 2008 and the decline in consumer spending has now exposed the high water mark of unsustainable process.  Yet ministers carry on sucking the reservoir dry, terrified of losing a guaranteed income and convinced that this creaky mechanism should lumber on regardless of imminent collapse.

But there are workable alternatives.  Dr Adam Marshal from the BRC has advocated a local taxation regime based on profits, whilst I’ve long argued for a form of local purchase tax, similar to that in the USA.  Perhaps, even more radically, we could combine it with VAT and add the charge at the till as they do over there.  Then, not only would the burden of taxation be transparent to customers, it would show where a large proportion of the cost of operating a retail business lies.  Something I’m sure many of us would welcome in the face of customer and landlord perceptions that we’re all amassing a personal fortune on a daily basis.  Not only that, a direct link between the success of a local business and the income generated by local authorities would provide a sharper focus for councillors over issues that directly affect their performance, such as parking, local road infrastructure, planning, town management and the like.  Given the fact that many retailers trade in areas where they don’t get a vote in local elections, a levy based on local performance would at least partly negate the frequently overlooked paradox of taxation without representation.

Boiling the Frog

Isn’t it about time we all called for a re-invention of the whole process of  local business taxation?  Rather than being complicit in the continuation of the status quo or accepting yet more bolt on revisions to a discredited process.  Rather like the business rates system itself, we arrived at the position we’re in now by a series of incremental assumptions and expectations.  It’s akin to the old adage of the boiled frog, and only now as we start to feel the heat are we beginning to sweat.

Personally I’m all for jumping out of the pot right now, rather than settling for a little more seasoning in the water I’m being cooked in.

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The Pearly Queen of the High Street?

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Whatever Mary Portas says in the various interviews she’s given about her new show ‘Mary Queen of the High Street’, Tuesday’s airing of the programme featuring Roman Road was little more than the same script we’ve seen played out in most of her recent series.  It may have been a fresh approach all those years ago when she first clattered on to our screens, but it’s now a tired, tawdry format that her production company have milked almost to death.  Indeed according to some of the local traders involved the experience was less than regal for many of them.

Amongst all the hype and hyperbole that’s surrounded the Mary’s involvement in the government’s high street revival plans, she’s always been right about one thing.  This is a serious issue, affecting the lives and livelihoods of thousands of people.  So it deserved rather more that what we saw on Tuesday.  This should have been a serious documentary.  Instead we got a barely watchable ‘show’ as in ‘show-biz’. 

As with most of her more recent programmes this was all about Mary, dressed up to the nines, posing for the cameras and promoting the Portas brand.  Mary sashaying about , Mary pointing and gesticulating and having staged encounters with traders and the general public.  Mary deep in discussion with the public about how well or otherwise she comes across on TV.

shopping-in-paris-thumb9157330Timing is everything

Time that should have been spent dealing with serious structural problems facing the area was wasted on jaunts to Paris and interminable tracking shots of Mary walking up and down rows of stalls talking about rain covers.  Finally we had her usual trademark finale set piece : This time a good old East End knees-up.  Just in case she hadn’t already patronised the locals enough.

Yet we’re told there wasn’t enough time in all this to feature progress she claims to have made with the council over parking charges and restrictions.  Probably the one thing that most of the retailers in the area were most concerned about.  Certainly something that was in her report and something she suddenly seems to have accepted as key to regeneration, albeit maybe only in interviews in the run up to her new show.  It was also something that was raised in her early brief encounter with the hairdressers in the programme.  Oddly enough we never seemed to return to them to discover what they thought of her ‘improvements’ to the area.

No Makeover

She claimed at the outset that it wasn’t going to be a makeover show, yet that’s exactly what we got.  When it came to it she couldn’t resist calling on her old standby approach : Pick one hapless retailer, march into their shop and spend a few moments deriding their wares. 

“Who’d buy that?” is one of her stock phrases, usually followed by a plaintive reply from the retailer that it’s one of their best lines.  Pure dismissal of the experience of the person that’s been there for a fair bit longer than she has, but good camera fodder, as she knows so well.  Then she sets about turning them into something more appealing.  Or rather her ‘team’ does.  Usually an easy win given that she usually picks on a store that even the most inexperienced shopkeeper could improve with a good clear-out and a lick of paint.

Yes the bric-a-brac shop looked great after the refit, and I totally agree that the person running the store was missing a trick.  But what she produced was a fully formed, niche retail experience.  Only problem is the niche customers are mostly in Mary’s head.  True, she found one or two in the local area, but one or two aren’t going spend enough to pay the proprietors rent, the rates and subsidise the council’s parking charges, nor would their business foot the bill for the fabulous refit, which I suspect was actually paid for by the TV company.  Mary’s hunch that these few boho locals were going to turn this person’s business around certainly didn’t justify the ludicrous idea that this small shop could be converted into an ‘anchor store’, 

The anchor store concept, which she borrowed from larger retail developments, requires a huge, already established, store to burst on the scene bringing in it’s loyal band of customers.  It’s not something you can create simply by dint of location, as appears to be the case here.  Certainly something that’s difficult to achieve from a standing start.  Still I suppose it made it all Mary’s thrashing around for ideas seem terribly scientific and purposeful.  But in the end it was just tinkering, and tinkering with someone else’s business at that.  But then that’s always easier to do when you don’t have to face the consequences a few months down the line, as one or two other stores Mary has ‘made-over’ in the past have reportedly done.

questions and answersQuestions, questions

The end of the show left more questions than answers.  What indeed had been done about the parking?  How were the original stallholders doing after Mary’s changes?  How many of them were left?  Were any of them removed to make way for her newcomers?  How were the existing Food & Beverage uses doing in the face of the new competition she’s introduced?

I’ve never doubted Mary’s veracity or her enthusiasm for what she’s doing. At the outset I was optimistic that she had the public profile as well as the chutzpah to fight the corner for retail against an obviously blasé government. 

But since her report was published she’s been swept away with the razzmatazz that was introduced by the government officials behind it.  The Willy Wonka Golden Ticket claims from the then minister responsible Grant Shapps.  The audition videos to became a Portas Pilot.  The branding of the whole experience itself.  It’s like it was all designed to take the focus off the most important issues facing retailers today : Rent, Rates and Parking, all of which were highlighted in Mary’s report only to be subsequently ignored by Shapps and his successor Mark Prisk. 

Giving the benefit of the doubt, I’d say that government spin doctors, much more accomplished in the dark arts of misdirection than Portas, used her wide eyed naïveté and dangled such shiny things in front of her.  She could easily have eschewed such distractions and pushed home her very well pitched report.  Refused to be driven off the course that she has constantly claimed to be on : That of dealing with the structural issues that have destroyed the high street over the past several years.  But when the chips were down she instead took the government’s shilling and disappeared down her usual rabbit hole of self promotion, hoopla and car crash, reality TV sham.

Infamy! Infamy!  They’ve all got it in for me! 

infamyIn a final twist of the ridiculous, Mary is now starting to claim that criticism of her is based on a political motive.  Where this originates from is a mystery to most commentators, certainly to me.  She’s quite right that she was given the perfect opportunity to cut through the political divides with her appointment by David Cameron all those moons ago.  But she blew it when let herself be sucked into the party machinery that she’s now crying foul of.  That has a lot less to do with politics and more with personal interest and ego.  Something no one has ever accused her of lacking in abundance.

If this first show is what we can expect as the culmination of her grand masterwork, I really don’t think it was worth the wait.  At best it was boring and mildly entertaining.  At worst it was selling retailers up the river for some cheap voyeurism and an easy TV fee. 

With the air date having apparently put back several times, it showed all the hallmarks of something cobbled together to try to fulfil the hopes of her TV production company.  The same company that has been tagging along since the Portas Pilot winners were announced and the same company that allegedly lobbied government over the most TV friendly locations to award the pilot money to.

In the end the only ratings values these people care about are the ones for the show, not those forcing many of the faces they’re using on screen out of business. 

Ultimately what we saw achieved nothing, except to fill a Portas sized hole in the Channel 4 schedule.  I like to think the livelihoods of independent retailers up and down the country are worth more than that.  Up until last night I thought Mary Portas felt the same.