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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Could The ‘Living Wage’ Be The Living End For Some Small Retailers?

Payday written

The number of major retailers lining up to announce impending pay increases seems to be growing by the day, seemingly inspired by the Chancellor’s surprising commitment to what he called a National Living Wage.

Cynics amongst us may say that one motivation for this uncharacteristically altruistic move was to wrong foot opposition parties such as Labour and The Greens who’ve advocated the pay reforms proposed by the Living Wage Foundation.

That said, George’s Osborne’s aspirations fall somewhat short of the LWF’s, but on the face of it we at least have a welcome move in the right direction.

The new rates don’t come in until next year but there may be an ulterior motivation for some larger retailers upping the wages ante now, and in some cases going beyond new statutory requirements. Not only does it gain them several kudos points in the PR arena, it also piles pressure onto their competitors to follow suit. Happily for employees, wages may just have become a much more competitive battleground.

Tesco for example are currently facing a crescendo of calls for them to chase those foreign upstarts Lidl down the Living Wage trail at a time they can ill afford to add further financial pressures to their already creaking P&L sheets.

Balance Sheet Shuffling

For most larger retailers though, paying the higher rate shouldn’t really be a problem. They may have to do some balance sheet shuffling, but it should only make a small dent in their profitability. Certainly there may be a few long faces at the next shareholder meeting, but a couple of extra glasses of champagne will probably help them see the positive side.

WolfsonI have to admit to some bemusement at the recent whinnying from Lord Wolfson about Next’s wage bill increasing by £27m as they also announced profits of nearly £350m. For someone reportedly earning £4m a year himself, it seems rather churlish to begrudge his staff a mere 8% dividend on the profits they helped to generate.

Recent reports about retailers such as Sports Direct allegedly sidestepping even minimum wage regulations don’t do our industry any favours either.

For smaller businesses though the picture is somewhat different and there’s growing disquiet about how many employers are ready and able to deal with the additional demands that will be made on their businesses when the new system starts to be phased in.

For many independent retailers already struggling with overheads increasing every year, the Living Wage is going to be much harder to deal with, especially as we now see that the denouement of the Chancellor’s plot was to pave the way for a shredding of the tax credit system.

Even though that has for the time being proven to be a cut too far, I think it’s far too early to breathe a sigh of relief about future attacks on the low waged economy.

The reliance on tax credits by some businesses has been seen as perversion of the system, but in the face of scant support elsewhere, they  have tangentially helped small businesses by topping up the wages of their lower paid staff.


For many independent retailers already struggling with overheads increasing every year, the Living Wage is going to be much harder to deal with


Whilst I agree that for larger operators it’s difficult to defend such subsidisation, for some smaller companies it’s something of a lifeline.  That’s not ideal, and I know most small businesses would much rather pay a decent wage without pushing their valued workforce onto state assistance, but often there’s little choice.

I know of shop owners trading at the very margins of profitability, often only drawing a minimal salary themselves, sometimes well below the minimum or living wage. They can’t simply magic the money to cover additional wages out of thin air without help on other overhead priorities.

Business rates

VOAMost notable amongst these is business rates, which was the subject of yet more empty political posturing at the Conservative Party Conference, followed by an announcement of a further delay on proposals for reform in the Autumn Statement.  There are now fears that this burden will be even more overwhelming in some areas after next years revaluation.

Many are also creaking under the weight of additional pension liabilities now being phased in. The alternatives for these retailers will be to further reduce staff numbers, break the law, or simply go under.

There are some councils who earlier this year proposed schemes where they would reduce business rates for companies who agree to pay the living wage.  However the devil is in the detail and many of the proposals only meet a small part of the additional costs imposed by the increase to the minimum wage.  Although I’m sure most small retailers would prefer to pay their staff more given the opportunity afforded by overheads savings elsewhere

Can’t pay Won’t pay?

There is of course the argument that if you can’t afford to pay a decent wage, you shouldn’t be in business anyway, but that seems to me to be an attitude that runs contrary to the ethos of the Living Wage principle.

Surely small business owners have the right to make a reasonable living as well as their staff, and options such as statutory profit or equity sharing could be considered for smaller employers and their employees.

I’m a supporter of the Living Wage and I’m delighted it’s finally starting to become a reality. But it can’t simply be waved into existence without some thought for the implications for companies who, no matter how much they may back the principle, may genuinely struggle to pay it.

Without a more comprehensive approach to the overall economic model that these businesses face, it’s likely that, for some of them, the Living Wage could easily become the living end.

falling-off-cliff_2046653c

This article is an updated and expanded version on my recent Retail Week column

Hope or Hype? – Why I Never Trust Economic Reports

Economic reports seem to be like buses. You wait for ages and then four turn up at once.  Last week they seemed to leave the depot together, all promising to take us somewhere nice for the summer.

Nielsen’s report on consumer confidence was the first to pull up to the kerb with figures that seem to back up those released last month by GFK. Both showed consumers looking at the high street with a more optimistic gaze, with Neilsen putting consumer confidence at a 9 year high as opposed to GFK’s more buoyant outlook of a 13 year peak.

Then came the CBI’s quarterly Distributive Trades Survey – a measure I’ve never been particularly impressed by – reporting expectations for June riding on a 27 year high, although in reality orders were only growing at their fastest pace since 2010.

Footfall monitoring company Springboard also announced footfall on the high street over the bank holiday weekend eclipsed that of shopping malls with an increase of 4.4% as opposed to an almost equal drop in retail parks and shopping centres.

Finally Asda’s income tracker proclaimed that us lucky Brits now have around £17 a week more in our eager mitts than we did this time last year.

Rosy View

If we’re to believe these statistics, high street store operators can at last cast the rose tinted spectacles from their reddened eyes and peer at the horizon with renewed hope. We now just have to for wait for those armies of revitalised shoppers to beat down our doors with fists so full of cash we’ll barely be able to fit it all into dusty till drawers previously inhabited only by moths and a few dog-eared copies of the last set of reports that promised us roughly the same thing a few months ago.

You might guess from my barely disguised flippancy that I don’t personally put a great deal of store by these reports. And you’d probably be right.

Nielsen’s epistle for example was carried out using a sample of respondents from online shoppers. A group who are already looking to buy (or why are they on the internet being asked about shopping?) so will naturally be pre-disposed to making a purchase.

The CBI’s survey is a constant source of bemusement to me, and many of my own suppliers that I have conversations with. They appear to have their heads in much loftier clouds than most of us, being twice removed from the actual consumer transaction. In my mind the impact on the high street of an estimate about probable orders is tenuous at best, and has been proved to be such on many previous occasions.

In terms of footfall I’d say that Springboard are one of the more accurate companies out there, but a broad headcount usually leaves me shrugging my shoulders, as such a number isn’t much use without the associated conversion data.

Wet Seaweed

Income trackers are the statistical equivalent of the wet seaweed barometer, based as they are on a set of constantly fluctuating, notional measures. And in the end is a figure like £17 a week really going to make that much difference to the behaviour of the average consumer? Not if other analyses are to be believed which suggest that people are more likely to remain in their current pre-programmed behavioural loop of saving more and spending less after being ingrained with fiscal paranoia for the past 7 years.lf-WeatherRock

And to a large extent those people are right. There are so many factors in the shifting economic landscape right now that basing any predictions, let alone business decisions, on these sorts of analyses would be somewhat precarious.

This was neatly demonstrated on Friday when the comparison between Neilsen’s and GFK’s figures seemingly evaporated after GFK released new numbers showing consumer confidence fell to a 5 month low in May, ostensibly dented by uncertainty surrounding the General Election.  And as the pollsters showed us in that election, predicting outcomes based on what people tell you in surveys is a very tricky business.

Optimism Vs Realism

I’m all for a bit of optimism, but it seems like we rarely have realism in terms our business expectation these days. A few years ago I was bemoaning a similar level of ill-founded pessimism as being the harbinger of more doom and gloom than was healthy.  I’m equally sceptical about skeins of upbeat predictions.  Is a happy medium too much to ask for?

With rent and rates still at record levels and unrealistically low interest rates just waiting to be let off the leash, I think a healthy sprinkling of caution needs to be infused into any ideBus_Twitas that we’re about to see a renaissance in high street retail.

I could be wrong. In fact I hope I am, but in the end the only reliable statistic for a business is that figure on the bottom of your profit and loss account.

Personally I’d prefer to see what’s in the emergency budget before I invest in any bunting. Or maybe wait for the next report to see what that has on board. And just like the Clapham omnibus, I’m sure there’ll be another one along any minute.

This article was also published online as one of my regular columns for Retail Week Magazine

 

Selling Democracy by the Pound

for-sale-democracySome of my more regular readers will have noticed my absence from the these pages over the past coupe of months as I took some time out from retail cogitation to try my hand at politics.

My nomination came at a transitional point in my career as my company had just closed it’s last high street store after making the decision back in 2013 that we would move our business into other channels. I’m also looking at more ethical areas of retail so again the Green Party seemed a good fit.

I had actually intended to take a few months off to relax before launching a new business, and really accepted the candidacy as a paper exercise. But as with so many things I become involved in, I couldn’t just go through the motions.

Many people found it odd that I should have stood for the Green Party in one of the safest Conservative seats in the country. Firstly because The Greens aren’t generally known as great lovers of business, and secondly because I had about as much chance of winning as I had of joining The Spice Girls on their next reunion tour.

But I didn’t go into the campaign expecting to win. I did it for the experience and to make a point. The point being that business can be a force for good in society. I’m currently exploring a concept that I, and a few others, have come to call social capitalism. It’s a movement I believe small and medium businesses should be an integral part of, and a party like the Greens, being so far untainted by the guiding fist of big corporates, seemed like a good place to start.

Familiar Ground

Political campaigning felt strangely familiar to me as a retailer. And really that should have been less of a surprise. An election is essentially a marketing exercise with yourself as the product. So it soon became obvious that many of the skills I’d learnt at the helm of a multi-channel retail business could be easily applied to the more esoteric ideals of politics.

This was an election that many people predicted would be won online, with social media playing a big part in the campaigning process. It certainly seemed that way to me as Facebook, Twitter and Email accounts became integral to my political routine using software that was obviously based on CRM systems that would be familiar to any customer service manager. And I did indeed find these channels to be an essential element to getting the message out there, just as I do in my retail business.

I also saw many other candidates fall foul of not paying enough attention to these avenues, as well as some that used them entirely inappropriately. Branding has also become an important aspect of any political party and The Green Party really seemed to get it’s act together on standardising the look of logos and marketing material, which was encouraging.

Hustings were no different in my mind to a simple sales pitch and I even found myself back standing behind a market stall, although this time my stock in trade was leaflets, manifestos and my own personality, such as it is.

Too Big Data

The other familiar aspect to all this though was that frequently cited phenomenon – Big Data. This is a buzzphrase I’ve never been entirely comfortable with. To me it should really be called ‘Too Big Data’.

I’ve always been suspicious of the idea that the more analysis you do, the more data you have, the more accurate your forecasts will be. This is self evidently not the case. And the plethora of polls, super-polls and polls of polls during the election on served to underline this point by being so spectacularly wrong. Not a single published poll correctly predicted the correct result. Although there are reports that some pollsters did have results that reflected the actual outcome, but they were so far adrift from others that they were nervous of publishing them.

As many retailers will attest, analyses are all very well, but ultimately there’s nothing remotely predictable about the great British public, as voters or consumers. In that context I suppose it was a stroke of genius on behalf of the Conservatives to employ a former market analyst as their campaign manager. One who arguably used these inaccurate polls in a feat of misdirection worthy of any accomplished prestidigitator.

Or maybe it just goes to prove that it’s not how much data you have, it’s how you choose to interpret it that counts.

Money Back Guarantee!

article-1279806-09A92C17000005DC-437_634x369So there you have it. My brief political career dashed on the rocks of our rather arcane electoral system and a bit of good old fashioned market manipulation.

With so many unexpected parallels with the worlds of marketing and retail, it has left me wondering even more about what really constitutes democracy.

If we’re increasingly going to be sold ideology and aspiration like packets of soap powder, maybe there should be the same sorts of checks and balances as there are in the world of consumer protection.

Perhaps if politicians were made to operate under the same stringent regulations that retailers have to abide by every day, we may see a few less un-kept promises and bit more attention paid to customer satisfaction.

In which case will we be entitled to a full refund if yet another government fails to perform as advertised?

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

Let’s Not Plan Any Retail Street Parties Just Yet

bunting_2242499bFor many retail and economic pundits the term ‘anal-yst’ seems very apt.  So many of them seem to talk out of their backsides that it’s rare for me to find one that I agree with in broad terms.

Jon Copestake is one such individual, and I frequently find myself in agreement with the majority of his comments in Retail Week Magazine.  His comments today – Despite optimism, a UK retail recovery remains fragile – are no exception.

Along with many others, he’s quoted the LDC and Springboard figures that show a very tiny improvement in high street vacancy rates as part of the general consensus of optimism that seems to be building.  There were equally modest positive increments in retail sales figures which, whilst being better than expected, are still in the order of 1%.

Last week we saw breathless reports that the nebulous and somewhat metaphysical indicator known as ‘consumer confidence’ had finally recovered from the negative position it had been in for 10 years.  We were presumably expected to rejoice that this number had now reached a big fat zero, all of us clapping with one hand whilst frantically grasping handfuls of straws with the other.

Having spent a small portion of my academic career designing questionnaires, I’ve never been convinced by such a slippery concept.  Quite what real use a number based on asking a select sample of people if they’re likely to spend a few quid in the coming weeks is supposed to be eludes me.  I think it’s more something that retailers and investors cling on to as a comforter, intended to give the impression that we know the unknowable – the inside of a consumer’s head.

It’s hard to ignore the conclusion that the effort we all put it to predicting doom and gloom around the time of the collapse ultimately led to a self fulfilling conclusion.  But now we seem equally eager to ‘big up’ minuscule vacancy level movements in the order of 0.5% or a 0.4% – which in statistical significance terms are pretty much static – as evidence that good times are just around the corner.

The overall assessment from many retail analysts is that we’ll never see a return to the heady days of the early noughties.   ONS figures suggest that even though wage growth has edged ahead of inflation, most households are still around 10 years behind in real terms spending power.

Even if wages do rise in real terms there are just too many other ways for people to spend money now, assuming the average person ever really gets back to a point where they’ll feel they have the cash to splash around.  Factor in an ever imminent increase in mortgage rates, along with another housing price boom and the whole scenario starts to take on the familiar twists of the path that led us to disaster last time.

There are so many artificial factors driving the so-called recovery I think it’s far too early to be planning the next major roll-outs.  Low interest rates, the property bubble being inflated by government help to buy schemes, changes in weather patterns, even mis-sold PPI payouts are all shifting winds blowing across the sands of the retail landscape.  And we all know where building on sand gets us.

Whatever the numbers are based on there seems to be a mounting roar of expectation that the bunting will be out for a great big retail street party any day now.  Something of a turnaround from the interminable reports of the exact opposite a couple of years ago.  Personally I’m far from convinced that what we’re feeling are the positive winds of change and more worried that the rush of air could just be the prelude to another almighty slap right in our over-eager little faces.

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”

Boiled Frogs and Business Rates

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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.

boiled_frogs_col1

Lies, Damned Lies, and The Office For National Statistics

statistics

The ONS and I have an uneasy relationship.  When I say ‘relationship’ I probably mean something more akin to a divorcing couple waiting for a decree nisi.

Sometimes it really does feel like I’m being stalked by a disgruntled ex.  I’m sent a list of personal questions which pile up in my in-tray where I try to ignore them while getting on with my life.   Periodically I get a call to ask why we don’t talk any more.  Eventually I let out a resigned sigh and spend half an hour on the phone having a very one sided conversation with a robot voiced Welsh lady who asks me the same questions several times in a row and repeats back most of what I’ve said to her in an expressionless montone.  So pretty much like a conversation with an ex.  Apart from the fact that I never dated anyone from Wales.

I’ve been trying to get the ONS off my back for a few years now but they don’t seem to be taking the hint.  Around 10 years ago I made the mistake of religiously filing my returns as instructed like a good little citizen.  This seems to have given them the idea that I just love telling them every minute detail about my business life and, since then, with a few short breaks for good behaviour,  I’ve been on their hit list for surveys ranging from monthly takings, internet activity, employment statistics and the length of time I spend on the toilet after a particularly accomplished curry evening.  OK, I made one of those up.

Mind you, the temptation to make stuff up is almost as overwhelming as telling them to go fornicate with themselves, if it weren’t for the hollow threat of legal action if you don’t reply.  “Just bung any old numbers down” was the advice I received a few years back from someone who shall remain nameless.  But I don’t.  I actually take the time to do the calculations and give them the right figures.  Which makes it all the more irksome when I read the kinds of daft analyses that come out of the ONS on an all too regular basis.  But now it seems they’ve shown themselves to be even more irrelevant than I previously suspected.

Off the radar

Pound-Notes-Going-Down-Street-DrainThis week we learnt that, after another set of Freedom of Information requests were made by fellow retail commentator Paul-Turner Mitchell, about the costs to the exchequer of the recent raft of retail failures in the UK, government officials claimed that they didn’t bother their pretty little heads with keeping up with such mundane statistics.  This admission became all the more staggering after Paul commissioned some research from Company Watch who calculated that the total cost to the UK economy since the beginning of 2012 has been in the region of £1Bn! (See Table Below).

These figures are based on the amount of unsecured debt to government that won’t be recovered.  We of course know that this isn’t the whole story.  We also need to consider the additional costs in social security payments and the knock on effects to other companies such as the loss of business to suppliers and service industries.  Although if the basic losses aren’t even being recorded, who knows if any of these implications are appearing on the exchequer’s radar.

One can only assume that the government is unconcerned about such amounts slipping down the back of the national sofa.  Although as it appears no one in the treasury or the ONS has bothered to do the sums, we can really only wonder at the basis for government rationale so far.

I’m fascinated to know what other threads of the economic tapestry they’ve allowed to be pulled apart without bothering to check the effect on the overall picture.  The effects of depressing the UK economy with successive cuts, warnings of cuts, warnings of warnings of cuts and promises of jam tomorrow seem not have been taken into account in the slightest.  Meanwhile we have government ministers such as Grant Shapps telling us that half a billion pounds being added to UK retailer’s overheads over the past two years by business rates alone is something that can’t be looked at until the deficit is dealt with.  A deficit we now know is being made worse to the tune of twice as much again by, amongst other things, these nonsensical rates increases.  Where’s the logic in saving half a billion in potential tax cuts, only to lose double than in revenue to the exchequer?

Lovable bumbler Vince Cable has more than once demonstrated his intellectual myopia over the crisis facing UK retail.  It appears now that his unshakable confidence that such a crisis doesn’t exist is based on similar logic to a five year old sticking his fingers in his ears and shouting “I CAN’T HEAR YOU!” or that old favourite adage “What you don’t know about can’t hurt you”.  Well it is hurting Vince, unless you think a billion here or there between friends isn’t worth you putting your specs on properly for.

Successive governments have been trapped in the paradox of not wanting to be seen to support private enterprise directly, yet not being able to successfully pilot the retail economy in a supportive way. But direct action is now the only option if they want to prevent the haemorrhaging of even more money from the economy.

Revolutionary

red_toryIronic then that this news should come out in the week when everyone is discussing the bold revolutionary economic policies of Margaret Thatcher.  Right or wrong, it can’t be denied that she made drastic changes to the fabric of government in the UK.  She also wasn’t shy of making sweeping changes to policies and practices that were otherwise regarded as the way we always do things.  I’m not a Thatcherite, especially given that she was at least in part responsible for our current system of business rates, but I think now we see the folly of governments who seek to run the country using policy by proxy.  Especially when it appears that they’re almost intentionally deaf to the underlying problems within one of the principal sectors of the economy.

It’s also rather laughable that a Conservative led government is about to splash yet more millions of our hard earned tax pounds on a hoopla funereal spectacular in an attempt to ally their current lacklustre leader with the former stateswoman.  Yet more distraction and misdirection for an administration who seems only to pootle about in the outer reaches of real policy, whilst expending a great deal of energy trying very hard to look like they’re doing something stately.   We all see now that fluff initiatives like the Portas plan generated much more light than heat, and it’s likely that the new retail forum will be stymied by the same lack of political will to really tackle the problems facing retail today.

But we desperately need a bold set of initiatives to deal with the structural problems faced at all levels by the retail sector.  Not a government in denial about the impact of their own inaction.  A good start might be for them to take a few lessons in economics and try to see the macro and the micro effects that their actions and inactions are having on the overall ability of retailers to generate jobs and earnings for the country.  Perhaps cutting business rates and VAT might have little or no effect, by why don’t we find out?  What’s the worst that could happen?  Maybe another billion or so might slip through the net, but apparently the government isn’t concerned about such loose change.

So perhaps when I complete my next batch of ONS reports I may not bother working out the actual figures.  After all it seems that such information isn’t really taken that seriously by policy makers or government departments, so my going to the trouble of accurately reporting the harm their policies are doing to my business apparently isn’t informing government ministers anyway.  Maybe I’ll just add a few noughts here and there, for fun.  After all, what’s a few decimal places to a government that isn’t going to be looking anyway?

 

           HMRC LOSSES ON RETAIL FAILURES 2012 – 2013

 

 

 

 

 

 

 

TOTAL

 

COMPANY

FAILURE DATE

 STORES

 JOBS

HMRC DEBT

UNSECURED DEBT

 

 

 

 

 

£m

£m

 

PEACOCKS

Jan-12

                    550

                9,600

19.1

321.0

 

CLINTON CARDS

May-12

                    767

                8,500

6.7

88.3

 

COMET

Nov-12

                    243

                6,500

26.2

66.0

 

GAME

Mar-12

                    600

                6,000

27.3

109.6

 

HMV

Jan-13

                    238

                4,350

20.7

88.8

 

BLOCKBUSTER

Jan-13

                    528

                4,190

4.8

119.6

 

JJB SPORTS

Sep-12

                    180

                4,000

3.0

94.9

 

BLACK’S LEISURE

Jan-12

                    306

                3,885

2.9

10.8

 

LA SENZA

Jan-12

                    146

                2,600

5.3

16.2

 

JESSOPS

Jan-13

                    193

                2,000

1.3

45,2

 

DREAMS

Mar-13

                    171

                1,675

4.6

44.0

(Note 1)

REPUBLIC

Feb-13

                    121

                1,600

3.0

32.3

(Note 2)

PAST TIMES

Jan-12

                    100

                1,000

2.1

10.2

 

MADHOUSE

Feb-12

                      38

                    700

1.6

3.4

 

RHYTHM & BOOZE

Apr-12

                      68

                    425

1.0

4.4

(Note 3)

ELLIE LOUISE

Apr-12

                      97

                    400

1.5

6.8

 

ETHEL AUSTIN

Jul-12

                      60

                    400

0.7

3.9

 

PUMPKIN PATCH

Jan-12

                      36

                    400

0.0

1.1

 

FENN WRIGHT MANSON

Mar-12

                      79

                    350

0.9

4.3

 

SHOON

Feb-12

                      23

                    280

1.0

2.3

 

TOTALS

 

                4,544

             58,855

133.7

1027.9

 

 

 

 

 

 

 

 

 

 

 

 

 

(Note 4)

 

 

 

 

 

 

 

 

Note 1: Pending the Statement of Affairs, estimate based on December 2010 accounts

 

 

Note 2: Pending Statement of Affairs, estimate based on January 2012 accounts

 

 

Note 3: In absence of detailed analysis in Statement of Affairs, based on Administrators’ Proposals

 

Note 4: Excludes inter-group balances & bank debt