Sigh

Referring to here.

And he doubles down:

And more:

Someone’s really going to have to tell him at some point, aren’t they?

55 comments on “Sigh

  1. I’d have thought, just as companies don’t actually pay company tax, irrespective of who writes the cheque, tenants pay business rates as the rent will depend on the amount that has to be paid in business rates.

  2. If you squint, Tim looks a bit like Steve Bannon (in some photos).

    Explains Tim’s occasional outburst of shitlordery.

  3. Surely Amazon’s warehouses are in locations similar to car showrooms – out of town, next to major roads. Therefore Amazon’s rates are as likely to rise as a car dealer’s.

  4. For my company business rates I had to deal with the local council.
    They sent me a bill. Not the landlord.
    Even had a form to check whether I was paying the right rates, had to supply copies of rent invoices with that.

  5. @Martin: and if rates were abolished tomorrow what do you think would (in the long run) happen to your rent? When you lease came up for renewal would your landlord demand more, less or the same rent? Knowing you no longer have to pay business rates and have got a spare £X/month sloshing around in your pocket?

  6. Man, as the great Frank Zappa once said: “the most abundant element in the Universe is not hidrogen, it’s human stupidity”. This guys is just another proof of Zappa’s wisdom.

  7. If the maximum that can be paid merely for occupying a property is 100 and the rates are 50, the maximum rent is 50.

    If the rates are 20, the maximum rent will be 80.

    If the rates are cut to zero, the maximum rent is 100.

    In each case the tenant is paying 100. The Landlord is getting more as rates reduce.

    Easy enough to understand?

  8. When, back in my days of academe, incidence was explained to me, a lightbulb went on and I understood it.

    I didn’t realise that, at the exact same moment, the door to a career in journalism was also closing.

  9. The irony being that it doesn’t matter, though Tim is correct. Andrew Ellson gets all upset and thunders (geddit) again Amazon being online. That makes it cheaper regardless of business rates. It’s called progress, something the Times used to understand.

  10. “Fat ugly and middle aged – you’re going to have to be a bit more specific than just that.”
    Love it!

  11. One thing I will take issue with in Tim’s article is this:

    “Roughly and around and about it is a percentage of the rent of the property being used–thus it’s very closely linked to the value of the property being used”

    Thats arse about face – they don’t work out what the rent is and tax that, they work out what the capital value is then calculate an implied rental value, which is then taxed. There is no fixed relationship between the actual rent paid on a property and its rateable value, there is a very close relationship between the capital value and the rateable value.

    Due to QE forcing returns on assets down, capital values of commercial property have risen while actual rents have remained fairly stable. If rates were based on actual rents then we would not have seen the big rises we did see in the recent revaluation, which were based on the rise in capital values alone.

  12. As landlords, both commercial and residential, if rates go up, we’ll raise the rent. Here in Queensland, we get sent and pay the rates bills.

  13. Surely his more fundamental problem is that he obviously doesn’t understand ‘reductio ad absurdum’?

  14. Amazon taking on car dealers? I can buy a car with a sticker price rather than wasting time and commission on a salesman? Great!

  15. ooh..almer mater deathmatch…. let’s get it orwwwn!…
    Andrew Ellson September 1995 – June 1998: London School of Economics, University of London.
    B.Sc. Hons. Economics and Politics: Upper Second (II/I)

  16. Bloke on M4,

    You can already buy a car online; but retail psychology tells us that the kind of person who wants to save £400 by avoiding the showrooms ends up buying in the second-hand market instead.

    A new car purchase is rarely a rational decision for individuals (fine for businesses though), so by definition it’s an emotional purchase. There’s no emotion in online sales: no pretty salesgirl, no smooth-talking Swiss Tony, no “we’ll give you free floor mats if you sign today”. Who’d want to buy online?

  17. In the long term, Tim may be right and the incidence of the tax falls on the landlord. However in the short term, in an already rented property, with the tenant paying the rates, then any increase will fall squarely on him.
    Of course, once he’s out of business and the landlord has to attract a new tenant…

  18. Andrew Ellison September 1995 – June 1998: London School of Economics, University of London.

    Funny, he sounds stupid enough to be Cambridge with honors. Evidently the LSE has stepped up its game.

  19. I have a sneaky feeling the customer pays too: both rent and rates. Where am I going wrong?

  20. Bloke on M4,

    Polishing the comparison for best effect, I saved nearly 30% off “showroom RRP” by using an online dealer instead: specified my vehicle, paid the deposit, it went into the build queue, was shipped over from Japan and delivered to my door. I checked it over, paid the balance, took ownership, very happy. Maybe you could do as well or better if you were good at that sort of bargaining, but I’m not… and I paid less for a new car, than the asking prices for the same make and model 18-24 months old. For some of us, there’s much to like about “this is the price, take it or leave it” rather than having to re-enact the haggling scene from “Life of Brian”.

    Speaking of which – Jesus Christ,

    There’s a particular category of Bachelor’s degree between “Third” and “Fail”, called “Unclassified Pass with Honours”. I’m prepared to admit to how I have direct experience of this, since I’ve subsequently clocked up an MSc and an MA…

  21. I don’t trust degrees with an “and”. I suspect they are to good degrees what Knorr stockcubes are to Marco Pierre Whites cooking. Just trading off the brand.

    I mean, this stuff isn’t hard to explain, is it? It’s not like quantum theory. It’s simple stuff. Cost of property is rent + rates. If you raise rates, rent falls. If the landlord can keep rent the same, why didn’t he raise it before?

    Ok, it’s not a direct and immediate thing, but it mostly works.

  22. Almost without exception, the brightest people I know either got very good/shit degrees from very good universities, or no degrees at all.
    2/1s from average unis are the thickest (bar the real thickos obvs). 2.2s usually worked out what to do to get the mark they needed to get into whatever career they were looking at back then, and spent their time getting creatively qwasted. Modesty forbids me from describing my own uni and quals.
    The brightest man I know lasted two months at Oxford.

  23. @ Jim – Not correct. Business rates are based on rental not capital values.

    In his article Ellson says that Amazon paid £7.4 million of tax on £1.4 billion of ‘earnings’. It would be more accurate to say turnover of £1.4 billion.

    Amazon’s actual UK sales are about £6 billion so maybe a turnover tax is now in order for these web based companies. A quarter of one per cent would bring in another £15 million of tax.

  24. > If the landlord can keep rent the same, why didn’t he raise it before?

    Because it is always cheaper to keep an existing tenant than find a new one.

  25. In the end the customer pays all taxes.

    He taxes when I earn and he taxes when I spend, he taxes when I save and he taxes when I don’t.

    “Will no one rid me of this turbulent taxman ?”

  26. ” Business rates are based on rental not capital values.”

    No they are not. In theory maybe, in practise not. A friend of mine has a shop in a small Welsh town, the town centre there has been decimated in the last 10 years, just about every chain store has moved out of town, the place is full of charity shops and boarded up shops. There is no way rents have risen in the last decade yet in the most recent valuation her rates bill went up. How is that possible if rates are based on actual rents in that area?

  27. Rates have to be paid whether a building is occupied or not.

    This fact alone should give Ellson cause to stop and think for a minute.

  28. People are entitled to their own facts !!!

    So Tim, you are JUST WRONG – stop embarrassing yourself (and everyone else).

  29. watt dabney + Tim

    One curious legal ruse to reduce business rates is the charity scam.

    As I understand it it’s primarily been used on empty property – but I suspect that’s the thin end of a wedge…

    Basically – a charity takes the lease and “sub-lets” via an appropriately drafted agreement / contract.

    Hey presto !! – no tax…

    I’d also add (aiui) local councils are now pocketing the loot from business rates as apposed to returning it notionally to HM Treasury. In my neck of the woods – some embarrassing development sites have not paid rates for years – certainly since Broon +Co. made empty premises liable in 2008….

  30. “I have a sneaky feeling the customer pays too: both rent and rates. Where am I going wrong?”

    The incidence of increased costs is on all parties to a business (landlord/tenant/customer or shareholder/supplier/customer/employee, depending on application) in proportion to one divided by the elasticity of supply or demand for their participation. Roughly speaking, the one with the least access to alternatives pays the most.

    If customers have no choice but to buy cars from rented car dealerships, then they can’t escape the costs by going elsewhere or not buying cars so often and the others can offload the costs onto them. However, customers do have a cheap alternative – just leave it longer between buying new cars, or buy second hand off private owners. So if car dealerships try to pass the costs onto customers, they’ll just lose trade. Customers will have very slightly worse cars, and the car dealer will go out of business.

    Likewise, car dealers can escape higher costs by closing down and moving into a different business that doesn’t need high-rent accommodation. The only people who cannot escape the business rates associated with a property are the property’s owners themselves. Individually of course you can sell it to someone else, but then they’re the new owner and the owner is still stuck with the costs.

    The business and the customers do pay a proportion, because demand for participating is not perfectly elastic, but the majority is paid by the owner, as the least elastic.

    That’s the theory, anyway.

  31. Pete, you realise that amazon’s £6 billion turnover is by a company overseas? Its UK turnover is last I looked around £600 million.

    You have likely never purchased from the UK company, you will have purchased from the overseas company.
    I’m sure the Lux government would like the extra tax on UK sales.

    Jim, if the rates were abolished tomorrow or I had increased the sales I had by a few thousand percent what is the difference? My company having additional disposable income can change the rent by what amount?
    Landlord puts it up too much at the end of the contract then the company paying that rent goes elsewhere.

    My company left and they did get someone else in quite quickly. Who did not pay the business rates, who did not pay the rent, who were selling stuff that was quite valuable. Class A & B. Their turnover would have been briefly considerably higher than mine.

    To me the incidence of the business rates is not the landlord.
    And as the company has no money of its own then the buyers get to pay the rates, same as they pay the rent, the wages, the insurance, the office supplies etc.
    If business rates are not paid who gets court action against them? Who gets to have stuff taken off them? Who gets wound up? Who gets prison time? Landlord?

    http://www.rushmoor.gov.uk/article/3452/What-happens-if-you-dont-pay-your-business-rates

  32. There’s a particular category of Bachelor’s degree between “Third” and “Fail”, called “Unclassified Pass with Honours”. I’m prepared to admit to how I have direct experience of this, since I’ve subsequently clocked up an MSc and an MA…

    You can also get, at least in Scotland, a Pass Degree (without Hons).
    Not me, I got a Desmond, but my very very bright flatmate from final year.

    Who never got quite used to the fact that in Engineering, you were supposed to answer the question set rather than, in his prefered Maths, you answered the question that the question set made you think of.

  33. “To me the incidence of the business rates is not the landlord.
    And as the company has no money of its own then the buyers get to pay the rates, same as they pay the rent, the wages, the insurance, the office supplies etc.
    If business rates are not paid who gets court action against them? Who gets to have stuff taken off them? Who gets wound up? Who gets prison time? Landlord?”

    Jeez, some people sure are dumb. Are you related to Richard Murphy?

  34. @Martin

    Perhaps I am misreading your post, but: you seem to be under the mistaken belief that Tim is making an obviously wrong claim about who writes the cheque (and is on the hook if it doesn’t get written).

    Tim is writing about incidence, i.e. where the economic consequences lie. You might regard it as an exercise in veil-lifting.

    A different but not completely unrelated example: imagine the government decides that widgets are ace, and has dreamed up three possible ways of encouraging their widespread adoption.

    a) Draw supply and demand curves to show the original market equilibrium, and how it changes after the government sets up a scheme in which retailers are paid a £5 subsidy for each widget they can prove to the satisfaction of the Ministry of Ace Widgets that they sold in the last month.

    b) Draw supply and demand curves to show the original market equilibrium, and how it changes after the government sets up a scheme in which consumers who have bought a widget can apply for a £5 cashback upon posting off their receipt to the Ministry of Ace Widgets.

    c) Draw supply and demand curves to show the original market equilibrium, and how it changes after the government devises a cunning scheme to reduce fraud and increase the employment of clerks. In this scheme, consumers and retailers must independently send their paperwork to the Ministry of Ace Widgets, and, once both copies have been cross-referenced and verified, the Ministry wires £5 directly to the retailer’s bank account and sends a barcoded postcard to the consumer confirming that their rebate is ready. When the consumer turns up at the retailer and the customer service assistants have confirmed the postcard’s authenticity by scanning the one-off barcode and automatically checking it against the Ministry database, the retailer will pay a £5 note to the customer.

    Note that in the three schemes, there are substantial differences in who pays what to whom and when. Yet look how the equilibrium moves and you might just recognise some uncanny similarities in their consequences…

  35. Jim, apparently I’m not. I can only trace my lineage back a few hundred years though.
    Perhaps people are simply not explaining it well enough.

  36. There is the person who signs the cheque, who has the obligation to sign the cheque and who will get into bother if the cheque is not forthcoming. That’s the tenant.

    But now a different question – who bears the true economic consequences of that cheque? Answer – the landlord.

  37. Interested,

    Book smart and street smart people. Book smarts really consume what uni has to give them and become valuable as a result. Street smarts live on wits and opportunities.

    It’s why I don’t trust things like ‘business studies’ being taught. Other than the bureaucratic rules, business is a street smarts subject. Most kids are better off starting an eBay shop for 3 months.

  38. How so, Geoff Taylor?

    For a business rental, the landlord makes a profit, the business makes a profit. They do so by getting others to pay for the rates. Just as for company tax, this could be customers, shareholders or employees or a combination thereof.

  39. @Bloke on M4

    Couple of days ago saw a doctor grouching that, although the pay might be 100k+, the fact he had straight As at school plus six years of university studies meant he could have earned a fortune doing other jobs so he was seriously underpaid. Made me wonder what other jobs he had in mind – he obviously was strong academically and progression in the NHS is in some ways an extension of academia (there’s a logical sequence of grades to work up, exams to keep passing and so on) whereas if he’d been running his own business since 21 there’s nobody to tell him how to get promoted to the next level, no exam to prepare him for it, and he would have to work out what “the rules” in his chosen business are for himself. Moreover, the ability to memorise, follow and execute a long list of standard procedures (something he was clearly good at, even complex ones) would have been of very little use to him – more important that he could create procedures for himself and any staff to follow.

    Obviously procedural knowledge and skills are vital in many jobs, including well paid ones (if he hadn’t been a doctor I’m sure he’d have made a great airline pilot) but I thought his assumption rather arrogant, or at least misplaced, that the entire rest of the world of work all had the same kind of linear, exam-based progression that meant his bookish talents would automatically translate to megabucks. If he had said “I’m a smart, creative problem-solver and medicine is one thing of many I could have chosen” then I could have sympathised more, but he thought all the years at uni were the clincher.

  40. @ Martin – I know that Amazon’s UK retail sales are reported through a separate company in Luxembourg. However, in its US account statements the company revealed that UK sales totalled £7.3bn last year. After Brexit there is nothing to stop the UK government imposing a modest turnover tax on the UK sales of mainly web based companies, wherever they are located.

  41. @ Jim – extract from HMRC website:

    ‘How your rates are calculated – Business rates are worked out based on your property’s ‘rateable value’. This is its open market rental value on 1 April 2015, based on an estimate by the Valuation Office Agency (VOA).’

    If your friend thinks that the VOA’s estimate is wrong then they should appeal. Fully agree that the appeal process is fairly dysfunctional.

  42. @Pete: and how do they estimate the ‘open market rental value’? By taking the capital value (easily worked out from Land registry details of recent sales in the area and adjusting on a square footage basis) and applying a % return on that capital value. Hence if capital values go up their ‘estimates’ of the rental value go up. They haven’t got a clue what the actual rents are, nor do they care, because if they did the rates bills might fall, which they don’t.

    And there’s no point appealing, because they just point to all the neighbouring properties they’ve ‘estimated’ the rental value of, and say its consistent with those. So you can’t win. Its the very method they use to create their estimate that is wrong, not any specific example of it.

    The point is that the market for buying commercial property, and the market for renting commercial property are no longer intimately as connected as they used to be. It used to be that rents determined capital values. Now due to QE there are two separate markets – people with capital to buy assets with, and people who want to run businesses who need to rent premises. The supply of the former has risen due to QE driving cash out of bank accounts into other income generating assets, whereas the supply of the latter is stable, maybe falling in many areas due to economic malaise. So capital values rise, as rents stay the same or fall, and rental yields drop (as one would expect due to QE). Yet this rise is capital values is taken by the state as ‘evidence’ that rents are rising and that rates bills should rise too.

    Its exactly the same in farming – the capital value of farm land bears no relation to the rental value of it. The rental value is determined by the ability to make profit from agricultural production (which is entirely stable, one might say moribund), the capital value is determined by the availability of huge chunks of capital that people wish to sink into land. The desire of the uber rich to buy land (James Dyson has bought over 20k acres in the last few years, round my way every large estate is owned by some billionaire or other) has driven capital values to the skies, yet the rent to actually farm land is pretty much the same as it has been for decades.

  43. @ Jim – I have worked in the commercial property business for many years and can tell you that your theory is not correct. The VOA look at the rental value only and this comes from actual rents agreed and paid in a comparable location. Ask any professional and they will tell you the same.

    The farm land market is a special case driven in large part by IHT advantages, development CGT rollover relief etc. There are no business rates payable on farm land which is another attraction for buyers.

  44. I find it a tad depressing that a senior journalist at what is meant to be the nation’s paper of record understands neither the concept of tax incidence or the meaning of ‘reductio ad absurdum’. And it’s not as if he couldn’t have googled it…

    So thick, pompous and lazy.

  45. The point is that the market for buying commercial property, and the market for renting commercial property are no longer intimately as connected as they used to be.

    That’s certainly true Jim. When real estate is all about speculation, it’s all about capital values. Here in Hong Kong, property investors don’t care about rental yields, they want to know about price per sq ft.

  46. @ Jim
    The capital value is the dcf present value of all future rents (future starting from one minute’s time) net of management and other expenses.
    The rateable value will be related to the capital value, but only indirectly.

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