Oh dear, not grasping the first thing

The Government should consider abolishing the “hated and out-of-date” business rates system and give councils more power to penalise landlords who leave shops empty, according to a new review of how to revive Britain’s high streets by retail veteran Bill Grimsey.

What good will abolishing rates do? They’re a tax upon landlords….

29 thoughts on “Oh dear, not grasping the first thing”

  1. “…and give councils more power to penalise landlords who leave shops empty…”

    Do any landlords really deliberately leave shops empty? Surely they won’t profit if it’s not occupied?

  2. The “hated and out-of-date” councils are what need abolishing a s a p.

    The death of business rates would be a good start. Followed up five minutes later by the complete abolition of the thieves who have been extorting them for far too long.

  3. Echoing the great JuliaM

    “…and give councils more power to penalise landlords who leave shops empty…”

    If i were a landlord I’d demolish the property (as was done memorably at a pub called the Lightning in Perivale in West London) The landlord, a guy improbably named Mac Macphee demolished the property and put up a sign saying ‘no business rates on this Mr. Brown’ so as to avoid incurring a charge.

    Does anyone really think Landlords look to leave properties voluntarily empty so they can become prey to squatting Corbinites or other undesirables and incur security costs?

    Tim has made the very good point that trying to save the High streets is in some ways a futile exercise. I do patronise them because I am over 40 and like to physically see goods before parting with my hard earned cash, or scour shelves looking for bargains. I am well aware Millenials would much rather be on social media 18 hours a day fomenting Corbinism ordering things via the convenience of the internet. You can’t preserve a dying model with government intervention so unless you want to preserve a society in aspic then the best thing to do is leave the problem well alone.

  4. Internet influence is overated despite the millishite.

    Putting down councils will be a massive boost to us all.

  5. So Much For Subtlety

    Giving councils power to charge landlords who can’t get planning permission seems to create a slight moral hazard to me. Maybe it is just me.

    Ombrelibre or whatever it is called had a nice article on what Brexit ought to be – a free trade zone for all of Britain basically so he may be a reader here. But he did suggest that business taxes ought to be lower outside London. A nightmare to organise but probably a good idea.

  6. So scrap business rates and instead government will need to raise the same taxes elsewhere. An increase in VAT perhaps? Or how about a cut in government spending to match the loss of income? Cut the NHS and Defence budgets by the relevant amount. 23.9 billion pounds, its not so much eh?

    It won’t save the high street. It will impact on the profits and capacity to make profit of businesses with bricks & mortar presence.

  7. Too many shops, not enough housing. The solution seems obvious…and restrict council activities to the useful affordable stuff like refuse collection.

  8. Martin

    ‘So scrap business rates and instead government will need to raise taxes elsewhere’

    Sadly that seems to be the case. Where is the politician who will do away with support for higher education institutions that peddle Marxist social engineering courses expecting the taxpayer to foot the tab?

    Who will get rid of all the panoply surrounding diversity and race, abolishing the EHRC and anything to do with LGBT issues, saving untold billions?

    Who will tackle the monstrously Ringfenced DFID budget and reassign the money to projects at home?

    As you say, it’s likely the cuts will fall on Defence and maybe other smaller areas rather than where they need to…..

  9. This all seems to presuppose that councils trouser business rates. This is a topic I’ve explored down in Wiltshire and there was a publicised initiative to give councils full access to business rate income (rather than have it “escrowed” to HM Treasury) – but the bureaucrats involved have been busy putting the kibosh on that and as I understand it several years of process are being inserted into what seems a trivial accounting fudge.

    In my diggings I have discovered that one council has been avoiding collecting business rates on unused property to the tune of £millions£ by a series of ruses that would make those folk who’ve been bullied over their domestic council tax incandescent.

    @Mr Ecks – I think some councils are ahead of you there – they are hollowing out some of the larger councils and divesting assets to smaller town and parish councils which are expanding and simultaneously ratcheting up their non capped precepts so the actual bill to taxpayers is increasing while they point at the husk of the original council and say look! we’re cutting costs. Shell game hardly covers it.

  10. The combination of business rates and rents mean that some varieties of small shop can never make a living for a proprietor. Accordingly, the shops remain empty. When they were built, the shopkeeper lived over the premises, but in the case of such dwellings converted to offices, there isn’t an incentive to change back. Do landlords keep premises empty? To bloody right they do, rather than lower the notional rent, probably ‘just in case’ the economy turns for the better and someone wants to rent the shop and the over-the-shop offices at premium rates.
    Not that I’m that much in favour of any taxes, but it seems sensible to provide a disincentive to keeping shops and flats over empty, when there is a shortage of housing.
    Incidentally, town centres aren’t flourishing because you can’t park or are charged for doing so, which gives the out of town hypermarkets a further advantage over the benefits of scale on the prices they pay to suppliers.

  11. I think TW is the only person to have pointed out the incidence of rates in any article (including the FT), or comment (including those here).

    Cut rates and next rent review any gain is going to disappear. There are probably some good arguments for tremendously simplifying the system by just charging a percentage of actual rent rather than the cumbersome valuation / factor system that we have. This would (could) be used to give a fairer (dangerous word) system for empty properties. Might also get rid of the plague of charity shops who exist mostly due to quirks in the rates levying process.

    Changing property tax systems creates enormous windfall gains and losses due to the present valuing into the property value. This implies huge unfairness on a change. Similarly, as the current taxation system is priced into the property value on an ongoing basis it is by definition fair regardless of how random it might appear. Not a lot of people think about that.

  12. Landlords with properties having multiple CRUs, or with many CRUs in close proximity, me, will leave premises empty to avoid renting at a rate substantially lower than occupied premises.

    Tenants talk and compare notes, the bastards, and were I to rent the one vacant unit out for less, every single one of the remainder would make my life hell.

  13. “Do any landlords really deliberately leave shops empty? Surely they won’t profit if it’s not occupied?”

    Isn’t there an issue with some properties belonging to large landlords (e.g. pension funds) which primarily hold them as stores of value. When market rents fall, they would rather leave the unit empty than accept a lower rent, as the unit’s book value is a ratio of it’s nominal rentable value, and reducing the rent results in a big accounting loss on the underlying asset?

  14. Firstly,
    Bill Grimsey wants a double whammy in his favour by forcing down the rent that a landlord will charge until he can find a tenant eve if it doesn’t cover his costs of collecting the rent (and some high streets have run out of charities to whom they can offer a shop rent-free to avoid paying rates) and abolishing business rates which (despite Tim’s basic analysis that rent to landlord is market rent less rates because abolishing business rates would shift the whole supply/demand curve) arer, in part, a cost to the retailer.
    Secondly: well, Fred Z got there first – and it’s not just the landlords, more often it’s the letting agents who would see a fall in their commission income if they allowed a downward spiral of rents on renewals to occur,

  15. Rates are a tax on occupiers, not owners. (I own a shop….) The owner is only liable if the owner is the occupier, as they are if the property is empty.

  16. @jgh
    The shop occupants pay rates, but the amount they pay is reflected (in a free market) in lower rents – I think that’s the point Tim makes.

    However, it may not feel like that if you’ve seen rates on your shop increase substantially over a short period, while the terms of the lease ensure that the rent doesn’t fall correspondingly. You can (of course) walk away at some point and negotiate a lease somewhere else, but that is also a costly exercise.

  17. @Chris Miller

    Tenant could/should negotiate with landlord after a large rates increase, with your “walk away” on table.

  18. DM today: large increase in council parking charges last year to raise more tax from dwindling numbers visiting high street.

    Fewer “customers”, raise prices by more than lost revenue – repeat every year. Blame nasty tory gov’t for death of high street.

    Higher rates on empty properties: didn’t Labour do that in 1970s? Landlords removed roof.

  19. Tenant could/should negotiate with landlord after a large rates increase, with your “walk away” on table.

    That can work if the landlord is an individual. But many high street shops will be owned by financial institutions who will *never* agree to a rent reduction because that would diminish the book value, and hence the bonus of the Investment Director (Property).

  20. I am not sure I can agree with the incidence of the tax in practice. Is there research to demonstrate that it does fall on the landlord?

    I would have thought that long-term leases with ten-year break clauses and upward-only rent reviews would mean the incidence actually falls upon the occupier in any practicable timeframe.

    Agree that relaxing planning permission regime to allow the conversion of commercial space to resiadential use should be a priority.

  21. Didn’t The Undercover Economist show that all but a minimal amount of the value in a shop or cafe accrues to the landlord? That certainly seems true everywhere I’ve been, including Thailand where if the landlords see a bar is doing surprisingly well, they whack the rent up.

    Which means the only way to make any money is to own property. I’m no communist, but something is badly wrong if running a restaurant or shop has you earning a pittance while the landlord – largely thanks to government policy affecting property values – just hoovers up the surplus value. At some point those who will never own property will revolt against those that do. Little wonder Corbyn is popular with the young, eh?

    I don’t know what’s to be done about this, but right now the only way you can run a shop, bar, or cafe is to own the premises. Perhaps taxing commercial rent more highly would encourage greater ownership of commerical properties by the occupier? Whatever the solution, something’s going to have to change quickly or the next generation is going to start pulling stuff down.

  22. TimN, I was talking to my barber about this very thing not so long ago. He told me he would be absolutely quids in if he bought the property that he operates from rather than renting. At the moment he is, in his words, getting by.

  23. In the 80s, enterprise zones, lower or no business rates. Rents rose. Economists use that as proof of incidence, yes.

  24. @ Tim
    But did the rents to fully match the reduction in rates? I tend to assume not because there were claims of substantial business growth in the “Enterprise Zones”.

  25. To bring together two unrelated posts, I agree that both High Street shops, and women, should be patronised.

  26. This morning I walked 3 miles to the market in the nearly-but-not-quite adjoining town to buy fruit because it is better than that in the local supermarkets – more relevant to this thread it is also cheaper. Rents and Rates each push up food prices, to the disbenefit of the local consumer.

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