Business, Innovation and Skills CommitteeWritten evidence submitted by Rodney Atkinson
Rodney Atkinson is a former merchant banker and academic (University of Mainz) who has written over 100 articles and policy papers on economic, energy, regional and constitutional policy over more than 30 years. He is a Visiting Fellow at the University of Buckingham and has been an occasional adviser to Ministers and MPs.
He is a High Street Landlord in the North East of England who has also published policy papers describing the decimation of regional economies and critical of all Governments’ regional policy.
His article This Town just isn’t big enough—The Landlord and Tenant Act 1954 was published by The Estate’s Gazette 6th January 2007
A full list of his achievements in political economy and a list of affidavits is available on www.rodneyatkinson.freeuk.com
Destroying the High Street Retailers, Business Rates and Government
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Memorandum
Justin King of Sainsburys, Sir Philip Green of Acadia Group and many others are rightly increasingly angry with Government policy. The High Street is being crippled by taxes and business rates. Local Government and the Treasury seem to believe high taxes help in a recession—for that is the logic of the rise in domestic and business rates on both empty houses and empty shops—as if owners want to have empty properties!
What incentive have central and local Government to tackle real distortions in the economy if their income rises even in a recession? While rents stagnated business rates kept rising. Now that shop rents are actually falling (by up to 30%) business rates (which are supposed to be related to rentable value) are still going up. This is a massive and inexcusable burden on landlords, tenants and consumers.
The Government is lowering corporation tax on mobile multinational and big businesses but raising “inescapable” taxes like business rates on ALL businesses, whether they are foreign “tax efficient” corporations or domestic full tax paying companies. This is surely untenable. It is certainly having political consequences. I am myself a High Street Landlord and I have seen business rates rise to 80% of rents—as rents fall and rates continue to rise! The flexibility of the market is confronted by the inflexible unreal world of State and local Government taxes with traders crushed between them.
Local Government Finance
One of my policy contributions in the 1980s was a short paper on the introduction of the Community Charge—a friend, Michael Portillo, being responsible as a junior Minister for the legislation at the time. That paper analysed the difference between a tax and a charge and stated that since 85% of “Local Government” expenditure was in fact Central Government-decided “re-distributionist” spending then the central Government grant should cover that amount and only the remainder would fall to the Charge. This was taken up in the subsequent replacement of the Charge by Council Tax. What I fear is that we have lost sight of that principle and that may explain the decimation of rate-payers as ever more central Government activity and demands are forced on local government funding and the funding of local government is due to fall drastically over coming years.
Although high business rates and the persecution of shoppers through parking restrictions and high charges are important causes of the decimation of high street shops there are also more fundamental long term elements in this crisis.
High Street Versus Internet
There is a new industry growing rapidly in Britain (faster than in almost any other country) and that is internet shopping against which the “physical high street” traders must try to compete.
Terry Duddy of Home Retail Group said that his retail chains Argos and Homebase pay £25m in corporation tax but £150m in business rates. His group retail profits have fallen by nearly 70% as competition from (non rates paying) online retailing has eaten into his business.
There are of course traders who can maintain both kinds of shopping experience and do so profitably. However if it is regarded as a legitimate source of taxation to impose business rates on shopping outlets then it must be legitimate to impose similar taxation on “virtual” shopping outlets, both as a fair distribution of taxation among traders and as a better balanced income for Government. In pursuing this better balance however there must be no overall increase in Government revenue.
Quoted and Non-Quoted Retailer Companies
Ordinary retailers and private companies have to compete on the high street with quoted national retail chains. Quoted companies have for decades benefited from inflation buoyant stock markets allowing them to raise capital at cheap rates compared to the non quoted company.
The contrast between the (fast rising) stock market of the last two years and the reluctance of the banks to lend to smaller non quoted traders dependent on loan finance has made this gulf even greater.
Many of the chains on the high street as we know are foreign companies based in offshore tax havens competing with domestic British retailers who pay their proper tax. Multi national retailers also usually buy their product from themselves (coffee, hot dogs etc) giving scope for manipulated pricing and therefore manipulated tax liabilities while smaller or British retailers usually have arms length relations with their suppliers.
These are the fundamental problems of the high street and are unlikely to be addressed by Mary Portas or the pitifully small sums Government has allocated to the High Street for her “made for television” initiatives.
Out of Town, Drive Throughs and Tax Avoidance
The larger companies have continued to invest heavily—and with the cooperation of and subsidies from councils and central Government—in out of town shopping centres, taking custom from the high street. Councils have been overly accommodating of out of town compared to in town developers while parking charges in the towns are in effect subsidising free parking out of town.
In addition food retailing on high streets has gravitated to out of town “drive throughs” where windows serving food are not classed for tax purposes like cafes or restaurants. There is now even a phenomenon of serving (lower taxed therefore lower priced) food to car drivers and then inviting them in to the café to eat—a blatant tax avoidance ploy. These and other advantages enjoyed by out of town businesses at the expense of in-town shopping must be removed.
Residential Areas Versus High Street
As central and local government regret the desertion of the High Street they continue to allow commercial development, especially by estate agents and other professional services in classic residential areas—often Georgian or Victorian terraced housing just off High Streets. This practice should be halted and allowances and incentives given for businesses to move into the High Street where there are more transport connections and other service infrastructure.
Parking Charges
Councils are making huge profits from parking charges at the expense of shoppers and retailers. 359 councils across England made a surplus of £565m from on and off-street parking schemes in 2011–12, an increase of £54m over 2010–2011. These charges fall almost exclusively on high street shoppers while out of town shoppers, where developments have been aided by grants and development approvals, are either exempt or charges are absorbed by the out of town stores—so profitable have their developments been.
Business Rates
There are few more devastating blows to the High Street than the level of business rates (and their continuing rise despite falling rents and high street business activity) and the reduction by Central Government in empty premises rates relief from 12 months to 3 months. No law abiding Landlord deliberately keeps premises unoccupied, losing income and the Government is exploiting a situation of general economic collapse to make a profit out of powerless landlords trying to cope with that collapse. As a result of this situation many viable commercial premises are being bulldozed because the burden of rates on empty property is so great.
We can contrast this unfair imposition on landlords with a grossly unfair subsidy to tenants at the Landlord’s expense. For even the 3 months rate free period now in force is being unfairly taken from the landlord by tenants who are abusing the relief.
The 3 months relief should accrue to the landlord because he has an empty shop but a retailer can DELIBERATELY stop trading 3 months before the end of his lease, take the rate free period for himself and leave the Landlord with the full rate demand despite having to engage in the long process of finding and installing a new tenant. This process is scandalous and flies in the face of the general principle that no one should be able to put themselves voluntarily in a parlous position to claim a State relief or subsidy. Certainly if an employee gives up a job he cannot claim unemployment benefit for some time because he has deliberately brought about his own situation.
12 Month rate relief should be urgently restored.
The Government Response
Town Centre First Scheme: An Estates Gazette study has found that Central Government planning rules designed to encourage town centre as opposed to out of town developments are having little effect. Developers in England have applied for twice as much shopping space out-of-town as in-town so far in 2013. The study found that town centre schemes accounted for 68% of overall floor-space applied for in 2010 but this year it stands at just 27%. Until out of town developments and their shoppers are taxed on the same basis as in-town and business rates track economic conditions more precisely then this process will continue.
Exempting New Builds: By exempting new build commercial premises from rates but not established buildings the Government is subsidising excess capacity and thereby effectively further taxing existing premises by increasing supply—or indeed encouraging the destruction of existing buildings whose owners cannot afford the rates. A recession when property assets cannot find a long run market price is not the time to distort those prices further with Government subsidised production.
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Rodney Atkinson
July 2013