Like everyone we are concerned about the ‘death of the high street’ and although we have our own ideas about how retail needs to be dynamic and animated, there are draconian laws, which desperately need updating to ensure that independent companies have a decent chance of being successful.
Our client, Martin Greenhow, director of the award-winning and renowned MOJO bar group recently highlighted the ridiculous business rate legislation and how damaging this is to independent bars, for the Yorkshire Post. Thank you to Mark Casci for featuring this in the Opinion column.
For as long as I can remember my family has had some interest in retail of one sort or another and the phrase that your shop window is your silent salesman was often repeated.
Today we sit here resplendent in the 21st century complete with a multifaceted retail dynamic where the traditional “meatspace” “bricks and mortar” model sits uneasily with the ethereal virtual communication and consumption economy. The challenges this new economy creates for traditional “in person” business are well documented as are the hurdles created by the “plat du jour” Brexit, rising costs, minimum wage etc.
Some of these impediments to traditional business are driven by uncertainty, some by changes in society. Some by idiocy. For example the rules that the Valuation Office can apply to business rates for licensed premises.
As I’m sure you are aware the basic concept for establishing the Rateable Value (RV) of building is “A property’s rateable value represents the rent the property could have been let for on a certain date set in law.” Ie if the market value for a years rent is £50k the RV would be £50k. The rates payable is then calculated by applying a multiplier to this figure, for example if the multiplier is 0.466 the Rates Payable would be £50k x 0.466 =£23300.
This all seems logical and eminently practical but there’s a wrinkle for the licensed trade. Until the early 90’s six breweries owned more than half the public houses in the UK. This created a problem for the Valuation Office (VO) as they couldn’t establish an open market rent value for these brewery owned establishments. To overcome this the VO were empowered to calculate the RV of a licensed premise based upon it’s turnover.
Following an investigation by the Monopolies and Mergers Commission though breweries were forced to dispose of the majority of their freeholds. Added to which has been the rapid increase in independent and multiple unit businesses operating from leased properties across the country such as ourselves. All of which have very easily assessable rents as they are subject to commercial negotiation.
We have several units in this situation where the VO have chosen to impose a RV based upon turnover. I’m never one to complain about generating turnover but surely it cannot be fair to impose a different taxation scheme on a business than the one imposed on it’s local competitors? For example: we have one unit with a passing market negotiated rent of approx. £30k but the RV has been posted at £117k, we have another with a rent of circa £45k and a RV of £186k. I call it stealth VAT.
Of course an appeals process exists and we like many others have availed ourselves of it using an agency to represent us. The appeal process is tortuous though and takes years. We’ve just had success on the unit with a RV of £117k with it now being reduced to £19k – why £19k when our Rent is circa £30k I do not know. We have however spent two years paying the hyper inflated rates and whilst these are refunded – less the fees we’ve incurred appealing (these cannot be reclaimed), we have still lost the opportunity of putting that cash to better use.
So we have a government agency utilising an arcane rule based upon a historic situation that no longer exists to inflate a tax upon the highstreet, a highstreet which we’ve already observed is in decline. The inevitable appeal leads to yet more bureaucracy and cost to the tax payer.
In summary the public are out of pocket and of course businesses are out of pocket contributing even more to the pressures on highstreet/retail/hospitality.
This begs a question or five:
When the pressure becomes too great (and we are already seeing mass vacancies on the high street) who pays the rents?
Who services the loans landlords have leveraged on these properties?
How do the pension/insurance companies replace the income from the rents on the high street estates they hold?
When all these loans aren’t serviced – how do the banks stay solvent – unrentable properties have little value and fire sales don’t generally raise what’s required.
When the pension/insurance companies have no income how do they pay out?
Perhaps the moral of the story is Willy Loman got it wrong and in this case; the salesman is not worth more dead than alive.
Some pressures cannot be easily vanquished but surely ones based on arcane rules shouldn’t prove too challenging to change.