Realist, not conformist analysis of the latest financial, business and political news

Matt Hancock’s Really Stupid Idea About Business Rates On The High Street

As we all know there’s stupid, idiot and then politics. The last being the worst because people propose things just because they sound good rather than because they solve – or even understand – the problem at issue. So it is with Matt Hancock’s idea about an Amazon tax to alleviate the rates burden on small shops. The thing being it’s not the tenants of the shops – even the operators of them – that carry the rates burden. Rates, as with any other similar tax on property, are carried by the landlord. And why do we want landlords to make more money?

[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””] Matt Hancock has vowed to “level the playing field” for high streets by scrapping business rates for small retailers while hitting tech giants with the new Amazon tax. The Health Secretary has announced the £1.5 billion-a-year pledge, which would exempt hundreds of thousands of businesses from the levy, as part of his leadership campaign. In an interview with the Telegraph Mr Hancock said business rates are a “twentieth century tax” which needs a “21st century replacement” – and makes the system unfairly skewed against bricks and mortar businesses. The energetic minister wants to change that and “save the high street”. [/perfectpullquote]

There is some amount that a retailer is willing to pay for premises to retail from. How that is divided between tax and the rent for the property is immaterial to the retailer. The same is true if they own the place – any tax becomes capitalised into the price to be paid for the property.

The landlord is deeply interested tho’. The amount the occupant will pay is fixed. More tax means less of that flows to the landlord as rent. We do actually know this too, we lifted business rates in Enterprise Zones and rents rose to match.

So, Matt Hancock is suggesting a bailout of high street landlords, not an alleviation of the costs of high street retailers. And why the hell would anyone want to do that?

Well, the answer being that either he’s stupid or he thinks we are. Neither being an attractive attribute in a politician.

As to an Amazon tax, why? Leave aside the above split of who pays it and business rates are a tax upon property. Amazon uses less property than other forms of retailing. They should be paying less property tax.

Seriously, what is it about these simplicities that people aren’t understanding?

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ian parkinson
ian parkinson
5 years ago

Capitalisation of property taxes means:
1. it doesn’t matter what the regime is (it gets baked into the price)
2. any change in the regime is a massive one-off gain/loss for the holder of the asset on the day of the change

So now do residential property?

Matt Ryan
Matt Ryan
5 years ago

He might like to try some of the old (small C) conservative ideas of reducing tax rather than the more modern notions of fiddling around with where it’s taken at the same time as increasing it overall.

Won’t solve this problem but would mark him out as someone who at least pretends to be reducing the amount extorted by menaces.

Rhoda Klapp
Rhoda Klapp
5 years ago

Then there’s the question of why ‘the high street’ deserves to survive and in what form.

Jonathan Harston
Jonathan Harston
5 years ago

In a year or so I will have paid off my mortgage, so I can let my shop for less than other landlords who have mortgages to pay. Wah wah! Unfair advantage! Am I or my tenant going to be targetted by Mr Hancock for having lower overheads than other businesses?

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