Ah, no, sorry Ms. Badenoch, this does not work

That someone would like to do something to make pubs great again is welcome. But we do think the effort might be better spent upon something that does actually make pubs great again. Rather than this:

Starting by scrapping business rates for thousands of pubs. Not cutting rates, not freezing them, not pausing them until a later date. Abolishing them entirely for thousands. The future of pubs is more important than any number of silly things the Government is currently wasting money on.

All this does is increase the rent that can be charged on a pub.

This is thus just absolutely great for freehold pubs and also for the pub ownership companies. It makes no difference at all to the running costs of the standard pub, the tenancy.

Or, if we wish to put it differently, this benefits landlords of pubs not pub landlords. For foreigners unaware, a “pub landlord” is the person who runs the pub, a landlord of a pub is the person who owns the building. The standard business form is that these will be two different people - often the landlord of the pub will be a brewery or, in recent decades, a large commercial landlord. A freehold pub is where they are the same person and this is a very definite minority of the sector.

This is well known among the cognoscenti, the IFS for example:

Economic theory predicts that, in the long run, (higher) business rates will mostly be reflected in (lower) rents, passing the burden of the tax from the occupiers of property to the owners.

That’s actually from evidence to Parliament and we’d all rather hope that they do pay attention when they ask the experts to come in, no? We’ve empirical evidence as well:

The results of the empirical study confirm the hypothesis and show that total occupation costs do tend to be equalised in the long term.

We have made the point ourselves, and again:

There is such a thing as a bad tax cut, and business rates relief for small businesses is one of them. Despite what the Chancellor claimed in his budget yesterday, reducing rates will likely be a tax cut for landlords, not businesses.

Reducing - eliminating - business rates upon pubs does not benefit pub landlords but landlords of pubs. Yes, yes, we do know that the historic root of the Tory Party is in the property owning interest but perhaps we might be able to get the modern Conservative Party beyond that?

This will work in the sense that it will increase the rent that can be charged upon a building that can be used as a pub. Other than that it’ll have little effect. This doesn’t seem to be a useful change in public policy therefore.

Tim Worstall