Ignorance leads to bad policy

Some of the country’s biggest retailers have written to the chancellor, Rachel Reeves, warning that the government’s plans to overhaul business rates risk turning UK high streets into “ghost towns”.

The Retail Jobs Alliance, which represents Tesco, Sainsbury’s, Kingfisher, Morrisons, Asda, Primark and M&S, says thousands of jobs could be lost as a result. The changes could “accelerate the decline of high streets, reducing footfall and creating a cycle of economic downturn,” says the letter, which is also signed by Usdaw, the Labour-affiliated shop workers’ union, and the business partnership High Streets UK.

The Treasury plans to raise business rates on bigger stores from 2026 to pay for a tax cut for small stores.

What is reducing the High Street is online shopping. The internet is now 26% of retail spend. Therefore we have more shops - and more High Streets etc - than we need now or used to have. And that’s that. The solution is to leave people be and see what alternatives they come up with. Maybe convert those buildings. Maybe knock them down and start again. Maybe leave them to crumble. Who knows? Fortunately we do have a system to find out. Leave people alone to experiment then do more of what works. You know, market processes?

But the ignorance. As we’ve pointed out a number of times and as the government used to agree business rates are paid by landlords, not tenants. Yes, yes, it’s the tenant that hands over the cheque but it’s the landlord that takes the hit. Rates reduce the rent that can be charged.

So, the net effect of this change will be to increase rents (but not total costs of occupation) upon smaller retail units and decrease rents (but not occupation costs) on larger retail units.

At which point, well, why would we bother to do that?

We can think of two reasons, one that the people proposing this are simply ignorant and that’s always possible. Could also be that government is in fact run by a secret cabal of small retail store landlords capitalising on the ignorance. Which, you know, maybe?

But it’s still a really bad idea driven by ignorance.

Tim Worstall