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On the 9th May2017 VCL published its monthly note. This included the publication of VCL's CEO, Martin Wood's monthly comment, this month's four resource stocks of interest, plus a topical cartoon which can be seen on the Short Note page.

“Essentially all businesses with premises pay a tax to their local council for the services that business is provided and central government chucks in a few shekels too. The rates are calculated on floor space and value of the property.

But the nature of retail therapy has changed so much since the explosion of the internet that this structure just doesn’t work.

Small businesses in towns across the country are being driven to the wall by rate costs. Shops in towns attract a higher rate than shops out of town, so the rise of the out of town shopping mall was the first symptom of how this structure doesn’t work and is well documented. But now this trend has been superseded by a new threat to the high street.

Imagine two retailers selling identical product but one business has lower running costs and so can charge lower prices. Of course you shop at the cheaper one right!!

That is only natural, so people tend now to visit physical shops for advice on products but buy the product cheaper on line. The net result is the shop goes bust.

I am not saying rates should be scrapped – after all – the local government does provide services and this needs to be paid for, but the way they are paid for should be over hauled.

What I am suggesting is as follows:

Calculate how much income rates generates (x)

Calculate the total in country spend on products of UK consumers (y)

Calculate what percentage tax on y would be needed to generate x  (I suspect it is a tiny amount)

Impose that tax on ALL sales.

Generate the same amount of revenue  - simples.

So what is the difference?

The tax is charged on all sales – including internet sales.

You buy something on amazon for ten pounds – a small amount of that is rates tax, that rates tax is paid to the council in which the buyer lives.

Easy to administer – every parcel has a post code that relates to a place that is in one local council district or another.

The tax is on all sales from anywhere.

You buy a bike from California – the price includes a bit of sales tax for your local council.

The internet based sales company pays the tax on line to a central UK agency, this generates a code and this code allows your parcel to be delivered. The parcel can’t be delivered until the tax is paid on line by the vendor. The central agency divides the income by region.

The local shop also pays a sales tax – simply a percentage of turnover – with no lower threshold – sell more product – pay more tax – so a high turn over shop next door to a little tea shop selling two slices of cake a day pays more tax – simple. The turnover figure is calculated on local sales – so can’t be ‘off shored’ to avoid the tax.

There are plenty of other reasons high street shops are declining, but an unfair rates burden doesn’t need to be one of them.”

  Martin