Belfast Telegraph

Thursday 24 April 2014

Sammy Wilson's levy concept is indeed laudable

Sammy Wilson, as Minister of Finance, argues he is not going to be bullied by any large multi-national retail group.

However, he has attracted sharp criticism from not just Tesco but also the British Retail Consortium.

Shortly, unless there is a change of mind or a legal stay on proceedings, the Assembly will be asked to approve a 20% additional levy on the rates bill for all 77 retailers whose rateable valuation is based on property assessed as worth over £500,000.

Sammy will propose that the 20% rates levy should collect an extra £7m from large retailers and, in a Robin Hood redistribution, this money will ease the rates bill of some smaller businesses.

The benefit will go to businesses with a rateable valuation of £5,000 to £10,000 and on average reduce their bill by £730.

For 77 large stores, their annual rates bill will go up by an average of £85,000.

The suggestion that Government should do more to help small businesses is attractive and popular. The concept is laudable.

However, the proposal effectively uses large retailers to offer a revenue subsidy to many other businesses, whether in retailing or not.

Some will be medium sized stores. Other will be cafes, pubs, bookies and bank branches.

The Robin Hood effect is neither readily justified nor clearly only helping a worthy target

Worthy ambitions need to convert into actions with a clear objective.

Although the causal link is weak, one of the motives for the rates levy is to offset part of the advantages that some of the new large stores enjoy in out-of-centre locations.

Some town centre businesses argue that out-of-centre locations, usually with extended car parking, are trading at an advantage.

The proposed rates levy is not only a penalty on large out-of-centre stores. It affects large stores wherever located and a significant number are in town centres.

The strongest argument against the rates levy on large stores is that it interferes with commercial competition without a convincing rational.

Every large store is assessed for rates on the NAV, or comparative value of the property. This is the accepted method of setting fair rates. If the NAV is calculated properly, large stores already pay more in proportion to their NAV.

To deliberately distort the approximate equity of the NAV system (which is shortly due for reassessment) is an anti-competitive step.

Large stores can reasonably ask to be able to attract customers on the commercial logic of a level playing field.

Tesco has made a legitimate response to a proposal by the minister.

It deserves to be treated carefully as their professional assessment. Tesco's proposal cannot be fairly measured simply as an impact on a rate of return on a 25-year project.

For Tesco, the rate levy is best seen as a reduction in their expected annual profits of possibly 3%-6%.

To argue that the rates levy will materially affect their profitability is neither bluffing nor bully -ing.