House prices/rents versus business rates

macaque_2

There has been a steady flow of complaints that high business rates are damaging businesses. How valid is this?

A company rents an office block of 2,000 square feet.
Rental is £10 per square foot
Business rates are £5 per square foot

Total cost for business accommodation:
Rent = £20,000
Business rates = £10,000

An office of 2,000 square feet can accommodate 20 employees
If those 20 employees rent at an average of £12,000 per year the total cost of accommodation is £240,000

If the local council halves business rates, the saving is £5,000. If the rents are halved however, the saving is £120,000.



Taking an average salary of £25,000:

• Halving the business rates (for an organisation with 20 people) would allow the company to employ 0.2 of an extra person.
• Halving rents (of the employees) would allow the same company to employ 4.8 extra people (assuming this saving allowed the company to pay a commensurately lower salary)

Halving rents might sound large but plenty of places in the developed world have rents of half or less that of the UK.

There are many factors which impact a company's ability to prosper but employment costs are near the top of the list. The effect of high employment costs is felt most strongly by growing companies who have high development costs.

My conclusion is (and always has been) that high house prices and high rents damage our long term growth prospects. If prices and rents were halved, the minimum wage might just become a living wage and the competitive position of UK PLC would be transformed. Cutting business rates has minimal benefit by comparison.

Having an economy where half the population work like slaves to keep a roof over their heads whilst the other half sit at home watching day time TV and collecting rent is not a good model for a successful economy.

TruckerT

macaque wrote: »

There has been a steady flow of complaints that high business rates are damaging businesses. How valid is this?

A company rents an office block of 2,000 square feet.
Rental is £10 per square foot
Business rates are £5 per square foot

Total cost for business accommodation:
Rent = £20,000
Business rates = £10,000

An office of 2,000 square feet can accommodate 20 employees
If those 20 employees rent at an average of £12,000 per year the total cost of accommodation is £240,000

If the local council halves business rates, the saving is £5,000. If the rents are halved however, the saving is £120,000.




Taking an average salary of £25,000:

• Halving the business rates (for an organisation with 20 people) would allow the company to employ 0.2 of an extra person.
• Halving rents would allow the same company to employ 4.8 extra people

Halving rents might sound large but plenty of places in the developed world have rents of half or less that of the UK.

There are many factors which impact a company's ability to prosper but employment costs are near the top of the list. The effect of high employment costs is felt most strongly by growing companies who have high development costs.

My conclusion is (and always has been) that high house prices and high rents damage our long term growth prospects. If prices and rents were halved, the minimum wage might just become a living wage and the competitive position of UK PLC would be transformed. Cutting business rates has minimal benefit by comparison.

Having an economy where half the population work like slaves to keep a roof over their heads whilst the other half sit at home watching day time TV and collecting rent is not a good model for a successful economy.

I enjoy this kind of thinking (I have a similarly radical idea about paying everyone a genuinely universal credit, and then taxing them on everything they earn on top). But in your 5th paragraph, it would be possible to replace the word 'saving' with the word 'cost', and paint a completely different picture.

TruckerT

Thrugelmir

There's no minimum wage, let alone living wage in Germany. Seems to do their economy no harm. Imposing costs or telling business how to run their business by politicians isn't a great idea.

Personally I prefer politicians to stick to policies which encourage business to invest and grow. Along with making work an attractive proposition for everyone, i.e. living tax allowance.

Paying someone simply for turning up at work doesn't work. People need to want to work. So that productivity increases.

grizzly1911

Thrugelmir wrote: »

There's no minimum wage, let alone living wage in Germany. Seems to do their economy no harm. Imposing costs or telling business how to run their business by politicians isn't a great idea.

Personally I prefer politicians to stick to policies which encourage business to invest and grow. Along with making work an attractive proposition for everyone, i.e. living tax allowance.

Paying someone simply for turning up at work doesn't work. People need to want to work. So that productivity increases.

Minimum wages still seem to be an issue.

Topping these issues is how to tackle the unemployment rate put at 5.3 per cent by July this year. The other issues are the Euro/financial crisis, inflation/prices (petrol) and minimum wage (s)


An interesting debate also features the social and labour market policy as well as financial and taxation policies, which have since thrown up the issue of the minimum wage. In this regard, the election programme of SPD demands an across- the- board statutory minimum wage of 8.50 euros an hour while the CDU/CSU and even the FDP want lower wage limit, which entails employers and employees in different industries negotiating their respective lowest pay level.

http://www.ngrguardiannews.com/national-news/133507-unemployment-inflation-others-top-issues-as-germany-elects-leaders-sunday

daveyjp

macaque wrote: »

There has been a steady flow of complaints that high business rates are damaging businesses. How valid is this?

A company rents an office block of 2,000 square feet.
Rental is £10 per square foot
Business rates are £5 per square foot

Total cost for business accommodation:
Rent = £20,000
Business rates = £10,000

An office of 2,000 square feet can accommodate 20 employees
If those 20 employees rent at an average of £12,000 per year the total cost of accommodation is £240,000

If the local council halves business rates, the saving is £5,000. If the rents are halved however, the saving is £120,000.


Taking an average salary of £25,000:

• Halving the business rates (for an organisation with 20 people) would allow the company to employ 0.2 of an extra person.
• Halving rents would allow the same company to employ 4.8 extra people

Halving rents might sound large but plenty of places in the developed world have rents of half or less that of the UK.

There are many factors which impact a company's ability to prosper but employment costs are near the top of the list. The effect of high employment costs is felt most strongly by growing companies who have high development costs.

My conclusion is (and always has been) that high house prices and high rents damage our long term growth prospects. If prices and rents were halved, the minimum wage might just become a living wage and the competitive position of UK PLC would be transformed. Cutting business rates has minimal benefit by comparison.

Having an economy where half the population work like slaves to keep a roof over their heads whilst the other half sit at home watching day time TV and collecting rent is not a good model for a successful economy.

Do you know what rent actually is? How would you halve it?

Carl31

The thing with minimum wage is its irrelevant as any increase in staff cost will end up being reflected in product / service cost, wiping out any benefit it should have. Employers won't just absorb this cost and laugh.

I've never really understood why it was introduced, no ones benefited from it

Thrugelmir

Carl31 wrote: »

I've never really understood why it was introduced, no ones benefited from it

Many people have benefited from a minimum wage. Sweat shops being the classic example.

A good employer however knows the value of their employees to a business. Particularly in this internet age where reputations can be destroyed in minutes.

dryhat

The current economic model doesn't even need people to work.

It just relies on stimulus to rig the stockmarket to increase GDP and pretending that everything is going well.

Meanwhile, us real people in the real economy, have to deal with the consequences of this corruption.

chewmylegoff

I'm not sure why the rent is £240,000 a year and £20,000 a year at the same time. I have obviously missed something important.

TruckerT

chewmylegoff wrote: »

I'm not sure why the rent is £240,000 a year and £20,000 a year at the same time. I have obviously missed something important.

It's the difference between the rent for the business premises, and the rent which is paid by the 20 employees for their homes.

TruckerT

Loughton_Monkey

chewmylegoff wrote: »

I'm not sure why the rent is £240,000 a year and £20,000 a year at the same time. I have obviously missed something important.

I don't think you did miss anything.

The whole idea is ludicrous, and nothing really to do with business rates. He points out that halving the rates for a business gives them only £5K. Correct, but then he assumes, for some reason, the business would use that money to recruit more staff. But that's apparently not the point.

He then moves on to a different idea altogether. He seems to want a magic wand raised to halve the private rent that the employees of a firm pay. In practice, some employees would have bought a house. Others would rent - some from council, some privately....

Then we get to an absolutely weird analysis that says what the employer could do with half the rental value of employees' rents. I can just see this now. "Now look here Mr Jones. You work here and we pay you £25K, and you use £12,000 of that to pay your rent. I have had a word with your landlord who has agreed to reduce it to £6,000. Hence I will be paying you £7.5K less so that you get £6K net less and use it to employ more people....."

In a nutshell, this is a concept of every landlord in the country halving the rent they receive voluntarily. Through some sleight of hand, the tenant would not benefit at all, because the rent he has now saved would be kept by his employer. The only other suggestion I've ever heard that came anything like as close to being ludicrous is that of expecting house prices to fall by 70%, and forming a club to 'enjoy' it happening.

I look forward to the next cunning plan....