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Greed and an Ignorant Leadership

The UK high street for some time has been suffering with small businesses collapsing on a daily basis leaving shop units empty and derelict for long periods of time.

Where I live, every other shop is empty andavailable for let for any up and coming business that fancies their chances in the challenging high street environment.

Fact is however, any business entering the high street has no chance of surviving and I’ll explain why. Opening a shop, as exciting as it may seem, is likely the worst decision a business owner is going to make. Not because the shops are in bad locations, not because there isn’ t the footfall and not particularly because a business isn’t in good shape or offering great products/services…but more because of the greed that the government has and allows others, such as landlords and BID companies to exploit.

I have high street shops. Here is a look into just one (although the story is repeated across all 22 of them!):

This particular shop is in a popular shopping scheme in Liverpool, its approximately 800sq ft (including staff and kitchen space). The scheme has a 60k-80k weekly footfall (although I seriously question these figures) and has anchor tenants such as fast food giants, high street jewellers and fashion brands.

It also has a completely empty floor that was once a vibrant market and in a scheme of 200 or so shopping units, approx 90 are closed and ‘available’ (this includes the short rented, pop-up shops over xmas time etc).

The scheme leaks when it rains due to an inadequate drainage system that the owners cannot afford to fix. It has an unreasonably high rate of theft and is generally not very well kept (although thats due to an apparent lack of funding, not the efforts of the support staff). Yet…

They charge me £3,500 per month rent (£10,500 per quarter) for an 800 sq. ft shop — from investigation it costs them around £600 per month in a commercial mortgage!

£1,000 per month service charge (£3,000 per quarter).

Meaning my direct occupancy costs sit at £4,500 per month.

Then…and this is where the council stick the knife in…there are the dreaded business rates.

At this particular unit, the business rates are determined by the most money hungry council that all of our shops reside in. The rates on this 800 sq ft. shop unit are an eye watering £48,000 (value), £22,080 payable — or £1,840 per month.

Then to add to that, despite being in a private shopping scheme, with its own extortionate service charge, security, cleaning staff, maintenance staff etc we are hit every year with a Business Improvement District (BID) Levy of £681.00 which has to be paid ‘OR ELSE’. The BID is apparently used to attract more people to the shopping district and city centre by adding lovely flowers, more police/security and cleaners etc…but they can’t service the shopping scheme because, yes you guessed it…its private. I still have to pay it though.

So I now have occupancy costs of £76,761.00 or £6,396.75 per month.

Its an impossible figure for a small business to afford.

I can hear you saying ‘but you didn’t have to open your shop there’ and you’d be right. However, when we opened the shop, the other units around us were let — a full occupancy leads to a busy shopping scheme. The market was open and busy and the rents and rates were lower. They’ve crept up during our tenure, out of our control and have, as already mentioned, forced circa 90 businesses to close their doors. We are stuck there for the forseeable future.

Now on to the goverment’s sticky fingers:

Every year we are hit with PAYE and NIC. This particular sites bills is around £6,000 per year. I understand what it is for and why its important — I’m not complaining about this cost just stating that its there.

Then there is VAT. The VAT bill is around £20,000 per year. Does this suggest a profit has been made…hardly. The industry is resource/labour intensive — a cost that cannot be used as input for VAT purposes. Reform is needed regarding VAT rules for labour intensive/retail businesses.

THEN…there is the annual minmum wage increases. They hurt. I realise that people need to be paid and I realise that £7ph isn’t a lot of money in the real world but the ever tightening noose around our neck from greedy landlords, councils and the government mean its difficult to pay my staff any more. I’d love to be able to pay them double this amount…but I just can’t.

I’m in hairdressing (in case you were wondering). And I can’t charge VAT on top of my bill like B2B businesses can. The public cannot claim it back so it has to be incorporated into the price. I can’t put my prices up by 20% to cover the VAT cost as then I’m not competitive. So i have to suffer the VAT cost and we have little inputs to claim against it. So VAT is a retail killer.

Now we also have NEST pensions. Not a massive amount of course but its another bill to find each month to help the government get out of the hole it created for itself. NEST costs approx £960 per year (ish).

So just for this site, my ‘occupancy costs’ (not including stock, phones, energy, internet, maintenance, salaries etc) are circa £103,721.00 or £8,643.42

I haven’t mentioned Corporation Tax because I can’t make a profit to have to pay it but if I did that would be taxed at 20% and a further 7% dividend tax per share holder if I issued dividends…it wouldn’t leave much!

Thats roughly £2,000 a week I’ve got to cover that isn’t a productive overhead.

We sell haircuts! We can only sell them at £26 for a cut and blow. That means we have to do 76 clients per week just to cover occupancy and government/tax costs. (the average hair salon covers 100–120 clients per week).

So if I was to get through 120 clients, I’d have a further £1,144.00 (£26 x 44 clients) to pay my staff (that for reference cost £945 per week), the energy (costs £110 per week), Phone (£20 pw), Internet (£20pw), Stock (£300 per week), Maintenance (last year £50 pw equivalent)…the total weekly cost is around £1,445.

Weekly total opening cost is £3,445 + vat (£4,134 gross). that means that I need 160 clients per week to break even at £26 per client. That just doesn’t happen. I can’t and wont survive at this site (and possibly many others).

If the occupancy cost was reasonable (after all the landlord isn’t paying anywhere near £45k a year in mortgage repayments). and business rates were payable (say £500–1000 per month) and pathetic levy charges were dropped, i’d have a chance to survive and other not only that but other businesses would be able to occupy the empty units and the scheme would thrive.

Fact is the government, council and landlords are greedy and are biting their noses off to spite their faces. They aren’t moving as quickly as businesses in realising that costs are unsustainable and they are being left with empty units.

Small business have failed for a decade and now big businesses (quoting rents and rates as a primary reason) are folding on the high street — Jamie Oliver’s restaurants, New Look, Maplin, Toys-R-Us etc…If they can’t stomach the costs, there’s NO CHANCE that small businesses can.

The government should have reformed commercial costs, rents and rates at least a decade ago — ACT NOW before it is too late! Save the high street!

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