Ely, a High Street in crisis.

The final big factor influencing rents, taking all of the factors I’ve already discussed into account too, is a very contentious issue: charity shops.

I would like to preface this section of discussion by stating that I appreciate the enormous amount of good charities and charity shops can do.  In many cases they fill in holes left by poor government policy and underinvestment in social care, disease research (in particular) and more. In many places they can help to fill vacant properties and stave off the knock-on effects of shop vacancy.  It is reported that as many as 25% of charity shop volunteers are there whilst seeking full time employment, which can be of enormous benefit to mental wellbeing and can even add to one’s CV. What I am presenting here is a dispassionate statement of the facts and effects the charity shops can have.  There has long been an argument that they are damaging the High Street and I hope simply to give you a grounding of the facts and figures here in Ely so you can make up your own mind on the issue.

The central point of contention in the debate around charity shops damaging our High Streets is that of Charitable Rates Relief.  Put simply, charities are entitled to the Mandatory Charitable Rates Relief of 80% in England. In addition to this charities can also apply to the local authority responsible for handling rates (for Ely this is the District Council) for a discretionary additional relief of up to 20%, which if granted in full could mean a 100% exemption from Business rates.  In reality the majority of English councils reported that they do not grant this additional relief [C.DRRR].  This may not seem like a bad scenario – charitable organisations get a tax break so more money goes towards their good work; there are however some obvious side effects and some subtle issues surrounding this policy, which it is argued have a seriously deleterious effect on our High Streets.

The first of these is the effect on rental prices.  As I’ve demonstrated previously the rates can be over 50% of a property’s rental price, especially if the 5-yearly update rateable value hasn’t caught up with the current market climate (this is very noticable for 29 High Street, where the rateable value is a full £5,250 above the current asking price).  Where charities can obtain an 80% reduction (potentially even a 100% exemption) in rates, their overheads are significantly lower. This means that their ‘buying power’ when it comes to choosing a property and rental price is significantly higher than a private non-charitable business. A recent example is Oxfam which has moved into the old Argos shop:

The rental price for the old Argos property (7 High Street) was £53,000 pa.  The current rateable value is £50,000 for this property and so the rates are:  £24,000. This means that in order to rent the property and before all other costs including utilities, fitting, staff and other costs, a private business would have to pay £74,000 per year just to be in the building.  Compare this with a charity in receipt of charitable rate relief which would only have to find between £53,000 and £57,000 (depending on whether they were granted discretionary full relief by the District Council). In addition, charity shops rely almost solely on volunteers and so the staffing overheads are significantly lower, as of course are their stock costs when the majority is comprised of donated goods.

The argument is that this disparity in ‘buying power’ puts private businesses at a significant disadvantage by comparison.  Charity shops will (within their budget) be able to offer up over and above the level a private business can withstand. This may also be compounded as many charity shops are backed by a national organisation which can provide funding to weather a dry spell, should a store not be performing so well.  When we compare this to the case of Mr Simms (who despite being a franchisee, must fund their own survival entirely) there is no such safety net and obviously conditions have become too difficult to for them to continue to trade. I won’t name names but I am reliably informed that within the last few years, one or more businesses trying to enter the market in Ely have been gazumped by one or more charity shops, who have offered up on the already difficult to afford rents in the area.

Government policy dictates that landlords must start to pay Business Rates on an empty premises after 3 months.  There are a few exceptions including warehouses (for an additional 3 months), listed buildings (until they are reoccupied) and buildings owned by charities (if the next use will be charitable) [C.RRES].  Even where a landlord may wish to let to a private business over a charity shop, this policy could force their hand due to the not insignificant mounting costs of business rates they face paying on their empty premises.

Unlike the domestic rentals market, commercial landlords are driven to seek the longest terms possible.  The cost of marketing and filling an empty property (to say nothing of rates and lack of rental income) mean that for a commercial landlord short term rentals are a higher risk.  For any business new or existing, the commitment to a longer term contract poses a higher risk especially so as should they fold, they are still legally liable for the ongoing rent bills.  As previously discussed, most charity shops have the weight and financial security of a large charitable organisation behind them. This when combined with the massively reduced overheads (rates, staff, cost of goods etc.) creates a clear imbalance in the level of risk a longer term contract poses to them as opposed to a private business, especially those of a smaller scale or with no additional premises.  This reduced risk will naturally be more attractive to commercial landlords; it could be argued that this puts an upward pressure on the commercial lettings market, as landlords don’t have to choose between higher risk/shorter term private tenants and charities who are prepared to take longer tenancies and are more shielded from local and national market forces and collapse.

Another not so obvious effect charity shops may have is a reduction in footfall draw, when compared with a private business in the same location (and hence of a similar size).  If you recall Mr Simms’ statement included that “fading footfall” was in part to blame for their downturn. This is actually the perfect example of this effect; Argos, a major “anchor” store which drew significant footfall and was a destination shop (one for which people would potentially make a specific trip to Ely) has gone and instead of a comparably sized retail or food service business taking its place, has become a charity shop.  When planning shopping centres, designers ensure they are carefully studded with anchor stores. These draw people around the complex and ensure that they pass as many of the smaller stores along the route as possible. Argos had this footfall effect and draw in a way which kept the top end of High Street busy (even throughout a rumoured decline in their sales at the Ely location). If you compared footfall when Argos was operating with the same place on Market Street which had no similar “anchor” store, the difference in footfall would be highly evident.  Footfall data doesn’t go back far enough but a similar decline would almost certainly be evident following Cutlacks’ move from Market Street (what is now The Hereward pub, right through to Caffe Nero on High Street). Retail at this end of Market Street has basically collapsed and has been replaced by service industries (fast food, restaurants, barbers, offices etc.) At the time when the premises was converted from retail use, then chairman for Planning at the District Council Philip Reed stated that: ‘the super-pub had been given planning permission as part of a drive to encourage more people to shop in the city centre.’ [C.MKST].

Whichever way you turn it, with the best intentions in the world, charity shops will never have the same draw as a large store such as Argos does, even if they are lucky enough to be super-duper Mary-Portas-souped-up style charity shops (I’ll get to her later!)  We have to face the reality now that Ely’s High Street may never regain that critical footfall driving store it desperately needs (as Oxfam are likely to be a long term tenant) and trade may be permanently harmed as a result. We have only to look at the Hereward/Cutlacks example to see the outcome of this sort of downturn.

I did not intend through this example to single out any one charity shop – it just so happens that the Argos/Oxfam example is intrinsically linked with the fate of Mr Simms and ably demonstrates all of the issues already covered.

Another effect to consider which is more subtle yet is the impact to the local economy of a charity shop vs. a private business.  Private businesses generate jobs which in addition to putting money in the hands of the owners (even if they’re a national chain) creates local disposable income.  A good portion of this income will be spent in local stores, boosting the local trade and economy. It is also not uncommon for local businesses to cooperatively supply each other and boost the interconnected trade, branding and recommendations between businesses which give customers more choice and reason to visit Ely.  With the exception of a few management staff positions (which are not always full-time) charity shops rarely enable any of these local economy boosting activities to occur and further still, may prevent other businesses from entering the market which could do so.

Over the last decade charity shops have taken on more and more brand new goods to sell in their stores.  This has become a hot topic issue in this debate and many argue this is incredibly damaging to local commerce.  The argument is that a charity shop selling new goods is able to directly compete with private businesses, without the overheads of full rates or staff.  Such an advantage would enable them to sell at prices the private businesses could not sustainably match, or to be selling items which a rate paying business might not exist to do, due to the overheads and local competition levels.  The law states to be recognised as a charity shop, a store must sell “wholly or mainly donated goods”.  It’s actually quite difficult to find a solid answer on this although the general consensus seems to be that a maximum of 15-20% is allowed.  Whatever the upper limit, national estimates suggest that 6.3% of sales in charity shops are new goods [C.NWGD].

The final aspect to consider is the actual funding of the Business Rates relief.  It used to be the case that central government would fund 100% of the Mandatory Relief (80%) and 75% of any granted discretionary relief (up to 20% of the rates).  In April of 2013 the funding rules were changed; going forward from this date, any newly granted relief on rates in Ely is split 50/50 between central government and our District Council.  This represents a drop from 85% government funding to just 50% overall. To put this into some hard numbers, I will use the Wood Green and new Oxfam shops as examples, both of which opened post April 2013.

Oxfam’s rateable value is £50,000 for this property and so the rates are:  £24,000.

80% of this is £19,200 so where the government would have paid this fully prior to 2013, now they only pay 50% and so District Council would fund £9,600 per year.

Wood Green’s rateable value is £30,500 and the rates payable are: £14,640.

80% of this is £11,712 so where the government would have paid fully before, now they only pay 50% and so the District Council would fund £5,856 per year.

These calculations are just for the Mandatory Relief of 80% and ignore the potential for the 20% Discretionary Relief.  Whilst the numbers might not seem that high, if you think over a 10 year period that would equate to a £154,560 cost to the District Council for those two shops alone.  Think about where this money will come from – the Council Tax precept perhaps? Reduction in services elsewhere in the district budget?

I don’t wish to sound like a monster and suggest that charity shops are evil – rather I would suggest that perhaps this country needs to have more open debate about whether charity shops are the best way to raise money for these good causes, given the damage they could potentially cause.

One final note is that at the time of writing, a new charity intends to move in to a sizable vacant property, one of the few remaining on that street.  It currently has a planning application in progress. This is happening in area which is already struggling and in a property which has remained unlet for some time due to trading conditions, high rental price (and of course rates as a result) and rental terms.  I am not going to name names here and am mentioning it because it specifically backs up the arguments about how charity shops can act to keep rent and rates artificially inflated in Ely.

When you take the arguments I’ve given overall, the key point to take away is that because charity shops can afford the higher rents (regardless any of the other arguments), when they are abundant within an area this can act to keep rents artificially high, especially when compared with like for like towns locally.  As I’ve discussed previously this can also have a direct impact on the rates for every single shop premises in Ely to some degree and of course the City, District and County councils have no powers to mitigate these effects.