Rent seeking is a drain on growth

There has been more media doom and gloom about the High Street, with the news that 10 out of 12 of the Portas Pilots have suffered an increase in empty shops and the CBI’s May retail health check showing the steepest falls in sales this year, not only on the High Street but also online.

This is not solely about the squeeze on household budgets but also about the fact that the High Street, like many SMEs, is not competing on a level playing field.

Economists have a word for financial gain that doesn’t do anything to stimulate either real production or economic growth.  It is called rent seeking. It covers everything from income gained from vast financial sector fees, bonuses and charges on transactions to actual rent received by landlords.

Sports Direct owner Mike Ashley has given landlords a deadline of today (May 31) to accept a deal to reduce the rents on the Republic chain that he “rescued” in February from administration or he will walk away and the 116 shops will close. 

The BBC also recently highlighted the plight of one trader in electrical goods in the “Portas” town of Nelson in Lancashire, who needs to move to larger premises. He has identified an empty property vacated by a national chain but it is still tied to a long lease so the landlord has no incentive to re-let at a lower rent.

Add to that the ridiculously high town centre business rates that are no longer justified in the current climate and that the Government has not reviewed since 2007 – arguably another form of “rent seeking”.

How are SMEs supposed to be the engine of growth when even those with potential to grow are facing such impossible odds?

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