Taxing charity shops no answer for Welsh high streets

Ray Hurcombe argues that changing the business rates regime in Wales will undermine care delivered by voluntary organisations

The income Tŷ Hafan derives from its 21 charity shops across south and mid Wales is vital to enable it to continue to help the life-limited children and their families the charity works with. Fundraising has been challenging during the economic downturn, but the return from our shops has increased – to £460,000 last year – as people are seeking better value. We also employ nearly 50 staff, provide a hub for over 350 volunteers and recycle 320 tonnes of unsaleable goods.

The charity was concerned that Professor Brian Morgan’s report commissioned by the Welsh Government on Business Rates recommended limiting the rate relief charity shops receive and the locations we can rent. Particularly, the review group failed to consult widely with the charitable sector, it did not take fully into account evidence showing that the presence of charity shops on the high street and it is not limiting opportunities for other retailers.

It is welcome, therefore, that Edwina Hart, the Minister for Business, Enterprise, Technology and Science, has asked Professor Morgan to take another look at the impact of the proposed changes.

One of the arguments made for making the proposed changes was that charity shops are crowding out other retailers. We can show that this is not the case. Our new shops have opened in empty, often dilapidated premises, and we spend up to £30,000 on each unit to bring them up to standard. Many of our shops would be empty if we pulled out, and we know that we have helped rejuvenate high street shopping areas in locations with high vacancy rates such as Merthyr Tydfil, Neath, Barry, Newport and Llanelli.

We would all like to see more vibrant high streets with a mix of independent retailers providing what our communities want. Where we differ from the conclusions of the review group is that we don’t believe this will be achieved by closing some of our shops. Only 3 per cent of the goods we sell are described as new – mostly Christmas cards – so we are not competing directly with independent retailers, or ‘proper’ shops, as the review group claimed in their report.

And we are not clear how the decisions will be made about what is the right sort of outlet to have in which street. Should we be restricting the number of payday loan providers or bookmakers? How many is the right number of charity shops in one street?

What we do know is that if the current proposals are implemented, they will have a seriously detrimental impact on our ability to provide care for life limited children.

The proposals would incur an immediate cost to Tŷ Hafan in the region of £100,000 each year. We would likely have to close three Tŷ Hafan shops, making six staff redundant and losing 60 volunteers, and leaving three retail units empty in areas with vacancy rates of more than 20 per cent. The reduction in income would be equivalent to the cost of providing specialist care for six to seven children per year.

A recent poll by Mori showed 78 per cent of people in Wales thought that charity shops are a positive presence on the high street. Indeed, 6,250 people visiting Tŷ Hafan’s shops recently signed a petition against plans to reduce charity rates relief. Taxing charities in a downturn is not the answer to rejuvenating Welsh high streets.

Ray Hurcombe is Chief Executive of Tŷ Hafan

2 thoughts on “Taxing charity shops no answer for Welsh high streets

  1. Our starting point should be that the benefits of being a charity are a “privilege not a right”. It should be for charities (and other bodies) to demonstrate that what they are doing deserves support from the public.

    Ty Hafan can no doubt make this case, and, crucially, demonstrate that the money they raise benefits the people of Wales. Other charities may be less able to demonstrate this. If, for example, the proceeds from a charity shop are spent on an expensive head office in London, it is far from clear that Welsh ratepayers should be footing the bill.

    Nor does the question of rates of relief apply only to charity shops. Charities also escape business rates on their head offices – a practice that has led to a great deal of tax avoidance, as private landlords give empty offices to charities rent free in order to avoid business rates, while ensuring that rents to businesses are kept artificially high.

    With this in mind, cutting the mandatory rates relief from 80% to 50% (and also including social enterprises and small businesses in the new regime), while requiring charities (and others) to demonstrate the benefit they provide to the people of Wales and to the local community in order to obtain the additional 50% discretionary relief is an entirely reasonable approach.

  2. Ray,

    Your article raises some interesting points. However, I feel that the recommendations of the Business Rates Review have been misrepresented. I copy them below and I think you will agree that they are very specific and quite balanced:

    Welsh Government to consult with UK Government and charitable and retail
    sectors to discuss these issues. Consideration be given to:

    (a) Limiting rate relief to 50% for larger charity shops trading in new goods
    (b) Place an upper RV limit on the definition of retail premises eligible for
    charitable relief
    (c) Introduce tighter qualifying criteria e.g. must be philanthropic,
    providing social or community benefit AND/OR must be actively using
    all the premises
    (d) Limit the number of retail units eligible for charitable relief in a given town
    centre OR limit relief to only one per charity in a given area

    The Charity Retail Association and others have focused almost exclusively on recommendation a) and then they further assume that it would apply to all charity shops. This is obviously not the case. And it probably wouldn’t apply to Ty Hafan.

    Similarly recommendations b) and c) were put in to address concerns over possible tax evasion tactics that were brought to our attention by the LAs. Clearly, Ty Hafan wouldn’t be affected and might even benefit from being shielded from unfair competition from (or negative comparisons with) what might be regarded as dubious charities.

    Recommendation d) was put in to address a number of problems which included the fact that the charity shops themselves are finding that their biggest competitive threat is now coming from other charity shops close by.

    Also we suggested ‘consulting the UK government’ on these issues – not wading straight in with changes in Wales, a point which seems to have been missed time and time again.

    Happy to discuss these issues with you further.

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