Margareta Pagano: Osborne needs to wear killer heels if he wants to stop the booing

Midweek View: If the cost of rates is putting people out of business then keeping them high is simply ludicrous
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The Independent Online

What's more surprising than George Osborne being booed at the Paralympics was that he seemed so surprised by the outburst. It can't have been a comfortable moment for him but if the Chancellor had been looking across to the Continent he would know that treating politicians with such disdain has become par for the course. Whether it's Francois Hollande in France or Mariano Rajoy in Spain, voters are showing their anger at the mess their countries are in.

Mr Osborne has the chance to stop the booing before it gets to be a habit here too if he's clever enough to listen to what the increasingly disenchanted public is trying to tell him. To do so the Chancellor must get out on the road more; away from the sycophantic Westminster press, his advisers and business friends who keep assuring him he's on the right and only economic path. With any luck, the combination of boos and horrible figures yesterday from the British Retail Consortium and the Local Data Company showing how dire the state of retailing is will have scared him enough to get a grip on the real factors holding back growth.

It was no surprise that retail sales for August were awful because of the Olympics but no one had quite expected they would be the weakest since November last year. Even more worrying were the figures showing that the number of shops lying empty on high streets around the country has increased everywhere apart from London over the first half of the year. In some places, such as Nottingham and Margate, nearly a third of all shops are vacant while the national average is 14.6 per cent.

This sharp rise can be blamed on many factors: there's the rise in online shopping and the growth of retail parks as well as falling consumer demand. But by far the biggest reason being given by the British Property Federation for most of these shop closures is the exorbitant business rates being charged by local councils but which are set by the government's Valuation Office Agency. UK retailers are now paying the most expensive rates ever with rate liabilities being higher than rental valuations.

Jerry Schurder, head of ratings at Gerald Eve, the property consultants, says we are now in the unusual scenario where rating liabilities are in some places up to 100 per cent higher than the rental valuation of properties. Rates are usually about 40 per cent of the total property costs for a retailer. But this ratio has been blown out of the water because business rates were last set in 2008, just as the economy was still in boom mode, and haven't fallen in line with the downturn as they are fixed. On top of the basic charge, shopkeepers also have to pay the index-linked rate of inflation, so expect more shop closures next year when last year's deferred 5.6 per cent inflation rise comes into effect. Rates for empty shops are another headache.

Some rates are so eye-wateringly high that it's hard to believe they are real, and even harder to understand how the Government can justify charging such levels. In a refreshingly frank interview last week, Neil Clifford, the boss of Kurt Geiger, the UK's third-biggest shoe retailer, warned that the UK is killing off retail because of sky-high rents and rates.

Mr Clifford also said he pays £160,000 a year in rates for his 2,000 sq ft shop in the Metro Centre in Newcastle. It's no surprise that the rates make the store completely unviable, he said, adding: "How the hell can the council justify that?" For a similar store in the US and Germany, he would pay local taxes of just £10,000. "When we sit down and explain this to our American owners, they say, 'What are you getting for this £160,000?'"

Mr Clifford may not get much for his buck but Mr Osborne and the Treasury are getting a fortune: business rates are a big source of tax revenue, raising about £24bn a year. But if the high cost of rates is putting shopkeepers out of business then keeping them high is simply ludicrous; think of the money being wasted on welfare benefits for those losing their jobs. It's been said that Mr Osborne has the air of a powdered French aristocrat. He's kept his head in this reshuffle but to avoid the guillotine at the next election he should go shopping with Geiger's Mr Clifford to get a better feel for what's happening on the high street and be bold enough to chop rates immediately. Killer heels would suit him.