The quiet success of warehouses reveals a damaging tax loophole

Warehouses are anything but sexy – few will be gathering in the strip-light corridors for an industrial-themed Valentine’s Day supper tonight. But they are clearly desirable for some.

Usually, consolidation happens in an industry for one of two reasons; a downturn forcing former rivals to bunk up together, or rapid growth, where scale will win the day. The warehouse-fever sweeping the City is very much in the latter category. The likelihood is that it will last.

But their success points, quietly, to a loophole in the tax system which the Chancellor Jeremy Hunt would be well placed to address in the upcoming budget.

The warehouses that have tickled the fancy of investors are, unsurprisingly, mostly located away from major cities, with locations next to major roadlinks most highly prized. That means the land is relatively cheap; crucially, because of the business rates system, the accompanying land tax that goes along with the space – despite the gargantuan size of some of these operations – is necessarily low.

One study from Altus Group reckons physical retailers are coughing up something like 750 per cent more per sale than online-only rivals.

That gives retailers using those warehouses a further one-up on their bricks and mortar competitors, a decent chunk of whom remain independent owned.

This paper is in favour of free markets and the animal forces of capitalism, but the animal forces of capitalism only produce better functioning markets when they’re allowed to battle it out on a level playing field. The current rates system precludes that, despite the numerous announcements of successive Chancellors that something is set to be done.

If e-commerce wins because it is more convenient, more attuned to customer needs and smarter in its use of data, happy days. But winning on the back of a clunky tax code leaves a sour taste – and empty high streets.