VAT Increases and Snow: The Perfect Storm

It appears that two elements in play in the last couple of months might help create an atmosphere which will result in an increase in the number of retail failures over the next year.  One of these is man made and the other a natural phenomenen.
What George Osbourne could not have contemplated at the time of the budget when he decided to increase VAT from 17.5% to 20% was that the UK was going to be hit with the worst winter for decades with much of the country practically shut down during what should have been the busiest shopping period.  Whilst the post-Christmas sales might have recouped some of the losses there is no doubting that retailers will have been hit extremely hard and the VAT increase coming immediately after this hit is likely to cause further difficulties - at Christmas people often over extend themselves but with Christmas now over people will be less likely to buy even if they did not over extend themselves.
For retailers this is very much a double blow.  It would be wrong to say that the VAT rise will stop people spending but it will limit how much they can buy and/or affect how much of the money spent goes to the retailers' bottom lines.
So, what does this mean?
Unfortunately this must increase the risk of retailers considering or being forced into restructurings.  There is already news of HMV closing 60 stores; Clinton Cards and Mothercare have issued negative profit statements with more retailers still to report.
Historically business failures tend to peak after a recession rather than during it as businesses that have used up their reserves just to survive do not return to health quickly enough to replenish those reserves in time.  The snow and VAT rise may have created the perfect storm to ensure that history repeats itself in 2011.

Carbon Reduction Commitment: Another victim of the austerity budget

The Spending Review 2010 found some innovative ways to increase the Government's revenue by using the CRC Efficiency Scheme.
One of the tools to be used was a statutory scheme whereby all participants would initially buy their annual Allowance through a bidding process. Initially the number of Allowances was to be unlimited but then it was to be capped thus encouraging participants to reduce the Allowance they require and save them money.
The second part, and what might be called the carrot, of the scheme was that the revenue generated by the auction of Allowances would be recycled to the participants so that, as you might expect, the best performers would receive the reward in the form of cash back.
In the Spending Review 2010 two major decisions were revealed:

1. The first sale of Allowances will be in 2012 rather than 2011.
2. Revenue from the sale of Allowances will be used to support public finances rather than recycled back to Participants.

The second decision is a significant change as it means that the league tables to be produced will now only have a reputational impact as opposed to a financial and reputational impact. Whilst many owners and occupiers will be concerned regarding their reputation and green credentials the cost-benefit of reducing emissions becomes much harder to justify on a reputation only basis unless one is significantly behind ones peers.

A knock on effect for Landlords is that whereas before there was some possibility of recouping some of the costs of compliance by moving up the league tables and receiving the reward of "revenue" from the sale of Allowances; now compliance is a fixed cost with no direct financial return. Depending on the terms of service charge provisions in leases it may not be possible to recover the cost of compliance from tenants. This will create an irrecoverable cost which must be deducted from the "bottom line" meaning values will suffer.

All landlords should instruct their lawyers to review the terms of their service charge drafting to ascertain whether or not the cost is recoverable. If it was before the change announced in the SR2010 then nothing will have changed. If it was not it may be now.