Online shopping is undermining the traditional high street but high rates are killing shops

This week, a letter from Kenmare to the editor outlined the plight of small businesses in small Irish towns. The writer explained how the heart has been torn out of a once-bustling town as businesses shut and footfall declines, while commercial rates rise. As more businesses close, the rates on the remaining businesses must rise in order to finance the same level of local services. As you can see, this form of taxation entails an inbuilt dynamic contradiction, wherein a downward spiral is not only possible but likely, once a town begins to lose its appeal.

I’ve a particular fondness for Kenmare, not because the annual bash of the Dublin Economic Workshop was typically held in the town, but because the Riversdale nightclub was located just out the road. The Riversdale’s catchment area – an accurate description – extended for miles. Jumping into a cousin’s car in Ballyvourney, west Cork and heading inland over the back roads to Kenmare was what an early 1990s Saturday night was all about.

The Riversdale nightclub, like the hotel, is long gone and, according to the letter writer, Kenmare – once a lively tourist attraction for nationals and internationals – is on a steep decline. With a population of 2,500, Kenmare has higher education levels than the county average – 27 per cent of the locals have college degrees or higher. According to the census, since 2016 the population has increased marginally by 1.3 per cent but unemployment remains far above the national average at 12.6 per cent.

The main outward sign of a problem in Kenmare (as is the case with so many Irish small towns) is vacancy and, inevitably, dereliction. Once vacancy takes hold, it sends a signal to prospective buyers or tenants that business is declining, underscoring a prevailing sense of urban deterioration. Vacancy begets vacancy.

Online shopping has undermined the traditional high street but, as the letter writer suggests, the high rates are crucial. As rates rise, fewer business will be prepared to risk opening, while established ones question their margins and might be tempted to shut down.

In addition to rates and online shopping, the pace of housing development around Irish small towns has collapsed since 2008. While the much maligned large ‘ghost estate’ built outside a small town was a Celtic Tiger feature, many smaller developments were built, which made living in smaller towns possible. These builder-developers have largely disappeared and the banks, so badly burned in 2008, are no longer financing small builder-developers, all of which has a knock-on effect on rural community development.

The first place to start when trying to improve the prospects for a town is planning or zoning

The future of small Irish towns is essential to the fabric of Irish society. At its core, any town is a highly sensitive ecosystem of shops, bars, cafes, restaurants, residents, local leaders, workers, professionals, schools, churches, sports clubs – something we call community. The town should appeal to residents as a place where locals can mix, congregate, shop and work. And “mix” is the critical word here. The first place to start when trying to improve the prospects for a town is planning or zoning.

Towns should be diverse: places of work and play. In the face of outside competition – be it Amazon or out-of-town shopping centres – the commercial core of the town must be supported. Planning has to accommodate the realities of 21st-century living. If it is impractical to base a town’s planning on the notion that every ground floor must be a shop front or a business, it should be easy to convert commercial zoning and planning permission into residential.

The key to any town’s life isn’t the number of shops but the number of people in its core. Requiring all ground-floor premises to be commercial made sense before online shopping; today, I’m not so sure. What about encouraging shops and residential units on ground floors, sharing the same footpaths, side by side? Such flexible planning allows for a more diverse ecosystem, reducing the costs of building and conversion while keeping homes more affordable and promoting development of an urban mix. The idea that Irish towns should be bound by 19th-century notions of what constitutes a streetscapes is nonsensical.

What about rates? If rates are a problem, fix the problem.

Local government is hamstrung by its dependency on rates for income, and this constant panic over revenue blinds us to the obvious. Local politicians and community leaders rightly complain about the hollowing out of rural Ireland and small towns. In an ideal world, Ireland would become more flat, with more development in the countryside and less in cities, particularly Dublin. But an iron law of economics is that capital and talent migrate to the city, which in Ireland benefits the multinational sector at the expense of small business.

Creating an entrepreneurial culture of many small businesses is critical for any rich country. Doing this all over the regions is also essential, because it is what creates economic vibrancy

How do you change these twin worries – one focused on revenue the other on economic determinism? Well it’s quite simple if you shift money from one place to the other. The latest CSO data suggests that local government tax revenue was €2 billion in 2022 – the vast majority (€1.5 billion) of which came from commercial rates. This €1.5 billion is the noose around the neck of local government forcing it to impose rates on small businesses.

This figure sounds like lots of money, but it is not. Total tax revenue in Ireland is about €110 billion, and multinational-driven corporation tax revenue was €23 billion in that same year. So why not get the multinationals to pay rates?

Just look at the numbers. Ireland recorded an overall €8.3 billion surplus in 2023 and we are looking at €9.7 billion next year. What about getting this surplus to pay rates? Or going to the multinationals, outlining the problem of rural development, and suggesting a ‘solidarity levy’ to support the country through which they are funnelling so much revenue? Would they not bite our hands off, not least because they are making so much money here?

Maybe a halfway house might be a decent solution: they pay a bit more and we direct a bit of the budget surplus to paying rates? The rates problem is solved at a stroke with money going from the centre to the regions. Eligibility may be capped at small towns with small populations (of under 4,000 for example) in order to target rate relief. But there’s more than enough money to be inventive.

Creating an entrepreneurial culture of many small businesses is critical for any rich country. Doing this all over the regions is also essential, because it is what creates economic vibrancy. In addition, changing planning in small towns to accommodate residential housing in the twin centres and reflect the realities of our online world is only common sense. We can do this by shifting cash from one area to another.

Multinational revenue is a resource that can be used inventively to solve many economic, social and regional problems. Why don’t we use it to reimagine the country?