The end of empty property rates?

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It was a good wheeze that backfired horribly – but who cares? Empty property rates doesn’t exactly hurt the individual as such and because there isn’t really any political mileage in it. I mean businesses en masse don’t vote.

But thanks to an investigation by property magazine “Estates Gazette” the government was put in a rather embarrassing situation when it transpired that it paid £50 million in empty property rates and this figure is going to increase to £70 million in the next financial year.

Suddenly there seems to have been a sea change and chancellor George Osborne has appointed a group of seven MPs to form a working group which will set out proposals for change. Chief among those is understood to be a three year EPR exemption for new developments, designed to remove the unexpected rental void as a reason for not developing new grade A commercial space.

Empty rates relief was introduced in 1989 as a response to an ailing property market. The relief allowed businesses to pay lower, or zero, business rates on empty commercial properties. For shops and offices this meant three months of 100 per cent relief followed by 50 per cent thereafter. Owners of empty factories and warehouses were fully exempt.

This empty property rate relief was scrapped by the government from 1 April 2008, heaping a huge financial burden on landlords and occupiers – a double whammy of a loss of rental income combined with a business rates charge.

As a result, empty shops and offices are now only exempt from business rates for three months and industrial property for six months, after which times their owners, or those that have leased the premises from them, must pay full business rates.

Research published by the British Property Federation in March this year showed that the total cost of empty property rates in the UK had risen by over 400 per cent overall, and by 900 per cent for industrial properties since 2006, while vacancy rates had risen from seven per cent to nine per cent in the same time frame.

“Even though investors are managing their portfolios to the best of their ability, trying to mitigate the effects of the downturn and working with tenants to keep properties occupied, they have still been lumbered with this enormously disproportionate increase in costs,” said Liz Peace, head of the BPF, at the time.

But should anyone actually care about that? Don’t take my word for it –  the British Chambers of Commerce director of policy and external affairs, Adam Marshall is far better at getting to the nub of the issue. He says: “First, it hits nearly all companies that occupy premises – and the bigger those premises, the higher your bill. So our exporters and manufacturers, and our retailers, will be hit extra-hard.

“Second, it feels like local businesses are paying for ministers’ crowd-pleasing decision to freeze local council tax rates. Business should not be seen as a cash cow to pad out local government budgets.

“Third, and most important of all, it’s anti-growth. If you tell a business owner that their cost base is going to rise, they will respond by cutting investment or by putting hiring plans on hold. It’s illogical for any government to beg hard-working businesses to grow, on the one hand, while making it harder for them to do so by raising their tax bill on the other.”

Liza Helps
Contributing Editor Property

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