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'Bombsite Britain' tax hike will harm private sector recovery, property chiefs warn

The property industry has warned that government plans to levy an extra £400m a year on small businesses and struggling landlords risk harming its aim of a private sector led recovery.

Parliamentary under-secretary of state Bob Neill yesterday announced that government is to take an extra £400m pa from businesses next year, by scraping business rate relief given to the owners of empty properties.

At present, businesses with empty property that has a ratable value of less than £18,000 are spared empty rates.

The so-called “bombsite Britain” tax, which levies full business rates on unoccupied offices, shops and warehouses, has famously led to millions of square feet of property being demolished since its introduction two years ago.

It has also harmed small businesses looking to save money by downsizing property, often forcing them to cut jobs instead, and has discouraged vital development and regeneration schemes.

Yesterday’s announcement came despite heavy criticism of the tax from the Secretary of State Eric Pickles and the Business secretary Vince Cable while in opposition.

Liz Peace, chief executive of the British Property Federation, said: “If government is pinning its hopes on a private sector led economic recovery then this is a damaging and retrograde step. Empty rates is a tax on hardship at the worst possible time. The majority of the properties affected by today’s announcement will be in areas that are already economically disadvantaged, and so this will be a further blow.”

The BPF has also expressed alarm at the disclosure from CLG that scrapping the relief will raise £400m for the Exchequer in 2011/12. The previous government said the relief would cost £135m in 2010/11, suggesting that the amount of empty rates paid on the lowest value properties has trebled in one year. The cost of relief in 2009/2010 was £185m.

Liz Peace added: “If these figures are to be believed then it suggests that small businesses have been hit much harder by the recession than first thought, and that the need for relief to help the private sector thrive is greater than ever.

“On the other hand, the wide range of estimates that successive ministers have used could simply mean that government has no idea what the impact of today’s announcement will be, which in some ways is even more concerning.”

ENDS

Notes for editors

See www.emptyrates.com for regional case studies, quotes, background information, media clips and more.

Action could be taken now under the current Empty Property Act which allows the government to enact an immediate 50% rate relief on vacant properties.

For more information, interviews or quotes call Patrick Clift at the BPF on 07834 439 505 or at pclift@bpf.org.uk, or Peter Cosmetatos, Finance Director, on 020 7802 0115 or at pcosmetatos@bpf.org.uk

Yesterday’s  written ministerial statement:

DEPARTMENT FOR COMMUNITIES AND LOCAL GOVERNMENT

Business rates

The Parliamentary Under Secretary of State (Bob Neill):  This Government is clear that helping small shops and businesses grow is a crucial part of rebalancing and rebuilding the economy.

We have already taken action through the business rates system to support that aim. 

We have doubled small business rate relief for one year.  That measure is currently saving approximately half a million businesses £390 million in taxes, with over a third of a million ratepayers paying no rates at all for a year.

We are also waiving £175 million of backdated business rates demands levied on businesses, including some in ports.  Thanks to that action many companies across the country will now be able to move forward confidently, unburdened by these unexpected debts.  We will bring forward the necessary legislation to achieve that through the Localism Bill.

The Localism Bill will also simplify the process for claiming small business rate relief and give local authorities powers to provide business rates discounts which may be used, for example, to provide targeted support for local services or to help kick start regeneration schemes.

In addition, our proposals to enable councils to retain locally-raised business rates and deliver Tax Increment Finance for Local Authorities will be taken forward through the Local Government Resource Review.

We fully appreciate the problems caused by the previous Government’s reforms of empty property rates.  We have therefore given careful consideration to empty property rates and the inflation linked (based on the September 2010 rate of RPI) increase for next year’s bills

Our ability to take action on those matters needs to be balanced against the targeted support that we have already provided on business rates, the high costs involved - we estimate it would cost £400m to continue with the temporary empty property rates measure - and the overriding need to reduce public expenditure and support the economy generally by reducing the deficit.

Unfortunately, taking those matters into consideration, any further help in the short term is currently unaffordable. 

The empty property rates threshold will therefore revert to £2,600 from 1 April.  The provisional small business non-domestic multiplier will be 42.6p and the provisional non-domestic multiplier – which includes the supplement to fund small business rate relief - will be 43.3p. 

However, while we have no immediate plans to reverse the reforms, we will keep this under review and we want to work constructively with the property industry on this inherited problem.

We are determined to continue providing the support that businesses need.