Press release

OUTCRY OVER BOMBSITE BRITAIN

Date

2nd August 2008

Description

Hundreds of buildings are being demolished because they are too expensive to maintain due to a stealth tax on empty property.

A back bench rebellion is now growing, with dozens of Labour MPs calling for the perverse tax on hardship to be scrapped.

Download a feature from the Mail on Sunday at the bottom of this page.

The British Property Federation, trade body for the property industry, has been campaigning against the ‘empty rates’ tax which is crippling both property owners and occupiers with bills of hundreds of thousands of pounds.

In a move dubbed ‘bombsite Britain’, many older buildings are being reduced to rubble. Big firms are cutting development, leaving deprived areas without regeneration, while others resemble war zones because of demolition work.

Before April this year, owners of commercial property received tax relief if their properties were empty. Industrial space got total relief, while shops and offices received half, after six and three months respectively.

But combined with the credit crunch, the tax is killing off new development and reducing the supply of affordable business space, because it is too costly for owners to maintain ‘cheap’ affordable offices which many new businesses might use.

“Like many other property companies we are demolishing more buildings. Empty rates make it too costly to provide cheaper, older property. It makes more sense to demolish these buildings altogether,” said Ian Coull, chief executive of £2bn commercial property developer Segro in Slough, Berkshire, listed on the FTSE 250.

The British Property Federation’s campaign has been taken up by backbenchers, with a Commons motion calling for the tax to be scrapped receiving support from over 35, mainly Labour MPs, including Keith Vaz and Chris Mullin, who helped free the Birmingham Six.

Led by Linda Riordan, Labour MP for Halifax, the rebels are calling for empty rates to be scrapped. The government had said that cutting the relief would help increase the supply of property and make it cheaper.

It has ignored the fundamental point that a landlord earns nothing if a property is empty and that taxing empty space will not fill it.

“The increase is effectively a tax on hardship. Normally you pay taxes on profits, but with empty rates you're charging somebody for public services, which they are not getting,” said Francis Salway, chief executive of Land Securities and president of the British Property Federation.

The hotline email is: info@emptyrates.com and the number is 020 7802 0110

Chris Mullin MP, Labour MP for Sunderland South, who was instrumental in freeing the Birmingham Six, warned last month that the tax would be disastrous and would send firms bankrupt within months.

Mr Mullin said: "The way forward is clear: local authorities must be given the discretion to apply common sense and relieve rates on unused and underused property. If disaster is to be averted, that will need to be done quickly, because the bills have already been sent out and the court orders for non-payment are already being applied for."

Liz Peace, chief executive of the BPF, said:

“This EDM represents the growing discontent over the removal of empty rate relief. The support of Linda Riordan and other colleagues is most welcome. We hope that the property industry can continue to support the BPF’s mission to gather evidence to portray a true picture of the effects of this tax. We still want those affected to email info@emptyrates.com with evidence of the consequences.”

Halifax Labour MP Linda Riordan said: "The removal of empty property rate relief is a tax on hardship which hit just as the property market needed a kick start. It’s an added tax burden paid for by those whose properties are not making them an income. But the unwanted consequences have been felt most by disadvantaged areas where investment has been most needed.

"The government’s commitment to build more affordable homes is something I applaud, but this must be linked with a commitment to look again at the effects on regeneration. Halifax has numerous empty properties, but it’s not fair that hardworking local businessmen should be hit with an extra tax burden when they’ve taken personal risks to build their businesses, tirelessly contributing to the local economy.

"We need to ensure the conditions are right for investment in our local communities. This is why I am happy to support the British Property Federation’s campaign against empty rates. I now want the Government to look again at this issue, move up a gear, and help rather than hinder the speed of regeneration and housing projects across the country."

For more information, case studies, interviews or anything else please contact Andrew Teacher, the British Property Federation head of media, on 07968 12 45 45 / ateacher@bpf.org.uk

A full background brief on this story along with some useful press clippings is included further down the release.

Notes for editors

The EDM said:

“This House urges the Government to exercise its power… to reintroduce empty property rate relief immediately in response to the world economic downturn and worsening conditions in the property market…The withdrawal of the relief is having unintended consequences such as creating unnecessary financial hardship for people with small businesses, compromising regeneration schemes and constraining the supply of affordable commercial property.”

The full list of MPs currently signed up to the EDM can be read here:
http://edmi.parliament.uk/EDMi/EDMDetails.aspx?EDMID=36387&SESSION=891

If the EDM receives enough support it can push the issue to be formally debated in parliament.

The British Property Federation believes:

Rates are a tax for the provision of local services. By definition, empty buildings make little demand on local services. Businesses should not be taxed for services they don’t receive and the BPF believes that compromising on 50% relief represents a fair solution.

Empty rates are a tax on hardship. They tax individuals and companies when they are making a loss, rather than a profit, through properties lying empty.

During a downturn, both rents and capital values fall, so there is no reason for a landlord to keep a building empty. Buildings are empty because of a lack of demand.

Government logic that empty rates will lead to lower rents is – in the great majority of cases – nonsense. As we are seeing, during a downturn, rents fall without government intervention.

Speculative developments and regeneration projects will be shelved in the current economic climate, causing rents to rise in the future as the supply of property will be reduced.

Buildings nearing the end of their life might previously have been let at modest rents on a short term basis, before redevelopment. Empty rates are causing many landlords in that situation to simply demolish early. This will reduce the supply of affordable property just when many small businesses might need it. It contradicts the government’s green policy.

It penalised any business refurbishing their premises who takes longer than three months, which also totally contravenes pledges to help make property more sustainable and lower emissions.

Economically competitive countries ensure that businesses have low fixed costs and high variable costs. Empty rates increase the proportion of fixed costs for businesses. Companies generally like to structure their operations in a way that a high proportion of their cost base can be varied according to demand for their products. The impact of empty rates is that even if a company moves out of a factory, a shop or offices, it still has the fixed cost of empty rates to pay.

When companies consider which country they should choose for their international operations, they normally target countries where legislation and regulations means that they have low fixed costs (ie flexibility in how they run the business).

The government invests millions of pounds through Regional Development Agencies to promote development to support local employment initiatives. The added burden of empty rates will undo a lot of the work of RDAs since it will reduce the redevelopment of deprived areas in the regions.

Empty rates risk turning foreign investors away and undermining the credibility of the UK’s listed property sector.

Media background

Today Programme
http://www.bpf.org.uk/pdf/21129/0624%20hrs%20%20Liz%20Peace%20%2010July08.mp3


The Daily Telegraph
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/07/07/cnempty107.xml

The Times
http://business.timesonline.co.uk/tol/business/industry_sectors/construction_and_property/article3656102.ece

Property Week
http://www.propertyweek.com/story.asp?sectioncode=297&storycode=3119187

Bloomberg ‘Property and Politics’
http://www.youtube.com/watch?v=Q3Be0p_ePBI

BBC TV
http://www.youtube.com/watch?v=iiF9l9PbXi4

Retail Week
http://www.retail-week.com/Property/2008/04/empty_property_rates_mean_bad_news.html

Downloadable documents

Mail on Sunday 'Bomsite Britain' article - 699kB.