Running on Empty – Reducing the Burden of Empty Rates

Can the government be persuaded to do away with, or at least reduce the burden of, empty rates?

There’s an interesting article by Nick Whitten in the 22 September edition of the Estates Gazette (£) which tells of his recent appearance before a select committee of MP’s to be given a “robust” (but at least not hostile) hearing on the subject.

Nick has carried out a great deal of research into empty rates which he says have caused jobs to be lost, businesses to fail and thousands of perfectly good properties to be flattened.

The “Bombsite Britain” tax is, he says, “quite simply a tax on failure”.

It’s a view supported by the British Property Federation, amongst others.

Owners of empty commercial properties don’t have to pay business rates for the first 3 months the property is empty (6 months for industrial and warehouse properties) - after that period, business rates become payable again in full.

In contrast, before April 2008, offices and shops benefitted from a 50% relief after the 3 month period of grace, and empty industrial property was permanently exempt.

The government is reluctant to forego this tax take, but nevertheless seems unclear as to its value.

Nick’s suggests that not only does the government not actually know how much it takes in empty rates, but it also doesn’t seem to know (set against that) what its own liability is – a liability that’s increasing as it streamlines its own estate.

His research shows empty rates actually cost central and local government £50M (2012) rising to £70M (2013) and that this isn’t the whole story as it doesn’t include the vast NHS estate, quangos and other publicly-owned property.

Many are hoping for change in the upcoming Autumn Statement.

Advocates of scrapping or reducing empty rates won’t however find much comfort north of the border.

CMS Cameron Mckenna reports that the Scottish government are planning to reduce the amount of rate relief that empty non-domestic buildings currently attract – they currently have a 50% relief after a 3 month exempt period and the proposal is to reduce that relief to 10%.

Scotland however is proposing to retain its exemptions for industrial properties, listed buildings, properties with a rateable value below £1,700 per annum and unoccupied parts of otherwise occupied premises.

The Scottish government believes the reform will reduce the number of empty commercial properties in town centres by reducing the appeal of not using a commercial property.

But that doesn’t appear to have happened in England.

The Scottish Property Federation claims that the number of vacant commercial properties in England stood at 3% before the 2008 change, rising to 14% as at 27 March 2012.

Would current vacancy rates be even higher without the increased burden of empty rates?

Or is it rather a question of lack of demand?

The governments north and south of the border may be about to reach different conclusions if Westminster decides to return to a system of higher reliefs.

Back in England, the MPs on the committee are currently seeking examples of how empty rates are damaging business.

If you have a story, email it to nick.whitten@estatesgazette.com

UPDATE 25/10/12

The government has recently announced that the usual five-yearly revaluation of all commercial properties in England for setting business rates will be postponed from 2015 to 2017. 

This is bad news for businesses, as it won’t allow an adjustment to rateable values to reflect current difficult market conditions.

Current assessments (based on a rating list set in 2010) are based on rental values in April 2008, before the downturn had really done its worst.

The revaluation that had been due to take place in 2015 would have been based on rental values in April 2013. 

Postponing the revaluation by two years will lead to the continuation of high rateable values until April 2017.

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