Government stealth tax costs council thousands

August 10, 2008

A government stealth tax on empty shops, offices and warehouses has been a major factor in causing Swindon Council to demolish buildings.

The tax is seeing hundreds of thousands of pounds charged to the council in “empty rates”, while local businesses with empty property are also being hit hard.

From April this year business rate relief on empty property was cut, with the government claiming it would reduce rents and increase property supply. While the British Property Federation (BPF), trade body for the property industry, has been campaigning nationally for the relief to be reapplied, many local businesses may face bankruptcy as a result. It has set up a hotline for people to get in contact with their own stories:

Council owned premises have had to pay the tax as well, in a move universally condemned by the BPF, the CBI, the British Chamber of Commerce and a growing backbench rebellion of MPs.

Over 35 MPs have signed a motion calling for empty rates to be scrapped. The BPF wants to see even more support this.

One of many sites currently being demolished in Swindon is a 14 acre site at North Star Avenue, Swindon, where Clare’s Retail Equipment used to make supermarket self-scan checkouts, shopping trolleys and kiosk units.

The business, which employed nearly 500 people, closed several years ago, leaving the site empty. Despite being unusable, Gordon Brown’s tax hit on hardship would cost Swindon Council £110k a year in tax on this one site alone. With this in mind, the council has budgeted £430k to have it demolished.

However, plans are afoot to totally regenerate Swindon in projects being led by the New Swindon Company, which is part-funded by the council.

While announcements are due shortly, the BPF is warning that unless the government reapplies the relief, these regeneration projects could take longer and be much more costly for developers.

Since these developments are all speculative – meaning tenants have not yet been found – they would be likely to be hit for empty rates upon completion, while businesses are found to occupy them.

New developments typically take two years to be filled. If demand is weak, as it is in an economic downturn, they take even longer to fill and the extra tax makes it riskier and more expensive. As a result, many old sites could be simply left derelict – quite contrary to the government’s declared aims.

Nick Martin, lead member for finance at Swindon Borough Council, said: “We are spending public money demolishing buildings to avoid this ill-thought out stealth tax. Gordon Brown should be ashamed of making people whose properties are empty pay even more tax, thus making a bad situation even worse. It is another Labour stealth tax on hardship.

“Swindon, like many other towns across the country, could suffer if regeneration projects are shelved as a result of this. We want MPs to take note and for the government to urgently reapply the relief on empty property.”

Peter James, chief executive of The New Swindon Company, said: “This stealth tax will do nothing to help the regeneration of our towns are it simply puts another burden on developers at a time where the government should be giving them a helping hand. Sites have been demolished to make way for massive regeneration, but charging empty rates means that developments are likely to take longer and will see smaller businesses face an even tougher time in the current climate.

“Our priority is ensuring we have quality new developments and a rich supply of property to maximize the potential for jobs. If the government is seriously committed to helping business, creating jobs and not hindering progress, then it will reapply the relief forthwith.

“With projects to regenerate an area, the public sector, along with regional development agencies and English Partnerships, financially supports the actual developments. A rate liability on empty properties reduces their viability. Therefore the quality that is needed to regenerate an area is often reduced as costs are slashed. Government policy is now backfiring because quality regeneration developments are less likely to happen given the economic downturn.”

Peter Cosmetatos, finance and investment director at the British Property Federation which is leading the campaign to abolish empty rates, said: “While Swindon is lucky enough to have regeneration taking place, we are seeing examples across the country of property owners demolishing sites to avoid rates while projects are being shelved in the face of the additional tax burden. In its haste to raise money in the short term, the government is f real long term damage to the supply of property. New developments are being killed off and perfectly good property is being destroyed as owners choose between bankruptcy and demolition.

“Occupiers tied in to leases don’t have the demolition option but are also liable to the tax, and many will be driven under. Is this a government committed to helping communities or one stumbling from one disaster to the next?

“Ironically, empty rates only apply in England and Wales, which means that the constituents of its architect (Gordon Brown) and its implementer (Alistair Darling) are not affected. But it is essential that Gordon Brown should now personally step in and reapply the relief.”

ploy less people over the next six months.

According to David Savill, head of Bishop Fleming’s property & construction team: “Despite having the country’s biggest housing crisis, with the largest affordability gap between average earnings and average house-prices – and the biggest gap between housing delivery and demand for new homes – these findings reflect the regional impact of the ‘credit crunch’ and the massive down-turn in the housing market.”

This assessment is confirmed by almost half (49%) of survey respondents identifying the “credit crunch” as the single biggest factor affecting the South West’s property and construction industry, starving new development funding.

However, most respondents (55%) said that it is still possible to deliver the Government’s newly announced target for 29,000 new homes per year, including a higher proportion of affordable homes, if local councils now move to identify land for housing development and provide the necessary planning consents.

However, almost half the respondents to the Bishop Fleming survey (47%) said that a lack of council planning staff and greater red-tape regulations are making it more difficult to progress any new development in the South West.

“This is a crucial issue for local planning authorities.  The sudden down-turn in planning applications should enable councils’ planning departments to concentrate on delivering local plans for new housing and employment, while the redundancy announcements by developers should release much-needed skilled planners to be employed by councils,” said Mr Savill.

Meanwhile, a majority of South West property and construction companies (61%) condemned the Government’s newly introduced “Energy Performance Certificate” requirement for commercial properties – stating that these EPCs will be as big a fiasco for commercial buildings as the new requirement for Home Improvement Packs (HIPs) for residential properties.

“Right now, there is a legal requirement to produce EPCs for new commercial buildings, commercial properties offered for sale or lease, and all public-access buildings:  but there remains a shortage of trained and qualified assessors to provide those certificates,” said Mr Savill.

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