Roofing Warehouses with Laffer Curves
Ministers intend to take steps to counter a threat by property developers to leave buildings unfinished in an attempt to dodge an impending increase in business rates.
The measures, which are due to be announced this week, pit the Government against increasingly angry commercial developers - as the Treasury tries to raise an additional £1 billion in business rates from buildings that are unoccupied.
John Healey, the Local Government Minister, will ask local councils to make better use of existing powers, including forcing developers to speed up the completion of building works so that they cannot dodge taxes by leaving buildings incomplete.
Owners of unoccupied commercial property currently pay little or no business rates but the Government is planning to cut the existing reliefs from next month. That prospect prompted Ian Coull, the chief executive of Segro, to threaten to leave the roof off new unlet developments to avoid the rates bill.
Mr Healey told The Times that his plans amounted to “zero tolerance on commercial vandalism” – and he specifically warned developers against damaging complete but unlet properties. “It would be an extreme step for a property owner to go to the lengths of deliberately vandalising their asset. I do not believe this is likely and I expect the property industry to adapt in a responsible manner.”
Developers argue that leaving buildings incomplete helps them to save money if they fear that they can no longer find tenants for a planned building by the time it is built. Segro estimates that its rates bill will be £8 million higher as the existing system of reliefs is scrapped.
Back in the 1970s they tried to boost business by penalising wicked landlords who wouldn't let their property - Centrepoint anyone? The property developer owners of the building found that, due to the rates and taxes of the times, it was cheaper to keep it empty than to use it as offices or accommodation. Of course it is seen as the fault of the landlord rather than the taxation authorities. And now they hope that the likes of Segro will hand over £8 million just to grease the wheels of government. And then they will wonder why the stock of readily available empty properties, the cornerstone of a dynamic entrepreneurial economy, will have disappeared.
The head of UK public policy at the Royal Institute of Chartered Surveyors, Brian Berry, is worried that the new law might mean that some landlords take drastic action.
He says: “The restriction of rate relief on vacant industrial property from April 2008 could lead to owners deliberately damaging buildings to remove them from the ratings list and exempt them from the empty rate. “It’s history repeating itself, as in the 1970s an empty rate relief was introduced as a penal rating surcharge. Instead of creating new lettings it led to the deliberate vandalism to avoid rate liability.”