Tax change 'will harm recovery'

The British Property Federation (BPF) said Government plans to scrap business rate relief for owners of empty properties could cost businesses an extra £400 million each year.

At present, businesses with empty properties that have a rateable value of less then £18,000 are exempt from the so called "bombsite Britain" tax.

The tax, which makes firms pay full business rates on unoccupied offices, shops and warehouses, has led to millions of square metres of property being demolished in the last two years.

The BPF says the tax has damaged small businesses looking to save money by downsizing property, often forcing them to axe jobs instead, while discouraging development and regeneration schemes.

Tuesday's announcement came in spite of fierce criticism of the tax from the business secretary Vince Cable and communities secretary Eric Pickles when they were in opposition.

BPF chief executive Liz Peace said: "If the government is pinning its hopes on a private sector-led economic recovery then this is a damaging and retrograde step."

COMMENT:

Heather Powell, partner at Kingston Smith, says: " The withdrawal of business rates relief for owners of properties will have a significant impact on landlords and developers of smaller commercial properties who are already suffering from the loss of a tenant. These landlords will be bearing the costs of running the building, including interest and loan repayments, and in 2011 this may be the 'last straw' for these investors. The development of sites and refurbishment of poor properties will clearly be delayed in areas where tenant demand is not strong.

However, this may not be all bad news for the SME sector and the economy as a whole. Landlords of these small commercial properties may be more inclined to let their premises to the new businesses that the government is looking to drive our economic recovery. New business may find they have a stronger hand when negotiating lease terms as landlords may be more inclined to let premises to a start-up business which has no track record, and is therefore often assessed to provide a poor rental covenant, if that business takes over responsibility from the landlord for the payment of rates.

One critical factor to avoid is a rush of properties to auction, with the resulting fall in values, which will impact on not only property businesses but also any business with borrowings secured against commercial property.