John O'Connell: Empty Property Rates are an enemy of enterprise

By John O'Connell, TPA Research Director

Wednesday’s Budget announcement needs to set out a path for lower taxes and get to work creating the conditions for a proper private sector-led recovery. There has been talk of rolling National Insurance and Income Tax together.  As well as making the system simpler, that measure would increase tax transparency and blow away the myth that the basic rate of tax is 20 per cent. But there are other measures the Chancellor could take that would help businesses in the recovery.

Yesterday the TPA released a Briefing Note on Empty Property Rates. Soon nearly all businesses will have to pay full business rates on an empty commercial property just three months after it becomes vacant, and six months later for an industrial property. Relief from Empty Property Rates was worth £1.2 billion last year and the Government is set to hit businesses – and savers – hard. Besides hitting entrepreneurs in the pocket, there could be other consequences.  For example, instead of paying full business rates, landlords may be forced to simply demolish empty properties. This is a very real concern, and with high vacancy rates at the moment there’s a risk that Empty Property Rates will deplete the fixed capital stock, making it very difficult for businesses to relocate or expand as the economy recovers.

In opposition Conservative and Liberal Democrat politicians were scathing about Empty Property Rates, which were introduced by Gordon Brown in 2007. Michael Gove said that the removal of the relief was a “wicked and ungodly act”. Vince Cable called it counter-productive and economically damaging. Now in Government, however, they seem to have given up hope of doing anything about it, with Local Government Minister Bob Neill saying recently that it was unaffordable. But these rates could be disastrous for businesses, as well as pensioners and savers that have invested in commercial units as a means of income in retirement.

They’ll be clobbered by another tax while no revenue is coming in.  That's the problem with this kind of tax.  It also affects council tax on residential properties, which hits pensioners particularly hard as they tend to have quite valuable homes relative to their incomes (which fall in retirement).

David Cameron said recently that he wanted to take on the enemies of enterprise. His Chancellor should help him do that by Scrapping Empty Property Rates on Wednesday.