Partner Article

Empty Property Rates: Could localism be the answer?

I make no apology for raising once again the detrimental effects of the Empty Property Rate (EPR) tax on the property market.

In Newcastle and other cities and town centres across the North East, we are at the point where the supply of decent quality office space and industrial space across the region is running out and no more is being built.

There are three factors at work here: low demand, lack of finance and EPR tax.

The first two will be washed away as the economy improves and confidence is regained. But EPR is perhaps one of the biggest deterrents to more space being built. It’s simple; neither developer nor funder will take the risk of building space if there is the likelihood of paying EPR because a tenant cannot be found.

When the Government of the day scrapped empty property rate relief on commercial properties in April 2008, it heaped a new financial burden on landlords and occupiers.

It was thought the tax would encourage reluctant or recalcitrant landlords to reduce rent and other lease terms to let vacant space.

At the time, I and others commented that this was not a problem in the North East nor, in fact, in any region other than London and parts of the South East.

EPR has done much damage and plays a significant part in holding back economic development but it is now a vital tax raising source for Government and difficult to replace.

The insidious effect is the ‘one size fits all’ approach which continues to damage regional economies at a time when we need as UK plc to achieve economic growth and increase jobs.

This is an oxymoron when the Government has set up the Local Enterprise Partnerships to achieve just this. On the other hand, since the last election we have seen devolution through the Localism Act to help local people and businesses to drive local growth and jobs.

We are already seeing some councils making excellent decisions to support the development of much-needed properties as well as the North East Local Enterprise Partnership (NE LEP) providing loans from the Growing Places Fund to kick-start stalled developments and the Regional Growth Fund, which can be warehoused with match funding from the European Regional Development Fund.

A new scheme will also allow councils to keep 50% of business rate income and all growth; this will be fixed until 2020. Thereafter, councils will retain any growth in rates form commercial developments as an incentive to approve them (although this might be ameliorated where ‘disproportionate gains’ occur).

We have also seen the introduction of the City Deal as a key tool through which Government can rebalance the economy and boost private sector growth. Newcastle/Gateshead was in the first group to achieve a City Deal; Sunderland is making a bid to be included in the second round.

This creates the opportunity to accelerate the pace of decentralisation and unlock new and innovative ways to drive growth. This status at present gives the city the power to obtain ‘earn back’ tax from the Treasury, devolved transport budgets and control of the skills budget.

The LEPs are also leading on Enterprise Zones to create new jobs and businesses to benefit the wider areas. The uplift in business rates generated by this development will be used to support other LEP priorities.

So with all of these positive initiatives, why is the Government still persisting with Empty Property Rates (although they were slightly watered down in the Autumn Statement)?

It’s a question that many are asking, including my own professional institution, the RICS. One answer might be to allow local councils and LEPs to decide whether or not EPR is beneficial to their area. By varying the application of EPR locally, LEPs and councils could drive growth and jobs in the most appropriate areas.

The Coalition Government is slowly but surely empowering LEPs and local authorities and this would be another useful tool to encourage economic growth in our region.

This was posted in Bdaily's Members' News section by Kevan Carrick .