EMPTY commercial buildings are costing the tax payer and the costs are rising. That is the claim according to information gathered by the BBC’s Shared Data Unit.
At present empty shops, offices and warehouses do not have to pay business rates for three months. Business rates are a tax on non-domestic properties, like shops, warehouses and pubs. They are based on a property’s “rateable value”, which is linked to rental value. Business rates are separate to corporation tax, which is linked to profits.
The aim of the tax relief is to allow for property investment and give landlords time to find a new occupant.
However, the cost to the taxpayer of empty business units has now risen to more than £1bn a year across England and Wales.
Dr Kevin Muldoon-Smith, an expert in property tax, said business rates were critical to the stability of local authorities going forward.
“We have this perverse situation where local government needs tax to go up and the business community are lobbying very hard for it to go down,” he said.
Under law, empty business premises cannot be taxed under the business rates system for at least three months. After this time, most property owners must pay full business rates.
One consequence is that when shops and factories close suddenly, it can result in sizeable shortfalls in council funds. In 2015, the collapse of Teesside Steel cost £10.4m in empty premises relief to Redcar and Cleveland council.
Some businesses can get extended empty property relief. Industrial premises, for example, are exempt for a further three months and listed buildings are exempt indefinitely.
Not all the potential income lost through empty rates relief would be retained by the local authority. Under current legislation, around half of business rates collected is retained by the LA and the rest is returned to the government for redistribution.
Councils have long been promised a greater share of their business rates as grants are cut. The government has promised councils 75% retention of any growth in business rates from April 2021. Some local authorities already have 100% business rates retention pilots in exchange for additional cuts.
The government reallocates some business rates income from richer authorities to poorer ones through a top up/tariff system. But there have been concerns rates retention could eventually increase disparity between areas.
The Local Government Association has estimated a gap between funding needs and revenue of £8bn by 2025. Economists have warned that without additional support, councils’ public services will be ‘eroded’.
Empty premises relief has amounted to an average of £949m a year over the last five years, generally decreasing to around £916m in 2017. It was forecast to drop to around £813m in 2018-19, but instead rose to £996m.
London raises about a third of all business rates in the country, around £8.4bn
The capital gives out the most in rates relief too, but that’s due to London property values
Taken as a proportion of rates payable, it’s the North East and North West that lose out the most to empty units.
When the steelworks closed in Redcar and Cleveland, the empty premises relief of £10m represented almost a third of the area’s business rates. Westminster typically loses £120m in empty premises relief, but it only represents six per cent of its income.
What’s the picture like in Wales?
Areas with the highest proportion of empty premises relief forecast (on average 2014-2019)
% income lost to empty units
Blaenau Gwent 3.06%
Areas with the lowest proportion of empty premises relief forecast (on average 2014-2019)
% income lost to empty units
Neath Port Talbot 1.17%
Isle of Anglesey 1.19%
Vale of Glamorgan 1.32%
*Where figures for empty units and relief are high, the relief limit of three months may reflect new builds and developments. If you have a high empty relief figure, consider your own knowledge of the area.
*Warehouses and industrial units have extended relief of six months, so industrial areas will typically have a higher empty unit count.
*Listed buildings have no time limit for empty relief and are not taxable for as long as they are empty. If you have lost a larger shop in a listed building, it may be worth asking your council for the rates lost on that particular building in your high street since it closed as a case study.
In Llanelli in Carmarthenshire, the county council have purchased vacant buildings, which have been renovated and offered as start up units for business. There still remains a large number of vacant commercial premises in the town and a number of residents and shopkeepers have cited the issue of parking costs as the reason they believe people are not taking up a business in the town and why people are not visiting the town in sufficient numbers. The pervasive view from retail analysts is that the trend for online shopping has had a significant impact on the high street shops. In Carmarthens town the old mart site was developed into a shopping centre, which attracted big names like Debenhams.