Reversal of empty buildings tax urged

George Osborne should use his autumn growth review to reverse a government tax on empty buildings, the British Chambers of Commerce has urged .

John Longworth, the new director-general of the business group, told the chancellor in a letter that reversing the “empty property rates” could substantially bolster business confidence, especially in areas of weak private sector activity.

Property landlords have been unhappy about the tax since 2008 – just before the downturn – when the then Labour government scrapped the 50 per cent relief on rates for owners of empty buildings.

They were further antagonised when, in this year’s Budget, the coalition reduced the threshold at which a building was exempt for two years, from a ratable value of £18,000 to only £2,600.

Bob Neill, local government minister, said that maintaining the higher threshold was “unaffordable”, given the wider economic conditions.

In its letter, the BCC warns Mr Osborne of the numerous “perverse consequences” of the policy, including the cancellation of various office and retail schemes – with a knock-on effect on construction companies and their suppliers.

The BCC says that “partial demolition” of some usable business premises by property owners has occurred as they seek to avoid the tax. It also highlights “wasteful avoidance measures”, such as moving stock from one building to another to avoid paying rates.

“The autumn statement represents an ideal opportunity to undo the damage wrought by the lowering of the empty property rates threshold,” the letter says. “We urge you to reinstate the £18,000 threshold without delay, and maintain it at the very least for the medium term.”

The Tory party criticised the tax vehemently while in opposition.

Justine Greening, now a Treasury minister, said in 2009 that “thousands” of buildings had been demolished by owners keen to escape the levy, according to data that showed 8,900 business premises had disappeared from the official government property list.

The British Property Federation, which represents landlords, has been campaigning relentlessly against the levy, saying it is no fault of theirs if buildings have fallen empty during the downturn.

The BPF launched a petition this month calling for a reinstatement of the £18,000 threshold, saying the changes had been deeply unfair and had caused the demolition of “millions of square feet of property”. Liz Peace, chief executive of the BPF, called the levy a “tax on hardship” that had damaged the wider economy.

James Grierson, a property expert at DTZ, the advisory firm, told the Financial Times that the levy “penalises companies for the recession”.

“It is also a disincentive to speculative development, which is one of the things that is needed for strong economic growth,” he said.