The government has been slammed as out of touch with the retail property market over new plans to make it harder to claim business rates relief on empty sites.
In plans aimed at clamping down on business rates avoidance or evasion, the government has said evidence points to abuse of empty property relief (EPR) as one of “the most common methods of avoidance”.
Under the current EPR system, vacant properties are eligible for business rates relief for three months, or six months for industrial units. The same property cannot then benefit from a further period of EPR until it has been occupied for a minimum of six weeks, known as a ‘reset period’, before becoming vacant again.
Evidence gathered in previous consultations suggests businesses are abusing the system through minimal periods of “superficial occupation” in order to access repeated periods of relief, according to the Department for Levelling Up, Housing & Communities.
Business rates avoidance cost the Treasury £250m in 2020, about 1% of the total business rates income, according to a Local Government Association estimate.
The newly published Business Rates Avoidance and Evasion Consultation proposes increasing the ‘reset period’ of occupation to up to six months. Other proposals include limiting the number of times the EPR can be claimed in a given time period and replacing the scheme with one at the discretion of local authorities.
Commercial property consultancy Colliers said that while it agreed business rates avoidance should be stamped out, the government was out of touch with a market in which vacancies were being fuelled by weak demand.
“The government’s timing is impeccable,” said Colliers head of business rates John Webber. “Just as the investment markets stall and values fall, the government considers an attack on EPR, which will make holding property even more expensive.
“The government does not seem to understand that the significant amount of long-term empty commercial property in England is due to a lack of market demand and longer-term socio-economic factors, not because the landlord wants to keep it empty.”
The UK retail vacancy rate stood at 13.8% in quarter one of 2023, according to figures from the BRC and Local Data Company, with BRC CEO Helen Dickinson noting “no improvement” since the previous quarter “as cost pressures made many retailers think twice about investing in new stores”.
Webber added: “Given the decimation in the retail markets in recent years and now concerns about the office sector, property owners and pension fund institutions need all the help they can get if they are to hold property and to keep the markets functioning.
“By increasing the holding costs of such property, the government is impacting on the value of everyone’s pension in the longer term.”
The consultation closes on 28 September.