15 C
West Bridgford
Tuesday, 4 August 2020 - 12:29pm

Revealed: Nottingham city – The hidden cost of empty businesses

Business rates are a key pressure on the high street. Rates are the equivalent of council tax for businesses and are paid by shop-owners or, for empty properties, landlords.

PUBLISHED

1 2
1
1 1 1
1
WBWire covid19 728x90 1

Figures released show that taxpayers in England and Wales of empty business properties is almost £1bn a year – here we look at how this affects Nottingham City Council

Empty shops, offices and warehouses currently do not have to pay business rates for three months.

The aim of this tax relief is to allow for property investment and give landlords time to find a new occupant.

Nottingham city empty businesses
© westbridgfordwire.com – January 2020
banner ad
1

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.

What are Business Rates?

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.

What is empty premises relief?

Under the 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.

Nottingham city empty businesses
© westbridgfordwire.com – January 2020

One consequence is that when shops and factories close suddenly, it can result in sizable 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 council or local auhtority and the rest is returned to the government for redistribution.

Why are business rates controversial?

Business rates are a key pressure on the high street. Rates are the equivalent of council tax for businesses and are paid by shop-owners or, for empty properties, landlords.

But while retailers lobby for the burden of business rates to be lightened, councils are becoming increasingly dependent on business rates income as grants from central government are scaled back.

Nottingham city empty businesses
© westbridgfordwire.com January 2020

Government reports have acknowledged uncertainty over the future of business rates reforms had affected councils’ financial planning.

In October, a select committee urged reform for a ‘broken’ system.

How does all this affect councils?

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.

Nottingham city empty businesses
© westbridgfordwire.com January 2020

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’.

The graph below shows how Nottingham City Council loses income because of the current tax relief system

For example: ( hover over the bars ) In 2018-19, landlords in Nottingham were exempt from paying £6,712,854 of rates under the scheme – 3.86% of all rates payable.

Over the past five years, £32m of potential rates income has been lost due to empty premises.

Nottingham City Council’s Portfolio Holder for Finance, Growth and the City Centre, Cllr Sam Webster told The Wire: “Government reform of business rates is needed urgently so that the high street is better supported. At the moment many businesses are effectively punished for having invested in bricks and mortar, through the business rates system set by Government.

“The Government has drastically reduced its funding for councils and yet it continues to retain most of the business rates gathered locally. Increasing the amount retained by councils, and plugging the gap created by the rules on empty properties, would go some way towards improving our ability to fund local services.”

Dominic Curran, Property Advisor at the British Retail Consortium, said:

“It has been a challenging year for many retailers, as many shops struggle to adapt to rising cost pressures and changing consumer habits. 

“High among the concerns for retail firms is business rates – a tax which disproportionately harms retailers, driving shop closures and job losses, leaving empty shopfronts and harming local communities. 

“It is essential that the Government makes good on its pledge to reform this broken tax system.”

IMG 3650 scaled
Nottingham City Council Loxley House © westbridgfordwire January 2020

A HM Treasury spokesperson said:

“Empty property relief strikes a balance between incentivising property owners to put vacant properties to use, while not penalising those who lose a tenant at short notice.

“Whilst the rate of business rates collection varies between individual authorities, the local government finance system has been designed so that business rates income is redistributed across the country according to the needs of local areas.  

“We will announce further details of the business rates review in due course.”

FINDINGS
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.

Subscribe to our free daily newsletter

ALL stories from The Wire delivered in ONE email every day