In April, the Government scrapped the business rate relief on empty properties, which has led to a big hike in tax bills for companies that aren’t using all their space. The abolition of the tax relief also means it's no longer financially viable to develop properties speculatively, either for residential tenants or retail space – which is hardly ideal when the economy is slowing and the housing market is in the toilet. In fact, empty property has become so expensive that some companies are having it demolished to save cash – hence its tag as the ‘Bombsite Britain’ tax.
And it’s not just small companies that are suffering. A new campaign backed by the British Property Federation has received support from across the board – from property companies like Land Securities, to heavyweights like Tesco and McDonalds, to urban regeneration charities, to opposition politicians. They’ve all put their names to an open letter to the Government, which argues that the tax is having a ‘crippling effect on the economy’, ‘hampering regeneration by preventing development’ and ‘will have a damaging effect on pension fund holdings in property’.
This tax is dubious enough in principle, since the companies concerned aren’t actually making any money from this empty property – shadow business minister Alan Duncan thinks it’s ‘immoral’, insisting that ‘taxing something that generates no revenue does enormous damage’. But it’s going to be particularly damaging if the next year proves to be as tough as everyone expects: many small business will sensibly be looking to cut costs (perhaps by reducing headcount) – but if they end with property that’s unused but under lease, they’ll be hit with painful tax bills that they probably won’t be able to afford to pay.
The beleaguered commercial property companies will be particularly hard hit, of course – clients aren’t going to sign up to long office leases if they know they’re going to get stung for not using all the space, and it’s not in their interest to develop new offices if they get taxed to the hilt until they find tenants. Segro CEO Ian Coull presumably speaks for many when he says: ‘It is an iniquitous tax at the best of times but to impose it on the market when we are fighting for our lives is just madness’.
Of course one alternative for wannabe entrepreneurs is to set your business up from home instead – that way you make the best possible use of your space. Business Link has been trumpeting the idea this week, pointing out that home-based businesses contribute £364bn to the UK economy every year. And as an added bonus, it may prevent you having to go cap in hand to the banks for funding (two-thirds of home businesses apparently have no bank funding, which they believe will make them more resilient than most at a time when these loans are increasingly hard to come by).
Still, it’s clear that even by the Government’s recent standards, this is proving to be an incredibly unpopular business policy...