David MacMullen , director of Pettifer Estates, explains why the empty business rate is an issue beyond the commercial property sector .
There is an anonymous department of the Black Arts buried somewhere deep in the bowels of Whitehall – whose sole function is to think of ways in which new taxes (or variations of old ones) can be slid into place, without putting pressure on “the voter” (we will not increase income tax – remember; though not National Insurance!) and for which frequently spurious justifications can be advanced.
The nonsense of the Capital Gains Tax debacle is well known. The “raid” on pension funds dividend income (so where was the logic in making your pension fund pay tax on share dividends from Boots the Chemist, but not on the rent it receives from the shops it owns and of which the chemist is tenant?)
Once again this government has failed utterly to understand the Law of Unintended Consequences (sometimes, I think, also a creation of Labour – probably, ironically also unintended). This time it is the ill-thought-through imposition of full business rates on unoccupied non-domestic properties. From a suggestion by Lyons in a time of relative boom, this would ‘help to lower rents’ and ‘make landlords more anxious to let empty properties at reasonable rates’, came the doubling of business rates on vacant offices and shops, and the increase from zero to 100 per cent on factories.
If one stops (only momentarily) to recall what ‘Rates’ were for; they were to reflect the services provided to local taxpayers. While businesses saw less direct benefit than householders, the provision of infrastructure, roads, police, fire services and general support were of considerable value. The use of those services was greatly reduced when a building was unoccupied, and was previously reflected in the imposition of 50 per cent rates on empty shops and offices. Manufacturing was seen as being sufficiently important to warrant full exemption. In other words, Business Rates were mainly a tax on the occupation of property.
But the crassness of the change becomes even more obvious when you consider who it is that pays Business Rates. Treasury Minister Ian Pearson (Lab Dudley South – and shame on you Mr Pearson for spouting the party line in the Black Country of all places) says that the “… relief was regarded as a £1.3 billion subsidy for owners of commercial property, and not for the small and medium-sized businesses that are the back bone of this country’s economy.”
Well, thank heaven for men of morality and principle who can stand up against the “owners of commercial property”. I bet he also over-uses the cliche of “hard-working families” – a mealy-mouthed and meaningless description since most families are just that, and if they are not in work (usually through no fault of their own) most would very much like to be.
And those vile and undeserving “owners of commercial property” – as if somehow disgustingly Rachman-like? Well, consider Mr Pearson’s own Black Country constituency where many small (frequently family-owned for generations) manufacturers own their factories and warehouses. Can’t be them, can it? They are ‘small and medium sized businesses’ (SMEs).
Finding trade pretty hard, orders falling off, bank charges rising, customers failing to pay, Elias Smith (a fictional chain maker from Tipton) decides to mothball one of its two factories, makes a number of workers redundant, and cut costs to protect the business – and the jobs of the remainder.
The bad news for poor Elias Smith is that, after siz months (and, no real surprise here, they have not been able to find anyone else to occupy the building) they get a rates bill. It was not a very big factory, so the bill (each year) is only £60,000. But finances are tight, and to pay that bill, Elias has to make another two workers redundant.
But, just in case you still feel that poor Elias should somehow have arranged his business better, remember you (personally) are in the frame for a dose of opprobrium. It turns out Elias had sold both factories to a pension fund and leased them back. That gave him capital to keep the business going. Sadly, despite every effort, the firm failed and the bank appointed a receiver, who made all the staff redundant, sold the equipment and handed the premises to the landlord.
And this is where you come in; it was the fund where your own pension was invested which is the ‘wicked landlord’. Now your pension fund manager does not get the rent which Elias Smith had been paying. He has to pay for security, insurance and try to re-let the property – and, by the way, he (on your behalf) will be paying 100 per cent business rates out of the monthly pension contributions you pay.
So there you have it. In disadvantaged areas local councils and agencies such as English Partnerships have built advance factories to encourage investment and job creation. And – you’ve guessed it – they are paying empty business rates.
It’s clever stuff, isn’t it? And lest you dare think the spotty graduates (for that is how we love to imagine them, straight from their Masters degree) in the Treasury basement might have asked their betters whether there was any downside to their latest cunning plan (You wouldn’t want to create another embarrassing nonsense requiring yet another U-turn, would you?) – don’t worry, they did.
They “consulted” and having been told by all concerned that this would be a disaster, went ahead and did it anyway. After all, the consultees were ‘biased’ and bound to object.