Commercial Property

Marcus Jones Excerpts

Wednesday 17th November 2010 Westminster Hall

[Mark Pawsey]

I am grateful to my hon. Friend for her contribution. I know that even in areas where rents have been reduced to the level that she mentioned, there are still no takers. If no businesses are willing to take the premises, the price is irrelevant. We know that the situation must change.

The regulations have been in force for more than two years and have had a number of effects, some of which the property industry expected and warned the Government about at the time of the change. On the failure to provide services, it can be argued in the interest of fairness that business rates are a tax on occupation with the intention of raising funds, in the same way as the council tax. However, clearly, if a property is not occupied, no services are being consumed, and it follows quite reasonably that no tax should be payable.

In many cases, the tax has become a tax on ownership rather than a tax on an income stream. Taxes are usually based on income streams, which means that they can be paid from profits earned. Again, where a commercial property is vacant, there is no income stream on which that tax can be levied.

[Mr Marcus Jones (Nuneaton) (Con)]

I congratulate my hon. Friend on making an important and compelling case. Does he agree that the imposition of non-domestic rates on vacant commercial premises has led to an increase in the demolition of serviceable commercial premises and in the number of derelict sites blighting our towns?

[Mark Pawsey]

My hon. Friend, whose constituency neighbours mine, is entirely right. There have been unforeseen consequences, one of which is that it is more sensible for property owners to develop a property rather than retain it for future use.

The rates are almost a form of wealth tax, levied on ownership of an asset rather than the income derived from it, as was originally intended. In times of recession, many small businesses find themselves occupying properties too large for their immediate needs and look for a tenant to take their surplus space. Where they do so, the rents add to their income and the occupier of the business becomes liable for the business rate, but if they cannot find a tenant, they face the burden of further business rates. For most businesses, business rates make up their third biggest item of expenditure, after wages and rents. Also, business rates are a fixed cost. They do not decrease as turnover declines during recessionary times. I am concerned that in many cases, excessive bills are contributing to business failures and leading to higher unemployment.

A further unfairness is that it often takes a long time to find a tenant for vacant commercial property, a fact reflected in the time limit allowed for the non-application of rates. Even in boom times, an industrial property is likely to remain vacant for between 12 and 18 months. In the current economic climate, the loss of a tenant will almost certainly mean additional liability for business rates that might not have been budgeted for.

The effect on rental values has not been what the Government intended. They hoped that rental values would fall, but an April 2009 report by the Royal Institution of Chartered Surveyors suggested that that objective had not been achieved and that property owners were offering other incentives instead, such as rent-free periods. There has also been a detrimental effect on capital values. The same report found that because empty property rates make fewer investors willing to enter the market, investment levels in the sector have fallen.