Property tax leaves cities 'looking like broken teeth'

Property tax leaves cities 'looking like broken teeth'

One of the government's most senior advisers on the regeneration of cities has warned that a tax imposed on empty commercial buildings is threatening to derail efforts to breathe new life into some of the most blighted parts of Britain.

John Nicholls, who chairs a group representing the government-funded urban regeneration companies (URCs), said yesterday that owners are demolishing empty buildings to avoid paying the tax introduced in the most recent budget, leaving parts of the country "resembling bomb sites". Regeneration projects had been rendered unworkable, threatening jobs and new homes, he said. Some developers are simply leaving sites unfinished rather than risk liability for the tax.

"There is a lot of pre-emptive demolition going on. This is already having a visual impact - cities are beginning to look like broken teeth."

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The measure has been fiercely opposed by business lobby groups including the Confederation of British Industry, the British Chambers of Commerce and the British Retail Consortium - the latest in a series of clashes between business and Labour since Gordon Brown became prime minister and Alistair Darling took over as chancellor.

Before the changes, vacant offices and shops received rate relief of 50% and industrial units gained full relief. Now all unused commercial property has to pay full business rates after a three-month period of grace for commercial premises and six months for industrial property and warehouses, adding about £1.3bn a year to government coffers.

Swindon council has joined the campaign to get the tax repealed. It is demolishing a 14-acre former factory at the cost of £430,000 rather than continue to pay £110,000 a year in tax on that one site alone.

"We are spending public money demolishing buildings to avoid this ill-thought out stealth tax," said Nick Martin, lead member for finance at Swindon council. "Swindon, like many other towns across the country, could suffer if regeneration projects are shelved as a result of this."

Salmon Developments, a property company in London's West End, said it had implemented a policy of demolishing all of the older buildings in its portfolio that it had failed to let after three months.

Nicholls warned that the tax is having a punitive effect on the kind of brownfield residential projects that the government is keen to encourage. Developers usually need to assemble land through a complex series of deals, a time-consuming process that may well involve holding industrial, office or retail premises for a period while other parts of a site are acquired. Liability for business rates on those properties added to the cost and the risk.

A Treasury spokesman yesterday defended the tax reform and said it had followed the independent recommendations of experts Kate Barker and Sir Michael Lyons to encourage owners to bring empty properties back into productive use and discourage deliberate dereliction. "Reforms to empty property relief are aimed at ensuring there is a fairer balance between incentives to re-let property and giving property managers a period of relief while they manage vacancies."

The government is monitoring the impact of the reforms. There are provisions in the legislation for rates to be cut by 50% again depending on the state of the economy.

The relationship between business and Labour has soured over the past year, with rows over the taxation of high-earning non-doms, the botched increase in capital gains tax, increases to fuel duty and a steady increase in corporation tax for smaller firms.

The URCs warned privately of the potential adverse consequences of the reforms in May last year, but have now decided to take the campaign to ditch the tax public.

Nicholls said that the URCs had never received a proper response to the concerns raised almost a year before introduction of the tax, in which they warned it was inevitable that properties would be demolished. There are 19 URCs in England, independent companies set up by the local authority and Regional Development Agency and created to champion investment into areas of economic decline.

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