Taxpayers in Warwick district paying millions to cover lost business rates

Empty businesses in Warwick district are costing taxpayers an average of £2.4 million in lost rates each year as part of a national relief scheme.

Friday, 17th January 2020, 12:00 pm
The Parade in Leamington

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

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

However, the cost to the taxpayer of empty business units has now risen to more than £1bn a year across England and Wales.

Over the past five years in Warwick district, £11.9 million of potential rates income has been lost due to empty premises.

In 2018-19, landlords in the district were exempt from paying £2 million of rates under the scheme.

The district council is expecting this year to be better, losing £1.3 million in rates relief.

Out of 5,210 taxable businesses across the area, the council has told the government that 680 need empty premises relief.

Dr Kevin Muldoon-Smith, an expert in property tax, said business rates were critical to the stability of local authorities going forward.

He said: “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."

Under 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.

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 LA and the rest is returned to the government for redistribution.

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.

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.

Councils have long been promised a greater share of their business rates as grants are cut.

The government has promised councils 75 per cent retention of any growth in business rates from April 2021.

Some local authorities already have 100 per cent business rates retention pilots in exchange for additional cuts.

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’.

Councillor Richard Hales, Warwick District Council's portfolio holder for finance, said: “The empty property relief for business premises is a statutory relief that all councils have to apply once a property becomes empty, and is designed to provide the owner ample time to re-let or refurbish their property.

"After this period, if the property is still empty, 100 per cent of business rates is charged.

“Our priority is to always ensure that properties do not remain empty for long.

"Alongside our own business support team within the council, we also work closely with our partners including the chambers of trade, BID Leamington, Warwickshire County Council and the Local Enterprise Partnership to help promote available business premises.”