Rating (Empty Properties) Bill

My Lords, I beg to move that this Bill be now read a second time. This is in essence a Bill about the efficient use of property. It is widely recognised that we live in a time of extreme demand on property, be that commercial or residential, where land is scarce and prices are at a premium, and where the balance between development and the protection of our much valued green space is an increasingly delicate one to strike. A decade of low interest rates and sustained economic growth has created record levels of demand for land and property, creating high prices that place a burden on the competitiveness of the UK. The efficient use of property is therefore a matter of prime importance. Yet, at the same time, the rating system offers tax reliefs of 50 per cent for empty commercial buildings, and 100 per cent for empty industrial buildings, to lie idle at a cost of £1.3 billion per annum. It cannot be right for owners to continue to be subsidised to keep property empty at the expense of taxpayers elsewhere, at a time when UK office rents are among the highest in the world—routinely 30 per cent higher than our competitors in the EU—and where Manchester, for example, is one of the costliest locations in the world. That is why my right honourable friend the Chancellor of the Exchequer announced in his Budget Report of 21 March the Government's intention to reform empty property relief, as part of a package of measures to encourage more efficient use of land and property. The Government's decision to reform follows the recommendations of two independent experts, Kate Barker and Sir Michael Lyons, who in their recent reviews advised that the rating of empty commercial property should reflect today’s social and economic realities. In her review of land use planning, Kate Barker recommended that the Government make better use of fiscal incentives—in particular by reforming empty property relief—to encourage more efficient use of urban land. Sir Michael Lyons examined the case for reform as part of his consideration of how local government should be funded. Having consulted widely with industry, local authorities, planners and regeneration bodies, he too recommended the reform of empty property relief, to help to ensure that developed land is put to its most efficient use, given the impact that economic change and rapid housing growth have had on the value of land and property. The Government agree that the time is right for reform, which is why we have this Bill. It might be helpful to the House if I spent a few moments clarifying its main components. It is a short but none the less important Bill that seeks to amend the Local Government Finance Act 1988 by increasing the empty property rate from 50 per cent to 100 per cent of the basic occupied business rate, to incentivise owners to reuse, re-let or redevelop their properties. This is to encourage owners to bring their vacant shops, offices and factories back into use and thereby enhance the supply of property and help to reduce rents. The Bill provides a new zero rate for empty properties owned by charities or community amateur sports clubs, as announced by the Chancellor, as an economic boost to the voluntary and community sector. It provides a new power to reduce the empty property rate from the new level of 100 per cent of the basic occupied rate back to a minimum of 50 per cent of the occupied rate, which will ensure that the Government have the flexibility to adapt the unoccupied rate to reflect the prevailing market conditions. It also introduces a new power to make provision to tackle rate avoidance tactics by disregarding changes to the state of property in circumstances that we shall define by regulations. If, for example, an owner removed a roof from a property, for rating purposes it could be valued as if the roof had not been removed. Properties will continue to enjoy a three-month rate-free period on becoming empty, or six months for industrial properties. Three months is the period already established in legislation and we do not propose to change it. Barker demonstrated in her report that there is no inherently greater risk of different types of property falling empty, so it is right that there should be convergence in the tax treatment of all forms of property. We are therefore bringing the treatment of industrial property towards that for office and retail property, allowing it a six-month period with no rates. Exemptions from empty property rates are set out in secondary legislation and, although our intention is largely to maintain the details of the current regime wherever we can, and it makes sense to do so, we will consult on any proposed changes to that legislation over the summer, including how the new power to tackle rate avoidance will work. We recognise that the vast majority of property owners do not deliberately vandalise their properties in an attempt to avoid rates. However, stakeholders have informed us that this may be a temptation to a small minority of owners, which may prove even more alluring given the increased liability for rates proposed by this Bill. This is why the Bill provides a new power to make regulations to deal with any benefits that might flow from such deliberate acts of vandalism. I believe that noble Lords will see that this legislation is good for business. It will invigorate commercial life by creating better access to commercial property at more reasonable rents and increase our business competitiveness. Indeed, the Federation of Small Businesses pressed the Government to reduce the business rate relief on empty commercial property, precisely to ensure the better use of commercial premises. We believe that by enhancing the supply of properties on the market, these reforms are good news for small businesses. It is important, however, that the measures in this Bill are seen as one component of, and in the context of, a wider package of measures which the Government are introducing to support business and property owners. We have, for example, introduced measures to assist owners in our most economically fragile environments to bring empty property back into use. The business premises renovation allowance introduced on 11 April this year—a full year ahead of the changes we are proposing through this Bill—is a new 100 per cent capital allowance for the renovation of empty commercial property in our assisted areas. We expect it to better target the needs of these areas to provide quality commercial property that is fit for the 21st century business user, which is one reason why we have already published a forecast yield from reforming empty property rates. Alongside this we have published a consultation on reforms to land remediation relief, proposing that we extend the relief to long-term derelict land to improve economic incentives to bring derelict land back into use. We are also considering the tax treatment of lump-sum payments made by businesses when surrendering onerous leases to see whether current policy results in the retention of premises that would otherwise be released to the market. I remind the House that local authorities already have discretion to provide hardship relief from empty property rates to respond to the realities of the commercial world by assisting owners facing particular difficulties in re-letting their property. That provision will not change. The House will see that we are seeking to kick-start and revitalise commercial life across the country, in rural and urban locations, areas of decline and areas of growth. Sir Peter Hall, Professor of Regeneration and Planning at University College, London, has given strong support for these reforms, saying that they will make owners more willing to let units for less than top whack—meaning greater variety in our shopping centres and streets, livening up Clone Town Britain. Sir Peter goes on to say that the effect on empty factories and warehouses could be more dramatic. Owners will be more likely to sell to developers. And, given the weak or non-existent demand for industrial buildings, that will see demolition to make way for residential development, answering the call for a big increase in housing starts—on brownfield, urban sites too. The House will be aware of the progress that we need to make on making land available for housing. I draw the House’s attention to the support of John Gummer, who is experienced in these matters as a former Secretary of State responsible for business tax, and who last week said in another place that, "““we have been too lax in the past. Given our serious housing problems, we need to ensure that all the buildings we have are properly used, because the alternative is to build yet more in unsuitable places””.—[Official Report, Commons, 14/7/07;col. 908.]" The benefits of this Bill have far-reaching and important consequences for business and our communities. It signals a step change in the use of valuable property. At a time when the scarcity of land and buildings is a well recognised problem, here is a Bill that incentivises us to maximise our existing assets and to harness those assets for the benefit of our economy and wider society. I commend the Bill to the House. Moved, That the Bill be now read a second time.—(Lord Davies of Oldham.)