Rating (Empty Properties) Bill

My Lords, it gives me no pleasure to take part in this Second Reading debate. As the noble Lord, Lord Newby, said, the Speaker in another place has certified it as a money Bill, which it is because it raises nearly £1 billion a year in revenue. The effect is that your Lordships’ House may not alter so much as a comma in the Bill. We are allowed just this one outing to record our distaste for the Bill before it receives its formal Third Reading next week. This Bill is nothing but an additional tax on business. It was the biggest single hit in the corporate sector in the Budget this year. There were other hits, which we shall come to when we debate the Finance Bill in a couple of weeks’ time, but this was the big one. It comes at a time when the corporate world, large and small, is united in its calls to the Government to reduce the taxes on businesses, which have been hit not only by a tidal wave of regulation in the past 10 years but by a corporate tax system which, in plain terms, is harming the UK’s competitiveness. That is not just the opinion of my party; it is also the view of the World Bank. The Chancellor announced that from next year the headline rate of corporation tax for larger companies is to come down, but that is offset by other changes to capital allowances. He has delivered a body punch to smaller companies with his hike in the smaller companies rate. I very much doubt whether our ranking in tax competitiveness will have improved as a result of those changes; and indeed this Bill may herald a further decline in the UK’s tax competitiveness. The Government like to say that they are simply implementing the Barker and Lyons reports in their changes to business tax relief for empty properties, and the Minister has said as much today; but that does not stand up to close examination. The Barker review made no specific recommendations, which was very wise because Miss Barker has clearly done no more than scratch the surface of the practical issues that arise in relation to empty property. The Lyons report recommended that changes to empty property relief take place as part of the package of changes to business rates generally, to take effect from 2010, not to be cherry-picked to fill a fiscal hole in 2008. Perhaps the most important bit of Lyons that the Government have spun out of their version is that the report envisaged extensive consultation. The Chancellor simply ignored this need to consult—a feature of his chancellorship with which we have become all too familiar. The Lyons report and, to an extent, the Barker report seem to rest on an assumption that property owners are wilfully keeping their properties off the market, thus reducing the supply of available business premises and forcing business rents up. There is no evidence that this is a feature of commercial property ownership in the UK, or, at least, no evidence that would support the imposition of this additional tax burden. There is no evidence whatever that property owners and developers keep property empty in order to force up business rents. My noble friend Lord Liverpool shared his considerable experience of the reality of property lettings earlier. The Government have not explained what drives differences in vacancy rates across the UK. Why has the level of vacancy been gently rising since 1998, to about 9 per cent in 2004-05? Surely it is not because there are more property owners waiting for more prosperous times ahead when they can extract higher rents? It is much more likely that there is simply not enough demand at present. Have the Government any explanation for the vacancy rate in the City of London virtually doubling in that period? Does the Minister think that, with property prices the way they are in the city, some scheming on the part of big landowners is taking place? If so, will he name the companies that are carrying out their business in this way, because I do not believe that they are recognised in the commercial sector? Let us take the borough of Hackney, which had a vacancy rate starting at 30 per cent in 1998 and six years later was only 2 per cent lower. Do the Government have any evidence that the owners of the remaining 28 per cent are deliberately withholding property from the market, or that it would be let and occupied at lower levels of rent? Economic theory is very nice: let us use the tax system to force companies to reduce the price at which they are prepared to let their properties, thereby increasing supply. Perhaps there are other factors involved which the Government have not taken account of. Is it the case that there will be tenants willing to occupy the properties at lower rent levels? In rural areas, there can be a complete lack of demand. It is simply not the case that there are long queues of tenants, waiting for rents to drop by a pound per metre or more. If there is some pent-up demand, have the Government considered whether the covenant of such tenants would be good enough to induce property owners to lease their property out? Surely the Government do not expect landlords to take unacceptable tenant risk. We are not convinced that the Government have even thought about the impact of the Bill on regeneration, especially the regeneration of the most disadvantaged areas. Getting private sector developers involved can be hard enough, but if they then have to face not only the economic risk of letting their developments, but a fiscal penalty for not doing so, it is quite likely that some will think again. That will mean a delay in economic regeneration, as well as an increased dependency on public-sector providers of regeneration capital, which we do not believe to be a healthy way to pursue the regeneration of our disadvantaged areas. Similarly, farmers have been encouraged to diversify and to make their buildings available for alternative use. Have the Government thought about the impact that this Bill will have on their willingness to run the risk of a rates penalty if they cannot fully let their properties? This is not a fanciful proposition; such farmers often have problems in achieving full letting of properties that have been taken out of agricultural use and renovated for alternative industrial or commercial purposes. The Government have not taken the trouble to work out how property development takes place. It can involve the assembly of several sites, which generally have to be left vacant during the assembly period. The planning process can then add extra delays. These are not properties that can find a ready use pending redevelopment. The extra costs that this Bill will impose may well alter the economics of the development adversely. Does that help the renewal of business premises in the UK? We have received representations from the Royal Institution of Chartered Surveyors that the business-centre sector, referred to by the noble Lord, Lord Newby, which provides flexible accommodation, especially for small and medium-sized businesses, will be hard hit. This sector expects a relatively high churn rate and does not expect to operate at 100 per cent occupancy. This new tax is expected to penalise existing centres and to deter new development. How will that help the business sector in the UK? There will be other effects, which I will generously call unintended consequences on the ground that the Government may simply not have worked out what will happen. In particular, the Government have been promoting more flexible lease terms, which will help all businesses to rent property. If the risk of a property vacancy will now carry a tax hit on top of a potential void income period, why on Earth would landlords want to make it any easier for tenants to move on? Indeed, why would landlords ever be prepared to negotiate surrenders in difficult market conditions? We do not welcome the Bill and we regret the fact that the Chancellor has chosen to resort to this measure to fill the black hole in the nation’s finances.