Little relief for developers in Osborne Autumn Statement

Business rates are the commonly used name for non-domestic rates, a tax on the occupation of non-domestic property. For each property in the rating list for its area, the local authority calculates and issues a rateable value. The rateable value is multiplied by the ‘rating multiplier’ to derive an annual bill. For example a rateable value of £10,000 and a multiplier of 40p would produce an annual bill of £400.

The multiplier is set by central government, and is uniform. The multiplier is increased each year by the same proportion as the increase in the Retail Prices Index, which is a measure of inflation. When revaluations take place, the multiplier is adjusted so that the overall change across the country is the same as the Retail Prices Index change. 

The rates bill may also be reduced by having one or more reliefs applied to it: there are reliefs for empty properties, for example, and for charities. Reliefs are administered by the local authority and they do not affect the rateable value of a property. While some are mandatory, others are at the discretion of the local authority, which also has to bear, in whole or in part, the costs of some reliefs. 

Last week the Chancellor of the Exchequer, George Osborne, delivered the Autumn Budget (despite it surely being winter…). Business leaders had been pressing the Chancellor to cut business rates as the high street continues to struggle and speculative development continues to suffer in the face of the poor economic conditions. 

However, in his Statement George Osborne shunned the pleas for a wide-ranging cut to business rates. Instead, he offered relief from rates to newly built commercial properties for 18 months after their completion. This relief will run from October 2013 to September 2016, costing the government an estimated £150m in tax. It is intended to encourage developers to press ahead with projects. Mr Osborne also extended the rates relief for small businesses for another year to April 2014. According to the government, this means that 350,000 companies will not pay any business rates until 2014. 

However, Tom Lax, a surveyor at Morgan Pryce, believes: “Although the 18-month period of relief would be welcomed, it would not be enough to encourage developers to build new offices and shops.” One of the reasons why speculative development has dried up over recent years is the enormous risk that developers face of having to pay rates should their developments remain vacant upon completion. 

Allowing a significant period free of empty property rates could help stimulate new schemes but the Chancellor’s intended maximum grace period of 18 months is insufficient. This period should extend to at least two years, and preferably three, if the scheme is to provide material benefit. This would be at no cost to the Exchequer: if the result of the exempt period is to stimulate new development then rates income would be created, that would not otherwise have occurred. 

Morgan Pryce is a specialist tenant acquisition agent with offices in Oxford Circus and the City. Morgan Pryce specialises in search, negotiation and project management and works exclusively for tenants.