Richard Spence: Beware cutting empty rates relief

Such was the backdrop to the recent Budget announcement from the Scottish Government. One proposal in particular has created real concern in the property industry, namely plans to cut empty rates relief for landlords by 2013.

Owners of empty property in Scotland currently receive 50 per cent rates relief for offices and retail property and 100 per cent relief on industrial properties. The idea behind the reduction in relief is that it will encourage landlords to bring empty property back into use, thus stimulating economic activity.

However, it’s important that any reduction is planned with an eye to the balance between encouraging growth in a struggling sector – one which has a knock-on impact on many others – and raising tax revenue.

Similar tax-raising measures in England, introduced in 2007, have fallen short of expectations in the revenue they have raised. And they hvae been roundly criticised for going too far.

If the measures brought into force in Scotland can be more evenly balanced, they may be better able to achieve the desired outcome.

As it stands, details of the proposals are still unknown. What is clear is that few landlords deliberately keep properties empty, and the potential risk is that additional tax burdens will discourage investment in a sector that badly needs financial support. Empty assets that become a financial liability may ultimately be demolished or stripped out.

The public sector, particularly those parts of it that have consolidated to save costs, owns significant property portfolios that could be liable under a less beneficial tax regime, effectively increasing public expenditure.

What is required now is a careful approach which marries the interests of the critically important property industry, and the need for additional revenue to fund expenditure that delivers lasting economic growth.

l Richard Spence is a director at Drivers Jonas Deloitte.