THE CHANCELLOR announced in the Autumn Statement two reasonably fundamental changes to the rating system. Are the changes really that fundamental and will the measures stimulate new commercial development and provide existing occupiers with any greater certainty? Peter Doleman offers his thoughts.
Firstly, in order to encourage new commercial development, existing empty property rate relief has been extended to 18 months from the previous position of six months for industrial accommodation and three months for offices.
This initiative goes some way to reducing the punitive nature of the existing arrangements but it is still unlikely to stimulate, on a comprehensive basis, the start of new speculative commercial development. The bottom line is that levels of confidence within the development sector and the wider market are still low. In order to stimulate the sector, a reversal of this policy would be more effective. At the very least, rate relief for three years would be more realistic.
A recent Leicester office market study, launched by the mayor, identified a need to create an environment that would nurture new office development – both on a speculative and bespoke basis. The study also outlined a number of key sites within the city that were ripe for development. Although the tax proposals are going in right direction, on their own they are unlikely to invigorate the market sufficiently to see a repeat of substantial schemes such as Colton Square in the immediate future.
Secondly, by delaying the proposed April 2013 commercial revaluation for two years, the Chancellor had hoped to provide greater clarity and certainty for businesses. In his opinion this would wipes out large tax hikes in value for small shops and firms.
The postponement of the rating revaluation from April 2013 to April 2015 will hit occupiers hard, not just within the retail sector, but in most commercial markets where values have fallen since the last revaluation in 2008. Rate liability is simplistically a proportion of rental value. The revaluation would therefore have led to a reduction in the rates that businesses pay (unless there had been a substantial increase in the uniform business rate). Taking a cynical view, any delay in the revaluation will reduce the prospect of a fall in rate liability as values will gradually recover over time. The burden on occupiers needs easing now.
Overall, whilst the government’s proposals may have helped, they have not gone far enough to help the development sector and the loss of the revaluation has done nothing to ease the plight of occupiers in the short term.