• European state aid rules limit the benefit to each company to just £55,000 per year
• Giving local authorities discretion over relief adds another layer of uncertainty
Business rates expert Jerry Schurder has slammed the Government’s new empty rates grace period for newly-completed commercial properties as “a waste of time that will do next to nothing to stimulate development”.
Initially announced as part of the 2012 Autumn Statement, the new grace period was designed to encourage new development by allowing all newly-built commercial property completed between 1st October 2013 and 30th September 2016 to be exempt from empty property rates for the first 18 months.
But the announcement today (12th June) of a consultation into the full proposals has highlighted fatal flaws in the Government’s plans that will severely restrict the effectiveness of the grace period and mean it has no major impact on development activity:
1. Rather than a statutory exemption for qualifying new-build development, the grace period is at local authorities’ discretion. While councils’ costs will be fully reimbursed by the Exchequer, the extra uncertainty caused by the discretionary nature of the relief will discourage developers from embarking on costly and borderline viable schemes.
2. The scheme is subject to the normal European State Aid rules, limiting each company to total of €200,000 over a three-year period. Put simply, relief in the region of €66,000 per year is nowhere near large enough to encourage new large-scale development, especially for property companies with more than one scheme.
Jerry Schurder, head of rating at Gerald Eve, said: “Now that we can see the full extent of the proposals, it’s clear that they will not actually have a positive impact on development conditions in England, but instead will do little more than give the illusion of a Government doing something to support the sector.
“Rather than come up with proposals that would genuinely encourage the return of speculative schemes, especially in the regions, the planned grace period will instead do next to nothing to stimulate development. Unviable or borderline schemes costing millions are not suddenly going to be given the go-ahead because of the reduction of a potential empty rates risk by around £55,000 per year for up to three years. The proposals are a complete waste of time and deeply flawed.
“At the same time, making the relief available at the discretion of local authorities adds another level of uncertainty to the process, exactly the opposite of what the Government should be trying to achieve. Developers require certainty over potential outgoings if they are to make major investment decisions, and being at the mercy of a local authority does not improve the prospects of borderline projects starting on site.”