Julian Sturdy: This unfair tax is an enemy of enterprise

Of course, the strongest liberal democracies are those which posses a fair and transparent tax system. Alas, for too many years our tax system has been unbalanced with increasing levels of bureaucratic taxation being placed upon the shoulders of hard-working families and small business owners.

If we are to ensure a sustainable, growing economy, we need to free the small businesses upon whose success our jobs and prosperity so crucially depends.

This week in Westminster I have highlighted one such form of negative taxation which is having a crushing effect on many small and medium-sized enterprises – empty property rates.

Brought in by the previous administration in the 2007 Budget, the empty property rates scheme introduced a tax on any commercial properties which lay empty for more than just a few months.

A year later, with the economic recession looming, this new taxation was already having a devastating impact. For example, take some of my constituents who are farmers in North Yorkshire. Having been encouraged to diversify on their land by the previous Government in the supposedly never-ending boom years, they paid for the construction of some commercial units to rent out to local SMEs.

In tough economic times, many such units remained empty as tenants cut costs, downsized or relocated. Not only did my constituents lose revenue due to the zero income from such properties, but the empty properties rates tax hit them with additional bills totalling thousands of pounds. Such an example provides a clear illustration that not all commercial property owners are lofty property tycoons – many simply cannot pay such high rates.

Sadly, this tax has led to the partial demolition of useable business premises to avoid payment of empty property rates. Likewise, it is also the main driver for the cancellation of speculative construction and redevelopment of office and commercial units. The impact of these consequences upon both the property sector and that construction industry should not be underestimated.

Similarly, time and taxpayers’ money is being wasted within many local authorities as the cost of collecting empty property rates increases.

Most importantly, however, is the array of evidence which suggests that any short-term cost incurred by HM Treasury in abolishing the tax would be far outweighed by the investment in premises, jobs and training which would follow in a rejuvenated market.

As such by referring back to the first of the four R’s of taxation, the evidence available clearly illustrates that greater revenue streams to HM Treasury are actually being stifled by empty property rates. Any tax which limits the potential of economic growth is simply unacceptable.

Moving to the second R of taxation, the Government could claim that money raised from empty property rates and other such taxes are distributed back to the business community through schemes such as small business rate relief. Yet, approximately £690m of the empty rates revenue comes from the public sector itself. Thus instead of worthwhile redistribution, I fear that empty property rates are an example of simply relocating public sector cash from one area to another – an entirely growth-sapping exercise.

Having failed the first two Rs of taxation, the empty property rates tax also disappoints on the third – re-pricing. When introduced by Labour in 2007, it was claimed that rents would fall for many businesses as more commercial properties in the marketplace would increase competitiveness. Alas, with the sheer number of demolitions and abandoned developments, commercial rents have now statistically increased.

Lastly, the final R of taxation is representation. In my mind, it is the duty of every politician to justify taxes levied upon local constituents and businesses. Empty property rates, however, lack the element of fairness which should underpin every responsible taxation policy. It is a harsh tax on failure, and by extension an enemy of enterprise.

Thankfully, the coalition Government shares my view that this inherited tax policy is a burden on business. Unfortunately, the issue is absent from the ever-growing to-do-list at present. Nevertheless, actions speak louder than words and if we are to admit that something is wrong, yet fail to reform it, we risk badly letting down those affected.

To penalise a property for falling vacant in recessionary times is not a prescription for economy recovery but a recipe for economic stagnation. Put bluntly, our stance on empty properties rates really does require a fundamental review.