Business rates reform could unlock £1.8bn of development over the next five years – more than the combined development cost of the Shard, Walkie Talkie and Cheesegrater – according to a new report.
Research launched by the British Property Federation, British Council of Shopping Centres and British Council for Offices has found that when business rates rise, landlords come under pressure to lower rents, which reduces the viability of developments.
Written by Regeneris Consulting, the report found that the British economy may have already missed out on £670m of development and 6,000 jobs for property occupiers over the past three years as a result of the tax.This is because about 75% of the tax burden has been passed on to landlords, with occupiers bearing about 25% of the cost.
Ion Fletcher, director of policy (finance) at the BPF, said: “Business rates are often seen as a cost for occupiers; one that gets in the way of growing their businesses.
“This research shows that business rates also harm landlords and in particular they discourage new economically valuable development.”
Regional markets such as Manchester, Birmingham and Newcastle were found to be more severely affected than London by the relationship between rates and rents, which Fletcher said could be because regional landlords with less demand for their properties are forced to be more amenable to occupiers’ demands.
He said it could also be down to traditionally longer lease agreements in the capital, which means rate rises take longer to affect rents.
Rising rates could also reduce occupiers’ profits by around £585m over the next five years, which could affect as many as 4,000 jobs, according to the report.
The BPF, BCSC and BCO are calling on the government to reduce the tax burden of business rates and introduce more frequent revaluations to reflect market conditions ahead of the outcome of the government’s business rates review, which is due to be announced during the 2016 Budget.
Ed Cooke, director of policy at the BCSC, said: “This research by independent expert economists shows clearly that business rates inhibit beneficial property investment and development, and therefore are a barrier to much-needed growth and productivity.
