SCOTTISH Government plans to increase rates on empty commercial property risks destroying one of Scotland's existing competitive economic advantages over the rest of the UK, the head of a national trade body has claimed.
Tom Stokes, spokesman and past chairman of the Business Centre Association, which has 960 member locations across the UK, urged the SNP Government to "think again" about the move, which it intends to introduce from April 2013. The BCA is suggesting a three-year moratorium on the levy for new commercial buildings to encourage the provision of space for struggling SMEs and start-ups.
Ending the tax relief, which is anticipated to bring in an extra £36 million in Scotland in its first two years would, Stokes said, be a "tax on adversity" that would discourage investment in business infrastructure and destroy opportunities for small companies struggling in the recession.
"Since this Treasury-driven tax was introduced in England and Wales by Labour in 2007 and the threshold lowered by the Coalition, it has brought the development of commercial premises to a standstill outside London," he said. "It is our fear this will be replicated in Scotland which currently has a better system."
Although details have yet to be finalised, the Scottish Government is said to be planning a less rigorous regime than Westminster's, which has lowered the rateable value threshold above which owners of empty properties must pay to only £2600.
The Scottish proposals will allow property developers three months after completion of the building to secure income-generating tenants but will thereafter require owners to pay 90% of normal rates.
Stokes said: "The 10% reduction is not enough. We are concerned that the unacceptable position that has occurred in England in Wales is going to be replicated in Scotland where a real disincentive to building new office space will be created. That cannot be good for small business in the long term.
"The answer is to keep the status quo and not tamper with it, but if you are going to introduce the levy, put in a sensible threshold that will keep stimulating the general demand for new developments."
He added: "We propose that if you are developing new space or creating new space you should delay imposing business rates for firms with empty premises for three years, to allow time for them to let and to become income-producing. Otherwise, developers are spending a lot of money creating a new product and then getting taxed on it before it produces income. Any other tax is tax on actual income; this is a tax on bad luck or adverse circumstances."
CBI Scotland, of which the BCA is a member, has lobbied against the new measure on the grounds that it could curtail private-sector investment in new developments or regeneration projects, particularly in deprived areas where property is harder to let. The CBI has pointed out that the effect would be at odds with the Scottish Government's regeneration strategy and has urged a business and regulatory impact assessment of the proposed new levy.
David Lonsdale, deputy director of CBI Scotland, said: "Coming off the back of the scrapping of transitional relief and the new £110m rates levy on larger retailers, this additional proposal to increase business taxation by a further £18m a year is deeply troubling. Buildings are rarely left empty by choice, particularly where they don't generate an income, and this tax rise could well see new developments curtailed. It is astonishing Ministers are refusing to publish a full and frank assessment to determine the impact of this tax rise."
Finance Secretary John Swinney announced the plans to end relief in last September's Scottish Spending Review and Draft Budget 2012-13 when he said that "empty property relief will be reformed to provide strong incentives to bring vacant premises back into use, reducing the prevalence of empty shops in town centres and supporting urban regeneration".
The Scottish Government is believed to be looking for a compromise between the cuts made in England and the current system in Scotland. At present commercial property in Scotland enjoys 50% relief on retail and office properties and 100% relief on industrial properties.
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