Why empty pubs are going to cost more

Punlcans could see their business rates rise significantly after the government moved quickly to implement two of Sir Michael Lyons' recommendations in his Budget day report into local government.

Lyons recommended that the rate relief on vacant property should be reduced, although he left for further discussion how much relief should continue to be granted. However, the Chancellor jumped the gun in his Budget statement when he announced sweeping changes to business rates.

A bill to implement these from April 1, 2008, has already been laid before Parliament and will receive its second reading on June 7.

At present, vacant factories and warehouses pay no rates when empty, whereas other properties, including pubs, pay rates at 50 per cent after a three-month rate-free period.

But from next April, full rates will be payable on empty factories and warehouses after six months rent-free and for all other properties once they have been empty for three months.

The government has revealed that it expects the changes to boost revenue by £950m per annum, sparking criticism that it is a pure tax grab.

The government's stated reason for making this change is that it would lead to more properties coming to market as owners would have less incentive to hold on to empty buildings in the expectation that rents would rise. It suggests that the availability of these additional buildings would push down rents and thus benefit occupiers.

No longer viable​

This is a total misunderstanding of the workings of the property market and of the decision-making processes.

Unfortunately, pubs often close because they are simply no longer financially viable - recent figures from the Campaign for Real Ale claim pubs are closing at a rate of 56 per month. In these circumstances, it usually takes far longer than three months to find a buyer, especially if planning consent is required for change of use or redevelopment.

But from next April, pub owners will have to pay full rates three months after closure. I fail to see how that will lead to the property being brought back into economic use more quickly.

The last time full rates were charged on vacant property, owners of empty factories took their roofs off or engaged in 'constructive vandalism' in order to reduce their rates assessment and avoid paying empty rates. The bill proceeding through Parliament includes some anti-avoidance measures aimed at preventing this, but such legislation will be fraught with complexity.

There is a significant risk in future that operators will find they are unable to reduce their rates assessment during building works to refurbish a pub, even if these works are extensive, as is currently the case.

While the changes to empty rates may only affect a small proportion of publicans, all will be at risk of increased rates bills once the new supplementary local business rates proposed by Lyons comes into effect.

Fortunately, the government is not implementing this measure immediately and a select committee has been set up to examine the issues.

Lyons proposes that authorities should be allowed to levy a surcharge on properties in their area - up to 10 per cent - in order to fund local improvement projects. He says the surcharge needs to be designed in a way that will be credible to businesses, but specifically rules out offering them a vote on the proposals.

Publicans are fearful that local authorities will use these new powers to add significantly to business rates bills without delivering any material benefits. Unlike Business Improvement Districts, supplementary local rates are less targeted and therefore less popular.

Why, for example, should a rural pub pay a supplement to help fund infrastructure improvements in another part of the county?

Pub operators, in common with other ratepayers in the UK, already pay the second-highest local property tax in the EU.

The supplementary local rates, on top of the harsher conditions imposed on business rates, may just be a step too far for the licensed community.

Jerry Schurder is president of the Rating Surveyors' Association and head of rating at chartered surveyors and property consultants Gerald Eve​