Moira Gordon: Increasingly punitive rates regime could have harmful long-term consequences

Moira Gordon: Increasingly punitive rates regime could have harmful long-term consequences

Moira Gordon

Moira Gordon discusses how the Aberdeen City Council’s decision to scrap Empty Rates Relief (ERR) to address budget shortfalls may have unintended consequences for businesses across Scotland, as it could negatively impact investor appetite for the city and widen the gap with England’s favourable business rates regime.

From 1st of April 2024, Aberdeen City Council is scrapping Empty Rates Relief (ERR) to address budget shortfalls, but this may have unintended consequences, not just for the city, but for businesses across Scotland.

Previously controlled by the Scottish Government, powers to set the parameters of empty rates relief were handed to local authorities from 1 April 2023. Aberdeen City Council immediately removed the open-ended 100% relief afforded to listed buildings, and the six-month period of 100% relief awarded to industrial premises. Instead, from 1 April 2023, commercial premises across all sectors of the market were allowed Empty Rates Relief for three months at 50%, followed by 10% for the remainder of the period the property remained empty.

Councillors then voted for all Empty Rates Relief to be entirely removed within the city from 1 April 2024.

This is a measure to address a gap in the council’s budget but will just put further pressure on businesses that are already on precarious financial ground. It’s clear that landlords do not want to sit on empty buildings. We are in an era of high costs and subdued economic activity and these buildings are empty as demand does not meet supply; alternative use is not apparent and therefore redevelopment comes at a significant risk and cost.

Councillors aren’t acknowledging the long-term impact of these changes to the property tax regime. Whilst there will clearly be some money generated over the very short term, the sum would pale in comparison to lost rates revenue for the council in the future. For long-term empty property, 90% of rates payable is paid to the Local Authority for every 10% provided via the relief. As the regime becomes more punitive, landlords are increasingly incentivised to demolish empty buildings to avoid a rates bill, and the existing rates revenue stream will be lost to the area.

At a time when Aberdeen needs inward investment, these moves negatively impact on investor appetite for the city. The city’s approach is also setting a concerning precedent; changes like this to the Scottish rates regime only widens the gap between Scotland and England.

England already has a far more favourable business rates regime. The Scottish Government has not made any provisions, whereas Westminster has. For example, the retail, hospitality, and leisure (RHL) sectors in England continue to benefit from 75% rates relief. Nothing equivalent is on the table for businesses on the Scottish mainland.

To put this into context, two buildings with a rateable value of £150,000 in Aberdeen and Newcastle could have very different rates liabilities. In Aberdeen, where there is now no relief, the 2024 annual rates billing would total £83,850. In contrast, the equivalent revenue generated down south would come to less than a fifth of that amount at £15,370, assuming circumstances that allow for claim of three months of 100% Empty Rates Relief following nine months 75% RHL occupational relief.

It appears that all authorities are moving in one direction, with Glasgow City being the most recent council to announce limits to its Empty Rates provisions. With the additional burden these policy changes bring, it is clear to see why investors and businesses are increasingly looking to England where there is more support.

Moira Gordon is director, business rates at CBRE’s Aberdeen office

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