More than 30 MPs have urged government to reform business rates avoidance in England by banning so-called “box shifting”.
The intervention comes as an HM Treasury consultation on reforming business rates to crack down on avoidance ends this week, with property experts warning that government is "entirely missing the point".
The ban box-shifting campaign was launched on Monday led by Shaylesh Patel, the founder of Temporary Use Aid, which works with charities and landlords to make the best use of vacant spaces. Business rates are charged on most non-domestic properties by local authorities. Some properties can receive relief and others are exempt from payment, for example farm buildings or places used for the welfare of disabled people.
The campaign says the practice is used by "some unscrupulous landlords and multi-chain operators" to exploit a loophole in the law and avoid paying business rates on vacant commercial properties. The practice involves landlords and operators putting boxes in an empty commercial property, and then saying the space is occupied for six weeks. The boxes are then removed, and the landlord receives three months of empty rates relief.
The campaign is being supported by 30 MPs including Fleur Anderson, the Labour MP for Putney, and Siân Berry, a member of the London Assembly and former co-leader of the Green Party.
The campaign says when the rate-free period is over, boxes are placed in the space for a further siz weeks again and the cycle repeats. It says councils lose over two-thirds of their rates income which could go to public services funding every time this cycle is repeated.
It says property owners and landlords will use "novel methods", including fish tanks and snail farms or placing other items in the empty property to trigger rates avoidance.
Legislation has already passed in Scotland and Wales to prevent the practice. The campaign group says: "To stop this, we want the government to replicate what has happened in Wales, and increase the required period of occupation, that activates rates exemption, from six weeks to six months." Councils would also be given more powers to decide when empty rates relief can be granted.
The Local Government Association has estimated that, of the £8 billion of empty property relief that will be granted this year, about £250 million will be lost to business rates avoidance.
The Treasury and the Department for Levelling Up, Housing & Communities launched a consultation into business rates avoidance in July saying the relief was “not working as intended”.
The consultation, which was first announced at Spring Budget 2023, ends on 28 September.
HM Treasury says the vast majority of those who engage with the business rates system do so "honestly and transparently". But it says the purpose of the consultation is to: consult on specific measures to reform Empty Property Relief in order to address known avoidance schemes; gather evidence on wider avoidance and evasion practices within the business rates system, and seek views on whether billing authorities have sufficient powers and information to combat them; gather evidence on “rogue” rating agent behaviour and seek views on how the government could address any problems.
Experts at Colliers say the government's consultation is based in part on inaccurate data and a lack of understanding of why buildings are empty.
In its consultation response, seen by CoStar News, it writes: "The government does not have accurate data from which to assess the impact of any evasion, abuse or mitigation measures taken by companies exposed to the business rates system. In the consultation document the government itself admits that “it is not possible to accurately determine the financial loss resulting from abuse of the business rates system.” The £250 million figure quoted for the whole of England is an estimate based on questionnaires issued by the Local Government Association for the 2013 and 2017 rate years, and to which only 40% (35% for 2013) English councils responded.
"Making owners of empty properties pay business rates more of the time appears to stem from an assumption by the Government’s that landlords need to be further incentivised to fill their empty properties. What does not seem to be understood in Whitehall is that the high number of empty commercial properties in England stems from a lack of market demand and longer-term socio-economic factors, not because any landlord wants to keep their properties empty. Given the decline in the retail markets in recent years and now concerns about the office sector, property owners and pension fund institutions will need all the help they can get if they are to hold property and to keep the markets functioning."
Colliers adds that the consultation "unfortunately misses the point entirely".
"Business rates are too high and the Empty Property Relief period is too short. Instead of asking what sorts of measures the Government could take to encourage investment into town centres and high streets, they have opted to crack down further in the hopes of raising some cash in the short-term. If the Government is serious about the revitalisation of the high street, it should extend the Empty Property Relief period to 12 months for all properties."