Rating (Empty Properties) Bill

My Lords, the Government give two principal justifications for this measure: first, it will improve, they say, the competitiveness of UK business by leading to a reduction in rates; secondly, it will lead to greater efficiency in the use of land and the existing property stock and, among other things, to speedier redevelopment of already developed land, in line with Kate Barker’s recommendations. A further justification, which is not used by the Government, is that it raises quite a lot of money—almost £1 billion. My comments will deal with these points of substance and then move on to procedure. The only consequence of the Bill of which the Government can be certain is the increase in revenue—in the short term at least, that will certainly happen—but the extent to which the other professed benefits of the Bill will be realised is much more problematic if it is implemented as proposed. Let us take the first potential benefit, that businesses will become more competitive because rates will fall. Clearly, the Bill will give property owners an added incentive to let their buildings as quickly as possible, so deals might be done on better terms for the tenant to get them into occupancy more quickly. However, when I worked for a major property developer in the late 1980s and early 1990s, there was always considerable pressure to let property at the earliest possible moment, not just from the developer but also from its agents, who were desperate to see the property let so that they could get their fees. I have seen no evidence, and have no reason to believe, that these motivations have changed, or that owners of non-domestic property in the country are deliberately hoarding it. That flies against any market sense. If rents fall at all, it will be by only a small amount. In some parts of the country, rents are so low already that there will be no discernible effect. A fall in rents generally, as the noble Earl said, will adversely affect both the income of pension funds and the capital value of their property assets. My noble friend Lord Oakeshott has estimated that the loss of income to pension funds could be £150 million per annum and that the fall in their capital values could be about £3 billion. Any fall in rents, therefore, is by no means an unambiguous benefit. In terms of efficiency in the use of land and existing property, the benefit will again be small at best. In some areas and types of property, the change could well have a negative impact. It seems prima facie less likely that developers will build speculatively, because the costs of holding an unlet building will be greater. Particularly outside the property hotspots, the likelihood of, for example, business parks or buildings within them being speculatively built seems significantly reduced as a result of this measure. There is clearly a problem also with serviced office and workshop units, where by the very nature of the business and, in particular, the high turnover of tenants, occupancy rates will always be less than 100 per cent, often significantly so. These types of unit are important, particularly for new and small businesses. I fear that the impact of the Bill will be to slow the stream of properties of this kind coming on to the market. Despite those problems, the legislation is not necessarily fatally flawed, because it could have beneficial effects in the major cities, where rents are high by international standards and where for the foreseeable future demand for space looks set to remain tight. What changes, then, could be made to maximise the benefits, but, just as importantly, minimise the potential costs, of the Bill? The first relates to the proposal to levy the full rates after three months of the property being unoccupied. Three months is too tight. If there are significant levels of dilapidation to deal with, or if the previous tenant has gone bust, it will be simply impossible, even with the best will in the world, to rent the property again within a three-month timetable. We suggest that three months should be extended to six. This is not a concession to the industry, but recognition of the way it works, which is sadly lacking in the Government’s detailed plans to implement the Bill. Secondly, the Bill, or its implementing legislation, needs to deal with other specific cases where a property owner attempts to use their property, but is unable to do so as a result of official hurdles. A typical example would be where a shop is no longer viable, but the building could be used as an office or fast-food outlet. To qualify for change of use, the owner must demonstrate to the planning authority that, over a substantial period, the shop is not viable. Under the Bill, he could find himself paying full rates on a building that the local authority would not allow him to bring into remunerative use, even though there was another remunerative use into which it could be brought. Thirdly, the Bill fails to acknowledge the different circumstances in the overheated cities and those parts of the country where demand for property is weak and where there is often an overhang of existing buildings. All the evidence from the industry is that the Bill will make regeneration in areas of low demand more difficult rather than assist it. A typical example of the problems that the Bill will cause was exemplified in a recent letter to Property Week. The author develops business parks in the north-west. He bought a former Ministry of Defence establishment in Carlisle and he has been letting it at the far from palatial rent of £1.50 per square foot. He says that the Bill is, "““likely to lead to the demolition of the older buildings and us not being able to build new. It would put the investment in the site at risk””." There are a number of ways which the Government could shape their plans so that they helped rather than hindered regeneration. They could apply them only in those parts of the country where demand for property is buoyant, such as London, the south-east and the other major cities. They could exempt properties with a very low rental value. They could introduce special provisions for business centres, which otherwise stand to be hard hit. They could use the money that they raise to promote regeneration, rather than just losing it in the overall government coffers. I hope that the Minister might be able to say whether any of those ideas will be considered by the Government. That brings me to the second area that I wish to mention, which relates to the way in which Parliament is able to deal with the Bill. Leaving aside the fact that as a money Bill we can deal with it only at Second Reading, and therefore our debate today is the only chance that we will have to deal with it, all the implementing measures in the Bill will be dealt with in secondary legislation. That means that there will be very limited parliamentary scrutiny and there will be no chance whatever for any amendments to be made, whatever implementing legislation the Government bring forward. I know that I have become a scratched record on having amendable secondary legislation, but this is a classic case where amendable secondary legislation is necessary if Parliament is to be able to have any sensible impact on the way in which the legislation is developed. At the Committee stage in another place, there was virtually nothing that Members could bring forward as amendments, and when they tried to do so, Ministers basically said, ““That is all very interesting, but we are going to deal with this in secondary legislation””. That was the end of it, and they no more than us will have a chance to make a significant contribution to the detailed implementation of this legislation, which will make a very big difference in its overall impact. We have no objection to the principle of using the rating system to provide an incentive to use property more efficiently and to discourage property owners from having their property lying idle for long periods. However, the way in which the Government plan to implement this measure suggests that it may well not achieve its purpose.