Empty business premises in Harrogate have cost tax payers almost £9million over five years

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The hidden cost of empty business units in Harrogate has been revealed.

Over the past five years, almost £9m of potential business rate income has been lost due to empty premises in the area, according to new research by the BBC Shared Investigations Unit.

This was the highest figure for any local authority in North Yorkshire.

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Business rates are a tax on non-domestic properties like shops, warehouses and pubs based on a property’s ‘rateable’ value, linked to rental value.

Empty shop front in Harrogate. Photo: Gerard Binks/ JPI MediaEmpty shop front in Harrogate. Photo: Gerard Binks/ JPI Media
Empty shop front in Harrogate. Photo: Gerard Binks/ JPI Media

Under current law, empty business premises cannot be taxed under the business rates system for at least three months.

In 2018-19, landlords in Harrogate were exempt from paying £1,880,825 under this scheme, 2.44 per cent of the potential total rates income in the area.

However, that money would not have all been collected by Scarborough council as current legislation means only half of business rates income is retained by local authorities.

The rest is redistributed by central government.

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Rates are a controversial topic as retailers have been lobbying for them to be lessened to help Britain’s ailing high streets while councils are increasingly relying on the income as central government grants are reduced.

Experts warn that business rates will be ‘critical’ to the stability of local authority finances in future.

Dr Kevin Muldoon-Smith, from Northumbria University said: “Business rates, along with council tax, will be very critical to the stability of local authority finances going forward because of central government grants being reduced.

“Unfortunately, we have this perverse situation where local government needs tax to go up and the business community are lobbying very hard for it to go down.”

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“But if you look at the property market, the relationship between business and bricks and mortar is changing. There’s a good chance that pool of income will start to reduce – at the very least it will be different.”

Cllr Richard Watts, Chair of the Local Government Association’s Resources Board, pointed out that business rates are an ‘extremely important source of income for local government.”

Cllr Graham Swift, of Harrogate Council has said landlords will need to alter their expectations when it comes to the rent they charge retailers, and also predicted a change in the make up of the high street.

He said: “"The high street across the UK is going through significant change.

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“It is inevitable that landlords need to change their expectations in the rents they can charge retailers and the returns they might expect from their portfolios if they wish to keep their properties actively generating retail rents.

“I also envisage more property seeing changes of use including more office space, residential and mixed use assets in town centres as the retailing industry is clearly threatened in the long term by internet based services and home delivery which has grown exponentially in meeting customer needs.

“HBC are leading the way in this area by recently purchasing properties in Knaresborough High Street with this specific goal.

"I believe there is also a logical argument for government to explore levelling the playing field for retailers including considering the increase of business rates on distribution centres to make home delivery businesses compete with similar based business costs as retailers."

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Dominic Curran, Property Advisor at the British Retail Consortium, said: “It has been a challenging year for many retailers, as many shops struggle to adapt to rising cost pressures and changing consumer habits.

“High among the concerns for retail firms is business rates – a tax which disproportionately harms retailers, driving shop closures and job losses, leaving empty shopfronts and harming local communities.

“It is essential that the Government makes good on its pledge to reform this broken tax system.”

A HM Treasury spokesperson said: “Empty property relief strikes a balance between incentivising property owners to put vacant properties to use, while not penalising those who lose a tenant at short notice.

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“Whilst the rate of business rates collection varies between individual authorities, the local government finance system has been designed so that business rates income is redistributed across the country according to the needs of local areas.

“We will announce further details of the business rates review in due course.”