The property industry has warned that government plans to levy an extra £400m a year on small businesses and struggling landlords risk harming its aim of a private sector led recovery.

Parliamentary under-secretary of state Bob Neill has recently announced that government is to take an extra £400m pa from businesses in 2011, by scrapping the business rate relief given to the owners of empty properties.

At present, businesses with empty property that has a rateable value of less than £18,000 are spared empty rates.

The so-called ‘bombsite Britain’ tax, which levies full business rates on unoccupied offices, shops and warehouses, has famously led to millions of square feet of property being demolished since its introduction two years ago.

It has also harmed small businesses looking to save money by downsizing property, often forcing them to cut jobs instead, and has discouraged vital development and regeneration schemes.

The government announcement came despite heavy criticism of the tax from the Secretary of State Eric Pickles and the Business secretary Vince Cable while in opposition.

Liz Peace, chief executive of the British Property Federation, said: “If this government is pinning its hopes on a private sector led economic recovery, then this is a damaging and retrograde step. Empty rates is a tax on hardship at the worst possible time. The majority of the properties affected by this announcement will be in areas that are already economically disadvantaged, and so this will be a further blow.”

The BPF has also expressed alarm at the disclosure from CLG that scrapping the relief will raise £400m for the Exchequer in 2011/12. The previous government said the relief would cost £135m in 2010/11, suggesting that the amount of empty rates paid on the lowest value properties has trebled in one year. The cost of relief in 2009/2010 was £185m.

Liz Peace added: “If these figures are to be believed then it suggests that small businesses have been hit much harder by the recession than first thought, and that the need for relief to help the private sector thrive is greater than ever.

“On the other hand, the wide range of estimates that successive ministers have used could simply mean that government has no idea what the impact of today’s announcement will be, which in some ways is even more concerning.”