Since April this year, owners have had to pay full rates on their empty properties as ministers try to raise £1bn.

Previously, shops and offices were eligible for a 50 per cent reduction in business rates, while industrial units got full relief.

One of the Government's most senior advisers on regeneration said that taxing empty properties was having a chaotic effect on regenerating the most deprived areas of Britain.

John Nicholls, chairman of the government-funded urban regeneration companies (URCs) chief executives group, said that regeneration projects had been rendered unworkable, threatening jobs and new homes.

Some developers are demolishing buildings or simply leaving sites unfinished rather than risk liability for the tax, he added.

Public-sector regeneration companies in Yorkshire say they are being penalised for assembling land ready for regeneration.

John Haymes, director of property development for Hull Forward, said: "In terms of regeneration, we don't think empty rates is a useful initiative because in many regeneration projects, the role of the public sector is land assembly, which can take a number of years."

Developments in Hull, such as the Fruit Market, Humber Quays and Quay West, are already being hit by empty rates.
A couple of large industrial complexes within the Fruit Market have already been demolished, along with buildings in the Quay West area. But the new Humber Quays development, which is only half-full, is having to pay tax on its empty space.

Mr Haymes said: "We have demolished some buildings in order to avoid paying rates but we have had to pay for other buildings that we are keeping for conservation reasons.

"It is money that could be used for other things."

He added: "The two office blocks at Humber Quays were built in advance of demand to ensure that the city had offices to offer businesses as and when they are needed. It's an example of where empty business rates don't quite work."

And Bradford Centre Regeneration said that empty property rates could have a negative impact on the city's development.

In a statement, it said: "Urban regeneration companies were incorporated to act as a catalyst to speculative development in areas where regeneration was challenging, and any measures that add costs and risk to that process, have a potentially negative impact.

"Private-sector developers and investors face many variables in assessing whether a scheme is financially viable or not, including early land assembly, and this extra hurdle could swing the balance between deciding to develop or not in priority regeneration areas such as Bradford."

Andy Topley, director of regeneration at Creative Sheffield, said the city was not yet seeing the "gap tooth" effect of empty buildings being knocked down because of the empty rates.

He said that the slowdown in bank lending and gap funding for new buildings was more of a challenge.

He added: "Of course, no developer deliberately keeps a building empty, so what we are seeing is property owners more willing to sell their empty buildings and this means a more agile market than we would normally expect.

"Having said that, empty rates tax, though important, is not as significant a factor now in regeneration as yields or the lack of bank lending, so when they both improve, the importance of the new empty rates tax will become much more visible."

Dave Custance, head of strategic development and property for Yorkshire Forward, said that the agency had voiced concerns of businesses in the region to the Government.

"Changes to the regulations relating to business rates on empty buildings will potentially have an impact on regeneration projects like speculative developments," he said.

"The property industry will be more cautious about developing without a commitment from prospective tenants in order to reduce the possibility of the property standing empty."

He added: "Owners of older buildings and managed workspace will potentially face increased costs, and will face some difficult choices.

"Yorkshire Forward has made Government aware of the concerns of businesses in the region, and will monitor the situation closely to gauge the impact of the changes."