Mayor warns against business rates increases

21 February 2017

· London facing £900m business rate hike with more than 7,500 businesses expected to see a 45 per cent rise in their bills this April

· Mayor and leading organisations write to Chancellor, urging him to protect businesses from increases

· Sadiq describes business rates increase and Brexit uncertainly as “double whammy for business in London” and warns “the very character of our local high streets is under threat”

The Mayor of London, Sadiq Khan, has today warned that some businesses in London could be forced to close down if the Government ploughs ahead with plans to increase the business rates bill by as much as 45 per cent this year for many of the capital’s ratepayers.

He has described the Government’s misguided business rates hike, together with the uncertainty caused by Brexit, as a “double whammy for business in London.” Business ratepayers will begin to receive their new bills from early March.

London’s businesses are facing a £900 million business rate hike as a result of the revaluation which will fund an equivalent tax cut for the rest of the country. That figure could eventually rise to £1.1bn.*

The Mayor, together with The New West End Company, London Councils, the London Chamber of Commerce and Industry, the Federation of Small Businesses in London, the Heart of London Business Alliance and many other leading organisations, have today written to the Chancellor of the Exchequer Philip Hammond, arguing that the scale and suddenness of the business rates hikes will have a negative impact on pubs, retailers, restaurants, shops, theatres and clubs.

This would damage London’s high streets as well as the city’s appeal as a destination for international visitors and investors.

It is believed the rise will have a particularly damaging impact on independent businesses in areas such as Chinatown and the West End, as well as parts of inner London such as Hackney and Islington where property values have increased dramatically.

The organisations also urge the Chancellor to introduce measures to mitigate the impact of the rises by introducing policies to help businesses generate more income and to commit to a review of business taxes, including business rates.

This would include raising the current national £12,000 rateable value threshold, below which small businesses receive 100 per cent business rates relief, to a more realistic level in London to mitigate the impact of the revaluation on small and medium-sized businesses.

The Mayor of London, Sadiq Khan, said: “I was elected on a mandate of being London’s most pro-business Mayor ever and I am genuinely shocked that the Government’s actions will damage the prospects of so many businesses in the capital, putting many at risk of closure. The very character of our local high streets is under threat – London’s businesses have been warning about the damaging effect of this skewed and unfair revaluation for months and yet the Government blunders on.

“This is the last thing that London businesses need and will serve as a kick in the teeth for tens of thousands of companies in the capital who are still digesting the recent vote to leave the European Union.

“Alongside the uncertainty created by Brexit, this will serve as a double whammy for business in London.”

“This skewed system is because central Government fixes the total amount of business rates to be collected – and with London generating more, the rest of the country is asked for less.

“This unfair and damaging situation could be addressed if the Government were to grant further devolution to London and other cities.”

Sadiq Khan has been lobbying Government for more generous transitional arrangements that will phase in the impact of this increase in London more slowly – but despite limited concessions made by the Chancellor in the Autumn Statement, many businesses will see huge increases within the next few weeks. At the last revaluation in 2010 no business could face an increase of more than 12.5 per cent in the first year – the current Government has set the maximum increase from April 2017 at 42 per cent - more than three times higher.

Recent research from the Federation of Small Business (FSB) has revealed that the average business in the capital with less than 10 employees will be paying £17,000 in business rates from April – after receiving less than six months’ notice from Government about the increase.

Three quarters of businesses who responded to the FSB survey said that business rates was the single biggest issue affecting their business, while 27 per cent said they are considering closing for good.

It is also estimated that nearly 7,000 larger businesses - mainly retailers, restaurants and licensed premises linked to the night-time economy in inner and central London will see their business rates bills rise by almost 50 per cent on 1 April.

The business rates contribution from ratepayers on Oxford Street, Regent and Bond Streets will increase from £160 million to nearly £240 million overnight.

According to government estimates, London as a whole will register an 11 per cent increase in its tax bill while everywhere else will experience a drop, including 10 per cent in the north-west and Yorkshire and Humber, and 11 per cent in the north-east. However the average increase will exceed 40 per cent before transitional relief in some inner London boroughs.

Business rates are a property tax set by the Government based on the assumed annual rental value on the open market of business properties as estimated by the national Valuation Office.

London is the only English region where the total sum collected in business rates will increase following the revaluation.

Sir Peter Rogers, Chairman at New West End Company said: “Businesses across London now find themselves on the precipice of a monumentally increased tax burden, amidst a climate already hampered by economic uncertainty. West End stores are facing an average 80 per cent increase in rates since the last revaluation, even though sales have only risen by 30 per cent in the same period. Whilst last year’s concession on transitional relief measures will offer some relief, businesses will still face significant hikes of 44 per cent in the first year, with further increases thereafter.

“The Government can no longer ignore the widespread pleas from businesses of all sizes across the nation for reform of the current system. A wholesale review is critical to prevent future damage to businesses and the UK economy in turn. Interim measures should also be considered to support those worst affected by the changes, such as a TIF funding scheme allowing a small portion of tax to be retained by local authorities and reinvested into improvements in the area.”

Colin Stanbridge, Chief Executive of London Chamber of Commerce and Industry said: “We were worried about the impact an increase in business rates might have even before we saw the revaluations. Now, with the changes about to hit we call on the Government to urgently review them.

“They will have a far reaching impact, across the capital and across sectors. Many will struggle to invest in staff, equipment, training or other resources “This is not a case of wanting more for London for the sake of it. This is a very real concern about the future of London businesses.”

Sue Terpilowski OBE London Policy Chair Federation of Small Businesses said: "The business attraction of London is that it has a strong ecosystem of support services from the micro and small business community. Business rates is the greatest concern for our members in London. It is a tax on growth and a tax on the ability to create jobs and prosperity. We urge the chancellor to heed the advice of business and the Mayor to reduce the burden of business rates at the Spring Budget. Introducing Small Business Rate Relief (SBRR) thresholds for London would be a positive start. FSB estimate that increasing the threshold to £15k in outer London and to £20k in Inner London would cost around £100m. This is a comparatively small amount in the context of the £28bn revenue derived from business rates nationwide.”

Councillor Peter John, London Councils’ Executive Member for Business, Skills and Brexit said: “The capital’s businesses large and small are the life-blood of the boroughs, yet these disproportionate rises threaten to put many out of business. If we are to protect businesses– particularly following the Brexit vote – Government must re-think these hikes. More broadly, there must be a fundamental shake-up of the system that recognises the capital’s unique tax base and demographic pressures.”

Cllr Jack Hopkins, Lambeth Cabinet Member for Regeneration, Business and Culture, said: “This huge rise in rates is incredibly unfair on businesses in London, and Lambeth in particular. We are a borough that looks to harness and encourage small businesses to grow, provide jobs and strengthen the local economy.

“We have a great track record in that, Lambeth has had the biggest rate of new business growth of any London Borough, yet this huge increase in costs, on top of the uncertain economic climate, increasing rents and staffing costs, puts all that progress at risk.
“Businesses of all sizes are rightfully worried about these rising costs and we are standing up to government alongside them to try and protect their livelihoods and those of the staff they employ.”

Ros Morgan, Chief Executive of Heart of London Business Alliance says: “As the voice for businesses across Piccadilly, Leicester Square and St James’s – the heart of London – we know the detrimental impact of large business rates rises on the DNA of the West End. The proposed hike in rates threatens London’s world-class destination status for visitors and future inward investment from international businesses.

“Our area celebrates some of the most iconic visitor attractions in the UK, which welcome more than 400 million visitors annually to enjoy the diverse offering across cultural, retail, hospitality and leisure sectors. SME’s and independents’ contribution is significant and the proposed hike would severely undermine London’s future prosperity.

“Following a 47 per cent increase in international tax free spend across the city in January, London is undoubtedly a driving force behind the UK’s tourist economy – which is why it is critical Government takes the right action in the short and long term to support these businesses in light of the challenges ahead.”

Last month, the Mayor endorsed the findings of a major new report from the London Finance Commission that called for further powers to be devolved to the capital in the aftermath of the decision to leave the European Union.

The report recommends that the full suite of property taxes should be devolved to London’s government, including the operation and setting of business rates.

By truly devolving control of the tax and dislocating London from the national system, the massive increases London businesses are seeing every time properties are revalued could be limited or even eliminated entirely.

Notes to editors

*In reality the immediate increase in London exceeds £1.1 billion after grossing up for the Government’s assumed loss for successful ratepayer appeals against their valuations. These refunds to ratepayers will take several years to come through in practice as the Valuation Office Agency still has a backlog of over 60,000 appeals still to clear in London alone on the current rating list.

Letter signatories:

London Government

Mayor of London
London Councils

London Business Organisations

Association of London Clubs
British Hospitality Association
British Property Federation
City & Westminster Property Associations
East End Traders Guild
Federation of Small Businesses
London Chamber of Commerce
London First

London BIDs, representing over 16,000 businesses throughout London
Baker Street Quarter Partnership
Brixton BID
Camden Town United
Fitzrovia Partnership
Harrow Town Centre BID
Hatton Garden
Heart of London Business Alliance
Marble Arch BID
New West End Company
Orpington 1st
Paddington BID
Stratford BID
Successful Sutton
The Northbank
The Old Street Partnership
This Is Clapham BID
Urban Partners
Vauxhall One
Victoria Westminster Partnership