A sharp rise in business rates for offices in the City of London is threatening to undermine the Square Mile’s drive to remain a key financial centre in Europe after Brexit.
The business rates bill for offices in the City will rise by £1.4bn, or 33%, over the next five years.
This means the 12,348 office addresses in the City will see their overall rates bill rise from £876m in this financial year to an average of £1.16bn a year over the next five years, according to property agent CVS.
The bill will be picked up by occupiers of the offices, and is a new blow to the City’s banks, law firms and insurance companies as they weigh up their options after Britain’s vote to leave the European Union.
Goldman Sachs, Nomura and law firm Linklaters all face tax rises, as does the Bank of England, which will pay £21m in business rates over the next five years and faces an increase of more than £1.5m a year on its Threadneedle Street headquarters.
The disclosure of the bill for the City will increase the pressure on the government to make changes to the business rates system in the budget next month.
Sadiq Khan, the mayor of London, said the business rates increase facing thousands of businesses across the capital – including small high street shops, pubs and restaurants – is “unacceptable”.
The overall increase in the business rates bill for London is expected to be £9.4bn over the next years.
In a letter to property representatives, seen by the Guardian, the mayor said he is working with the local authorities in London to push the government to devolve more responsibility for the tax to the capital. This could allow London to be “decoupled” from national revaluation arrangements, he said, by valuing its own properties and setting its own tax.
At present all properties in England are valued by the Valuation Office Agency (VOA). The business rates bill is then spread out across all properties, with the most valuable paying the highest tax. Business rates have already been devolved to Scotland, Wales and Northern Ireland.
The increase in business rates from April is the result of a new revaluation of the rental value of property in Britain. This is supposed to take place every five years but the previous revaluation was controversially delayed by the government for two years, making the change in bills from April more pronounced. London will be particularly affected because the rental value of property in prime areas has increased substantially since the financial crisis.
Khan said in the letter: “The GLA is working with London councils and the leaders of the 33 local authorities in London to encourage the government to devolve more responsibility for the administration of business rates to the capital.
“This would include devolving responsibility for the VOA to London government which would allow the capital to be decoupled from the national revaluation arrangements. Such devolved arrangements already operate successfully in Scotland, Wales and Northern Ireland.
“This reform would potentially allow us to avoid a repetition in five years’ time of the very large increases in bills which have arisen in London as a result of the 2017 revaluation. It would also provide us with an opportunity to ensure that the VOA locally is adequately resourced to deal with the challenges of managing business rates in capital moving forward.”
Mark Rigby, the chief executive of CVS, backed the prospect of London taking more control of its business rates.
“With £9.38bn of business rates increases looming for London’s 32 boroughs and the City over the next five years, and as we head down the path of fiscal devolution for the capital, a system which works better and more efficiently for businesses in London could not be more important,” he said.
“I support the mayor on his forward-thinking approach that London should have more power over the valuation of it’s commercial properties, and subsequently, with the right support for the Valuation Office Agency, this should lead to a swifter resolution of appeals for the capital’s ratepayers and provide greater political, local accountability.”
The government is already pressing ahead with plans to allow parts of the country, including London, to retain 100% of their business rates by 2020. However, there are concerns this could leave some local authorities underfunded.
Despite criticism of the business rates increases scheduled for April, the Department for Communities and Local Government, which oversees the system, has said it is fair because the revaluation reflects the state of the property market. Many businesses based in less affluent areas will see a cut in their rates bills as a result of the changes.
A spokesman for the government said: “Our financial services sector makes a crucial contribution to our economy and we’re determined that it continues as the hub for both Europe and the rest of the world.
“This revaluation improves the fairness of rate bills by making sure they more closely reflect the property market. That means nearly three quarters of businesses in England will see no change or even a fall, and for the minority who do face an increase – including those in the City – we have introduced a £3.6bn transitional relief scheme.”
