Nearly three-quarters of small companies in London say business rates are the most important issue they face, piling further pressure on the government over the controversial tax.
The Federation of Small Businesses (FSB) warned that London was in “serious danger of losing its vital support system of micro and small businesses”. The average micro business, which employs fewer than 10 people, will have to pay £17,000 to cover business rates from April, it added.
The trade body’s warning comes a day after the government accused critics of “scaremongering”, saying that three-quarters of firms would see either no change in their business rates or would see them reduced.
Other influential trade bodies, including the Institute of Directors and the British Chambers of Commerce, have already called on the government to overhaul the tax.
The change in business rates payments from April is down to the revaluation of property in Britain. This is supposed to take place every five years but the previous revaluation was controversially delayed by the government in 2015 for two years, making the revised bills more pronounced.
The revaluation is likely to benefit struggling high streets in northern England. London, however, will record an increase of around £9bn over the next five years.
A survey by the FSB and trade body Camden Town Unlimited, found that rates were the biggest issue for 74% of small businesses in London, ahead of economic uncertainty and problems in recruiting staff.
Four in 10 businesses that are paying rates said they expected a rise of more than 20%, while three in 10 said they were unsure what the changes from April would mean.
The FSB and Camden Town Unlimited called for the rates threshold in London to be increased, allowing more small firms to avoid the tax.
Sue Terpilowski, the FSB London chair, said: “London is in serious danger of losing its vital support system of micro and small businesses.
“The business attraction of London is that it has a strong ecosystem of support services from the micro and small business community. Some of these businesses are the ones that become high-growth companies from a standing start, often in the hi-tech sectors.
“We must ensure that this support system remains in place to keep the UK economy and the London economy thriving. We need to realise that the hard costs of operating a business in the capital are starting to outweigh the benefits, which simply does not make economic sense – and so tackling these burdens at the spring budget is critical.”
The government defended business rates on Thursday. David Gauke, chief secretary to the Treasury, said: “Far from the picture painted by scaremongering ratings agents, nearly three-quarters of businesses will see no change, or even a fall, in their business rates bills.
“The fact is that the generous reliefs we are introducing mean that 600,000 small businesses are paying no business rates at all – something we’re making permanent so they never pay these bills again.
“Whether on a town’s high street or in a rural community, we’ve also introduced £3.6bn in support for companies affected by the business rates revaluation – a process that is making the system accurate and fair for everyone.”
However, accountants urged the government to reconsider the rates system because of the uncertainty caused.
Chas Roy-Chowdhury, head of tax at the Association of Chartered Certified Accountants (ACCA), said: “The government should ensure that this is not introduced at the expense of the competitiveness of UK plc as a place to work and to locate a business.
“The system also needs to take account of fairness when some high-street shops will be hit by hikes of over 400% on current rates, while online retailers will see rates cut in many instances.
“For many of the productivity-boosting[small to medium enterprises] up and down the country, increases will eat into disposable income which could better be spent on investment, recruitment or research and development.
“This is particularly important given the low levels of confidence following the result of the referendum on the UK’s membership of the European Union and looking ahead to the longer-term effect of the devaluation of sterling in increasing supplier costs.
“The government should revisit these proposals and carefully consider if the revaluation is the best way to raise revenue from the UK’s thriving small and medium-sized businesses in an era of high uncertainty.”
Winners and losers
Queen Elizabeth hospital in Birmingham Hospitals face a £322m or 21% increase in their business rates bill over the next five years. The worst affected is the Queen Elizabeth in Birmingham, where the rates bill will more than double to £6.9m a year.
Bank of England A £1.4bn, or 33%, 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. For example, the Bank of England faces an increase of more than £1.5m a year on its Threadneedle Street headquarters.
Sport Direct warehouse Mike Ashley’s Sports Direct will save almost £900,000 in business rates over the next five years on its warehouse in Shirebrook, Derbyshire, which has been compared to a Victorian workhouse. This saving will almost cover the £1m the company owes in back pay to thousands of workers after admitting it had paid them less than the minimum wage.
Nuffield Health hospitals Private hospitals have fared better than NHS hospitals in the government’s revaluation. Their rateable value has increased by 9.6% compared with an extra 19.8% for NHS hospitals. In addition, some private healthcare providers, such as Nuffield Health, also enjoy an 80% discount because they are registered charities.
Blackpool high street Struggling town centres with a high proportion of empty shops will benefit. Rates bills for shops on Blackpool high street will fall by around half.
The O2 London will suffer an increase in its business rates of more than £9bn over the next five years. The capital’s landmarks are among the buildings most affected, with the O2 set for a 142% rise.
What are business rates?
Business rates are a tax on non-domestic or commercial properties in Britain. The principles behind the levy originated in the 1601 Poor Relief Act, which charged property owners a tax to help support the poor. It has become one of the Treasury’s biggest sources of income, bringing in nearly £29bn last year.
The tax is calculated via the rental value of commercial property and the annual rate of inflation. The overall tax take for the Treasury is supposed to remain flat in real terms, but a revaluation of property every five years is designed to ensure the tax burden moves in line with the economy.
