Massive business rate hikes will be a disaster for growth and investment in London
Hundreds of thousands of companies across the UK are nervously awaiting today’s release of new property valuation data that will determine how much they will have to pay in business rates. As if the prospect of having their rateable values reassessed after a seven-year gap wasn’t scary enough, government announcements this week create a toxic mix for firms, especially in London and the South East.
The business rates revaluation will bring about the largest changes in the levels of business rates for a generation and will hit London and the South East particularly hard. The government’s decision to postpone the revaluation (it’s meant to happen every five years) was foolish and now the chickens have come home to roost.
The delay of the revaluation was the equivalent of having a “Stamp Duty holiday” in the middle of a housing boom and the large increases across London and the South East clearly show our fears have come true. By delaying, it has helped fuel the growth in rents in the most popular areas while at the same time assisting in depressing rents in the poorest.
The government’s announcement on the transitional relief it will offer in order to make these big changes easier will also send a shiver down the spine of many central London occupiers. The government has proposed to “limit” increases in rates liability to an eye-watering 45 per cent in year one with an additional increase of a further 50 per cent in year two.
The increase in total by 2018 will be over 100 per cent once inflation, and the lack of transition on the supplements, is taken into account. This is for what the government describes as “large business premises”. In actual fact, it is for properties with a rateable value in excess of £100,000 – a modest shop, restaurant or office suite in London would have a rateable value well in excess of that.
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Owing to an error by the Valuation Office Agency (VOA), new rateable values were accidentally made live on the VOA website for a brief period. Colliers was able to reveal 50 per cent rateable value increases for some of the floors in The Shard and 100 per cent increases in Bond Street. Regent’s Street can expect close to 40 per cent increases for prime retail locations whereas Euston Tower can expect between 30 and 40 per cent increases in rateable value.
Regent's Street will see big hikes in rates (Source: Getty)
In parallel, the government is attempting to steadily dismantle the means of appealing a business rates valuation. So-called “Check, Challenge, Appeal” is a disaster-in-waiting and an affront to democratic principles of taxation. There are still over 300,000 outstanding business rates appeals in the system – which has ground to a halt over the last 12 months. The VOA remains under-resourced, undermined and demoralised at every turn: a very difficult place to work.
Among massive rates increases for central London retailers, Colliers also predicts that firms in the capital’s 20 tallest skyscrapers will have to cough up an extra £50m over the next three years as bills go from £194m to £243m.
For London, these business rates bills will curb growth and investment for what is our main engine house. At the same time, they will offer very limited relief for those areas of the country that really need support. Today is a grim day for business owners up and down the land.