Sadiq Khan and business groups urge Hammond rethink on London business rates hike

London’s mayor Sadiq Khan and an array of its business organisations have warned chancellor Philip Hammond that his plans for substantial increases in business rates in the capital could mean the closure of many of its independent traders, damaging its high streets and lessening its appeal for visitors and investors.

A letter from Khan, the London Chamber of Commerce and Industry, the Federation of Small Businesses in London and over 20 Business Improvement District bodies as well as London Councils argues that the scale of suddenness of the increases, which they say will hit more than 7,500 businesses with annual increases of 45%, will particularly hit retailers, restaurants, theatres and clubs in areas such as Chinatown, the West End and Inner London areas like Hackney and Islington which have seen huge increases in property values.

Characterising the proposed revaluation of rates as still “skewed and unfair” despite some concessions in the autumn statement, Khan says they will create a “double whammy” for London’s economy alongside the “uncertainty created by Brexit” and has renewed a call for a gentler transition to the increased rates and further devolution of fiscal powers to London in order to address the issue better.

“When London’s economy thrives, the benefits are felt far beyond the capital,” the letter says. “Likewise, when London’s economy struggles this has a knock-on effect on employment and connected businesses in other towns and cities, as well as national tax income.”

Recent FSB research has found that businesses in the capital with fewer than ten employees will, on average, be paying £17,000 in business rates from April, with many linked to the night time economy set to faces rises close to 50%.

It also has concerns about the effect of the policy of permitted development rights across London, which enables the easier conversion of office space for residential use. FSB London chair Sue Terpilowski says that more than 1.47 million square metres of office floorspace could be lost as a result and claims business rate pressures can only increase this figure, “thus removing vital business rate revenues to the Treasury”.

The business rate rises faced in London stand in contrast to reductions lined up for other parts of the country. These revaluations reflect the growing divergence of property prices in general between the capital and the rest of the country.

The Institute for Fiscal Studies calculated last autumn that “increases in the value of non-residential property in the capital are set to raise rates bills by 11% on average” and concluded that the trend is for national government to become “more and more dependent on revenues – from many other taxes, like income tax, as well as from business rates – from London to fund services across the country as a whole”.

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