London, 15 July 2009

The Mayor of London, Boris Johnson, has called on the Government to drop plans for a 10 per cent hike in business rates, which will hit London and its businesses far harder than the rest of the UK. London already pays over £400m a year more to the Government in business rates than it gets back in grants to fund local services. If these proposals are implemented it would add £565 million to the costs of the capital’s businesses by 2015, resulting in London subsidising services in the regions to the tune of nearly £1 billion a year.

The proposals would see business rates in London rise by an average of 10 per cent, before inflation, over the next five years, but commercial offices and supermarkets could see average rises of 20 per cent and more by 2014-15. Every other region, apart from the south west, will see falls in rates bills. Businesses in regions like the West Midlands and the South East would see falls in their rate bills of seven and five per cent respectively, as well as receiving money that should remain in the capital. The East Midlands will see a 10 per cent average drop.

The Mayor said: ‘These poorly thought out plans will hit London the hardest and at the worst possible time, as we begin to emerge from this recession. It is grossly unfair to bleed the capital of the hundreds of millions of pounds its businesses need to subsidise services in the regions. In effect London is being punished just because it happens to have a volatile property market.

The Government has published average rateable value data for the whole of London and increases in parts of Westminster, Mayfair, Paddington, Camden and Canary Wharf could be much higher as these areas saw the largest increases in rental values between 2003 and 2008. They are home to many multi-national companies in the financial, banking, creative and commercial sectors who are key to London and the UK's future economic growth and prosperity. If these companies are driven out of London by rising tax burdens there is a risk that they will simply relocate abroad placing jobs and tax revenues at risk.

“The Government’s plans to offer transitional business rate relief are a mere drop in the ocean to businesses that are really struggling, and I urge them to reconsider the impact of such an arbitrary hike before it sets its final levels for business rates in the autumn.”

The Department for Communities and Local Government’s plans are based on property valuations as at 1st April 2008, when rental values in London were at their peak, and before the recession took hold. Since then commercial rents in London have plummeted by up to 40 per cent.

Under the government’s scheme for phasing in these changes some businesses in the capital could see increases of 12.5 per cent next year, with a potential doubling of their current rate bills by 2015. Commercial office blocks as well as businesses located in parts of central London and Canary Wharf – which are critical to London and the UK’s future economic growth - are expected to be amongst the worst affected.

Although the new rates will be phased in over four years, under these proposals, many large businesses in London could see rises of 12.5 per cent next year with a five per cent increase for some small businesses before inflation. The Mayor believes the Government should provide one-off funding to ensure no business ratepayer sees a rise in their bills next year, before inflation, so that the UK’s economic recovery, in which London plays a critical role, is not put at risk.

The Mayor also believes the Government should review the operation of the whole business rates system, to assess how it could be more responsive to the sort of extreme market conditions that have been experienced in commercial property over the last 18 months. It cannot be acceptable to introduce new rateable values in London next April, based on rental data which is 18 months out of date and overstated by up to 40 per cent.