What Impact Will Mayor Khan Have on London’s Business Rates?

Two months after he was voted in as the Labour Party’s candidate for Mayor of London, Sadiq Khan tweeted about his intentions regarding the capital’s impossibly high business rates:

Sadiq Khan tweet

Sadiq Khan set out his stall on London’s businesses early, and his pledge to be “the most pro-business Mayor London has ever had” was a cornerstone of his campaign. He spoke out about business rates and stated that, as “small businesses are the lifeblood of London’s economy…it is vital that control of business rates is devolved…in such a way that it doesn’t simply result in more cuts for London [over other parts of the UK].”

Khan’s nearest rival, Conservative MP Zac Goldsmith, also made reducing business rates a part of his “blueprint for London business.” However, many in the press chose to back the Labour candidate for his views towards SMEs, with CityAM calling Khan a genuinely pro-business candidate.”

Not even a fortnight into his mayoralty, however, and Khan is already facing pressure from the Federation of Small Businesses. A recent survey conducted by them stated that 37% of polled small business owners wanted business rates reform to be a priority within his crucial first hundred days in office. So what does Mayor Khan need to do to make London’s business rates fairer and better for the city’s businesses?

Why are business rates important?

Business rates are the taxes levied against any properties being used for non-residential purposes. This stretches from shops and pubs to warehouses and offices, and therefore impacts businesses in all industries. Unoccupied buildings are also subject to business rates, even if renovation work is being undertaken. In recent years, vacant property security companies like Oaksure Property Protection and Ad Hoc have offered live-in property guardians for such buildings, which provides deterrence against theft, while also saving businesses money on their rates.

Grafton Way shops, London

photo credit: Luc Mercelis / Flickr

There are exemptions for conventionally occupied buildings as well – churches and charity buildings, for example – and some properties are eligible for rates relief. However, the legislation surrounding this varies across the United Kingdom.

The last nationwide business rates revaluation took place in 2010, based on property prices from two years previously, at the height of the housing crisis and credit crunch. Another was due to take place in 2015, though this was postponed until 2017, a decision which was met with anger from the country’s businesses at having to pay inflated rates based on outdated information.

According to Gerald Eve, one of the country’s leading business rates advisory firms, companies operating in London are set to face a combined £7.5 billion rise in business rates once next year’s planned business rates revaluation takes place. This figure was determined through the company’s own research, conducting a “shadow revaluation” for their clients, allowing them to appropriately budget for the future.

How has Mayor Khan promised to help businesses?

As part of his self-described aim of “building a coalition for shared prosperity,” Khan has assured SMB owners that he will work with the Chancellor to allow their business rates to be altered, in order that more businesses can afford to pay the London Living Wage. In February, he told The Economist that, were control of business rates given to the Mayor, “we could say to small- and medium-sized businesses: we will reduce your business rates if you pay the London Living Wage.”

Economic powers devolving to a Khan mayoralty could be a crucial goal for SMBs, as even major chains are struggling to manage the London Living Wage fairly; for example, Eat have stopped giving their employees paid lunch breaks since the LLW was introduced. Councils in London boroughs such as Lewisham and Greenwich began offering discounts on business rates earlier this year, in order to incentivise companies to adopt the LLW.

With business rates remaining expensive and strictly-enforced – even in an age where the majority of shoppers use online retailers with no high street presence of their own – hopefully Sadiq Khan will keep his promise to be the most business-friendly mayor that London has seen, and finally bring about meaningful business rates reform.

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