The upcoming change in how business rates are calculated will affect far more office-based firms in London than elsewhere and may cause a rise in closures, according to a new report.
The business tax reforms, scheduled for next April, will introduce a higher rate of payment for properties worth over £500,000.
The new multiplier for each band will be finalised in the 2025 Autumn Budget, with the final list expected by December 1.
In London, 16,780 properties have a rateable value of £500,000 or more and will be subject to tax increases under new reforms, according to Search Acumen.
The capital’s offices will be hardest hit by the tax hike, with London accounting for more than two-thirds of all office space in the new top band.
Andrew Lloyd, managing director of Search Acumen, said that the prospect of higher business rates “risks choking investment, jobs and growth”.
“Hiking costs in a low-growth, high-inflation environment is a risky move,” he said.
Business investment fell by four per cent in the second quarter of the year despite moderate growth of 0.3 per cent.
London’s productivity sank to below pre-pandemic levels earlier this year, with economists pointing to post-crisis constraints in the financial sector, difficulties in attracting talent and weaker investment in high-growth areas.
“For firms already squeezed by payroll costs, we may see an increase in mergers, acquisitions and business closures,” Lloyd said.
“If cashflow margins collapse under rising tax pressure, property sell-offs, higher vacancy rates, reduced investment and property devaluations in some parts of the market are all possible.”
Overall business rates could rise by an estimated 26 per cent across the capital, from £9bn to £11bn, according to the Heart of London Business Alliance (HOLBA).
Small firms under pressure
Niki Fuchs, co-founder and CEO of leading London office provider Office Space in Town (OSiT), added that there’s another potential change in the works that may push up office bills.
“The Chancellor [has] hinted at changes that would see serviced offices and flexible workspaces assessed as a single property rather than as individual suites,” he said.
The practice, which has been increasing over the past few years, drastically pushes up bills.
“The implications for the UK’s business ecosystem could be devastating,” Fuchs said.
“If these premises are treated as one large unit, individual tenants would no longer qualify for Small Business Rates Relief and dramatically increase their occupancy costs at a difficult time when tenants can least afford it,” Fuchs added.