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For The UK's Sake, London's SMEs Shouldn't Be Penalised

10/04/2017 11:55 BST | Updated 10/04/2017 11:55 BST
Tim E White via Getty Images

Small businesses in London are being forced to 'take one for the team'. The new business rates that came into force this week reflect changes in property value since the 2008 recession. In London, where the property market was largely unaffected by the economic downturn, business rates are rising by an average of 11%. In some areas of the capital, rates are going up by 85% or more.

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For most of the country though, property value was hit hard by the 2008 recession, and rates have fallen giving businesses some needed relief. The Government claims that businesses in 80% of council areas will see an average fall in their business rates bills.

But here's the rub - the UK's regional economies do not exist in silos. They are an interconnected web, and for better or worse, London is at the centre of it. In many cities, businesses that have their headquarters in London account for a high proportion of private sector employment. In York, Cambridge and Cardiff for example, London headquartered businesses comprise a fifth of private sector employment. London is also a net importer of approximately £126 billion of goods and services from the rest of the UK, and brings in a third of the Treasury's 'economy tax' intake.

UK PLC benefits when the London economy is strong, but also suffers when conditions in London are destabilised. For these reasons, regional leaders should be concerned about what we are hearing from businesses in London. A recent survey of London SMEs by the Federation of Small Businesses found that the rise in business rates will lead 27% of small businesses to shut down, 19% to relocate, 21% to reduce headcount, and 37% to cut back on capital expenditure.

Considering that SMEs represent 99% of all London private sector businesses and around half of all employment, these findings are very worrying for the state of London's economy. It may be tempting for policymakers to assume that London's relative economic strength gives it enough of a buffer to take a hit, but that strength depends on SMEs' continued ability to thrive. London's SME's therefore can't be expected to 'take one for the team'. The relief measures introduced in the Spring Budget will do little to soften the impact on London, and many small businesses have already been forced to relocate in anticipation of the new rates coming into effect. It is time to look beyond mitigation to exploring bolder and fairer options for business taxation that better reflect Britain's 21st century economy.

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