Entrepreneurs and tech leaders are urging the chancellor Philip Hammond to exempt newly created companies from business rates, adding their voice to a growing chorus of anger at the burden of an imminent rise in costs, and calls for reform.
A three-year exemption would give startups breathing space and a chance to find their feet while establishing themselves, they argue, in an open letter. The push was spearheaded by the founder of co-working space Central Working, James Layfield, ahead of tomorrow’s spring Budget.
The bosses of several tech groups have also put their names to the letter: Tech City UK chief executive Gerard Grech, Tech London Advocates founder Russ Shaw and Techstars chief executive Max Kelly.
The 20 tech leaders and entrepreneurs warn that failure to reform the tax will benefit the numerous European cities vying to steal the UK's crown as the tech capital of Europe after Brexit.
"Rival technology hubs such as Amsterdam, Berlin and Paris are looking to capitalise on Brexit uncertainty by aggressively marketing to British startups. A significant rise in business rates will only strengthen their hands," the signatories warn.
"We welcome any short term relief you are able to provide to help those who would be worst affected by higher rates. However, we believe that the time has come for a full scale review of the business rates regime. This should start with an open dialogue with industry to explore how the system can better reflect our changing economy."
Separately, Shaw also warned that it could spur startups to leave London, which is disproportionately affected by the rise as it is calculated on property values.
He said firms might look beyond moving to more affordable boroughs, to make a far greater leap to other cities in the UK and away from London altogether.
“We don’t want to disincentivise startups. We don’t want them to move away for no good reason, we want them to grow and expand to new regions for positive reasons. [Business rates] is a negative incentive that pressurises startups and scale-ups, and could prevent London from being an economic engine of growth for the rest of the country.” he said.
“Business rates will send London backwards,” he added.
Another senior industry leader told City A.M. the business rate hike was punishing growth, and would have an even greater impact on high-growth scale-ups choosing offices with more space than needed initially with plans to grow into in the future.
"It's a bad thing for growing tech companies," said Ben Brabyn, head of Level 39 at Canary Wharf. "We should be designing a tax system to encourage employment and growth and this rate system doesn't do that."
Central Working, which has five spaces in London, one in Cambridge and one in Manchester as well as locations in New York, Mumbai, Tel Aviv and Capetown, along with other co-working spaces across the capital will also be stung by the rate rise.
It's understood Central Working will shoulder the cost and not pass it on to members through increased fees when it comes into force in April. Level 39 will also absorb the costs.
"Business rate reform would demonstrate that this country recognises the challenges facing startups and is eager to provide progressive, innovative solutions.In recent years London has done a tremendous job in welcoming, nurturing and encouraging new tech startups, and I firmly believe that the city is unrivalled as the location of choice to launch a tech business," said Layfield.
"We now face a real opportunity to go a step further and show that London and the UK are not only open for business, but are actively supporting the next generation of innovative entrepreneurs. I would urge the chancellor to heed this letter, which is supported by some of the Capital's biggest names in technology."