Tens of thousands of London companies are believed to be mutinying against the taxman by refusing to pay business rates for the three months of the coronavirus lockdown.
In light of the pandemic, the government has handed firms in the retail and tourism sectors a year-long holiday on the tax, which is applied to companies’ commercial premises.
However, office-based companies are furious they have not received any help paying their business rates, after most workers were effectively banned from their workplaces throughout lockdown.
David Jones, business rates principal at Avison Young, told City A.M. the number of businesses who have not paid is “quite comfortably tens of thousands, without a shadow of a doubt”.
Meanwhile John Webber, business rates lead at real estate agent Colliers, said that around half of his office-based clients have decided against paying business rates for the period.
“Some clients have taken the view that they shouldn’t pay. Others have realised that they can’t afford to pay,” he said.
“If you’re not earning any income and your offices are vacated, it’s not hard to imagine that people would take the view that they would rather actually stop those payments going out.
“That’s what a lot of people did, because effectively the shutters had come down on any commercial activity for those three months.”
Jones said a similar proportion of clients have withheld payments.
“Obviously they are hoping the government will provide some help. But why should companies feel they have to break the law to safeguard their businesses? That feels unfair.”
Business rates: ‘A make-or-break issue’
Catrin Diamantino, CEO of English language learning agency Bell Educational Services, told City A.M. that she had not paid business rates on her Southwark premises throughout the lockdown.
She said the company has had no way of making cash, and none of her 80 full-time staff or temporary teaching staff are allowed to use the office.
“Since March our business has been completely shot. We have had no way of making any income since the lockdown happened. We can’t go to work and we can’t teach our students,” she said.
“We have been trying to do everything we can to manage our cashflow.
“But whether or not we have to pay our business rates is really a make-or-break issue in our industry, particularly for London-based companies where the business rates are quite high.
“Authorities in London have particularly been very unhelpful. It is a postcode lottery over whether we have to pay or not, and over whether your business can survive.”
Meanwhile, one professional services company based in the City, which employs about 450 staff, said: “Why has the government only helped the retail and leisure sectors?
“My central London office business is equally incapable of paying their business rates.”
Business rates black hole for local authorities
Concerns are also growing over the size of the financial black hole that will be left in the wake of companies not being able to make their payments.
Avison Young’s Jones warned that central London councils stand to miss out on hundreds of millions in unpaid business rates for the lockdown period.
Central London offices in the boroughs of City of London, Westminster, Tower Hamlets, Southwark, Lambeth, Camden and Kensington and Chelsea, account for around £3.9bn, or about 15 per cent, of 2020/21 net business rates collected across England, according to Avison Young research.
Jones estimated that between 30 per cent and 40 per cent of central London office occupiers have so far not paid any business rates for the lockdown period.
When that is applied to the three months of lockdown, it means that as much as £375m across the central London boroughs may have gone unpaid.
How it works
Central government decides who gets made exempt from business rates. But local authorities collect the funds, and have been left to decide what to do about companies who did not get the year-long rates holiday but still cannot pay.
While some local authorities have been lenient, others are already moving to recover the cash.
Last week, City A.M. revealed that Westminster City Council has already told companies to pay up.
Westminster told one company that empty rates relief was “not applicable due to Covid-19”. Instead the council advised the person to seek specific hardship relief.
“In the meantime, I advise that you pay as much as you can, when you can,” the council wrote in a letter. “Please be assured that all recovery action is temporarily on hold.”
Webber, of Colliers, said: “For a lot of companies, because they couldn’t see where this was going to end, they would much rather deal with the consequences of an aggressive billing authority as and when that happened.”
Jones added: “Billing authorities are hiding behind legal technicalities around what is deemed empty, because the government will not step in.
“The central London office sector is not some sort of cash cow, being far from immune to the serious financial impact of the pandemic.”
He added that the government should “free up councils to be more sympathetic, and to re-profile rate bills over the next two years”.
City A.M. has approached local councils for comment.
Calls for rates reform
The mutiny comes amid growing calls for the government to overhaul the business rates system entirely, given that more companies than ever will be operating remotely in the wake of the pandemic.
Polling by the London Chamber of Commerce and Industry (LCCI) indicates that more than one in 10 business leaders will shift to working from home permanently in future.
The same respondents said they would not use a permanent commercial office as standard practice after the lockdown ends.
Richard Burge, chief executive of LCCI, said: “Business rates have long needed reform, but the decision has been kicked down the high street by various governments.
“Post-lockdown the system needs reform more than ever, as our research shows an increasing number of businesses saying they will not return to a permanent premise. And previous rate payers will have sadly gone out of business.
“It’s of course vital that however a business operates that it contributes to sustaining public services.
“But having a system of taxation based on land value doesn’t align with the modern world of business, nor does it adequately allow for reduced output during this crisis.”