Tuesday 28 February 2017 4:45 am

The costs of running a business in London are starting to outweigh the benefits

The late, great Robin Williams once said: “Spring is nature’s way of saying, ‘Let’s party’.”

When the chancellor stands up to deliver the last ever Spring Budget next week, however, small businesses in London are likely to be putting party plans on hold unless Philip Hammond can pull the miraculous business rates “rabbit out of the hat” they are wishing for.

Three quarters (74 per cent) of businesses who responded to a recent survey by the Federation of Small Businesses said business rates were one of the main issues affecting their company, followed by economic uncertainty on 36 per cent, and recruiting the right staff on 33 per cent.

London is in serious danger of losing its vital support system of micro and small businesses. Our data shows that the average micro business will have to pay £17,000 in business rates from April this year following the much-criticised revaluation.

Read more: Spiking business rates will lead to an East London tech exodus

So we are calling for the chancellor to create an increased inner and outer London small business rate relief (SBRR) threshold to limit the amount firms will need to pay, reflecting the specific problems faced by small companies in the capital. In inner London, the threshold should be set at £20,000 rateable value for 100 per cent relief, tapering to £23,000. In outer London, where rateable values have increased by a lower percentage, we believe the threshold for 100 per cent relief should be set at £15,000 tapering to £18,000.

Increasing the thresholds to £15,000 in outer London and to £20,000 in Inner London would cost around £100m. This is a comparatively small amount in the context of the £28bn revenue derived from business rates nationwide.

But rising business rates must not be viewed in isolation, as small firms will face an extra £2,600 in employment costs from government policy in the 2017-2018 tax year, further inflationary pressures and the uncertainty of Brexit.

The Spring Budget 2017 is a critical moment for the government to show it is unashamedly pro-business, and that the chancellor recognises that small businesses are the engines of job creation. Spiralling labour costs are now threatening their growth ambitions. The Employment Allowance, created under the previous administration, has been a huge success and now it is time for this government to build on that, and help us to create the new jobs and growth that this country needs.

Read more: Be under no illusions: The National Living Wage will cost jobs

The government’s approach to the self-employed will define just how pro-business it is too. A statutory definition for this group is long overdue and would be welcomed in the Budget.

We are also urging the chancellor to reconsider its policy of relaxing the conversion of office space to residential space through Permitted Development Rights (PDR) – before it becomes a London crisis similar to housing. The facts are striking. More than 1.47m square metres of office floorspace could potentially be lost in PDR prior approvals. The impact is strongest in outer London where almost 20 per cent of the stock could be lost.

We are therefore advocating for a new policy whereby any current so-called B1a office or B1c light industrial space in Greater London that is over 20 per cent occupied (measured by floorspace in business use) cannot be converted under PDR.

Read more: Khan must ignore the Nimbys and look to the Greenbelt for housing

London’s attraction to business is that it has a strong ecosystem of support services from the micro and small business community. Some of these firms will themselves become high growth companies from a standing start, often in the high tech sectors.

We must ensure that this support system remains in place to keep the UK and London economy thriving. We need to realise that the hard costs of operating a business in the capital are starting to outweigh the benefits.

A good spring clean of the burdens on business at the Spring Budget would be manna from heaven for the micro and small companies that make up 99.4 per cent of all London firms.

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