London will get the biggest share of a bailout for business rates losers as Philip Hammond finds “new money” in this week’s Budget to buy off furious protests from small firms, it is revealed today.
Traditional retailers and firms facing crippling increases of 50 per cent or more are expected to be favoured in funds totalling “hundreds of millions” of pounds.
The Chancellor will also use his big speech on Wednesday to signal that the entire system of business rates need a fundamental overhaul to cope with the rise of online commerce.
The cash injection will be mainly drawn from the Treasury’s reserves, reflecting the huge priority in government to appease leaders of hard-pressed small businesses.
A government source said: “Philip Hammond knows that this is a major political problem that must be dealt with.”
The Evening Standard understands that the bailout will include different forms of help. According to well-placed sources, the key features are likely to be:
Special help for firms facing “cliff edge” hikes in their rates, allowing local government to reduce the bills sent out.
Sectoral funds for industries such as retail and offices that are suffering the biggest hit following steep rises in property values in town centres, especially within the M25.
A firm commitment to hold business rate revaluations more regularly in future, to avoid this year’s jump caused by the first revaluation since 2010.
The London region will be the biggest beneficiary in the bailout, but will continue to be the biggest loser overall among the regions because of its property boom.
London Tory MPs had private meetings last week with Communities Secretary Sajid Javid and Treasury minister Jane Ellison, who is MP for Battersea, to express their concerns and are said to have found the ministers “in listening mode”.
Bromley & Chislehurst MP Bob Neill said: “Ministers have met London backbenchers and made the case that we need action to ameliorate the disproportionate cost of business rates in the capital. It was very positive.”
The government source said Mr Hammond would say the rates system has become out of date: “Since 2010 the world of retail has been transformed. There needs to be longer term reform that addresses the bricks and mortar versus online shopping.”
Revaluations are likely to be held every three years. “That applies especially to London where the property market has exploded,” said the source. “It may be okay for the rest of the country but not for London.”
Writing in this newspaper, London Mayor Sadiq Khan urges the Chancellor to drop what he calls “a gigantic increase in business rates that threatens the future of thousands of successful small business in the capital”.
Official figures show London’s retail sector is being hit by a 26 per cent rise in rateable value since 2010 — the biggest increase in any sector, and six times the national average.
Offices in London have seen a 21 per cent rise in rateable value, twice the national average. The valuation for industrial premises has shot up 15 per cent in London, nearly four times the average.
The think tank Centre for Cities claimed the shake-up was good for northern cities, saying only London and Reading would lose out on average.
Andrew Carter, director of research and policy, said: “Despite widespread concern, business rates changes will benefit the vast majority of firms.”
Tory MP Kit Malthouse told BBC Radio 4 that long-term reform was overdue. “We are struggling with a tax designed, I think, in 1572, in an internet age.
"The nature of business has changed, the Treasury loves [business rates], because it’s really easy to collect […] but nevertheless it has some serious side effects.”