Central London office occupiers already battered by the credit crunch face further financial blows with potentially massive hikes in business rates bills, government figures revealed today. London's rateable values presently make up 25% of the total of the whole of England, with inner London contributing over 16%.
The next general rating revaluation comes into effect 1 April 2010. All properties will be assigned new rateable values based upon rental values and economic circumstances as they were two years earlier, on 1 April 2008, known as the Antecedent Valuation Date. However this ignores the current impact of the credit crunch and recession.
Assessments for many modern West End offices could easily double based on rental growth until the April 2008 valuation date. The worrying news for London today emerged from the government as it revealed generalised information on regional and main sector impacts of next year's revaluation. On average, London assessments will increase by close to 30%.
Jerry Schurder head of business rates at Gerald Eve which advises 40% of the FTSE 100 said: "Central London businesses will feel aggrieved with hefty rises in business rates when they can least afford it. The economic climate today is very different from April 2008 with many of the gains of the bull market scythed away by the credit crunch."
The government will not impose the full increases immediately and is consulting about how it phases in increases and decreases in business rates bills. It proposes capping increases in 2010/11 at 12.5%. Schurder said: "This is the same percentage cap as was applied following the revaluations in 2000 and 2005, but in the depths of a recession, many businesses will find this unaffordable.
Schurder added: "London businesses face a double whammy with additional property tax burdens from the planned Business Rates Supplement for Crossrail. From April 2010 all properties in Greater London above a Rateable Value (RV) above £50,000 will be hit with an additional 2p per £ of RV in order to assist with funding the development of Crossrail. This represents a further 4.5% on rates bills which will be imposed on top of the 12.5% transitional relief cap."
The cost to the Exchequer of phasing in increases in 2010/11 is going to be far greater than at the previous revaluation in 2005/6, primarily because of the London effect. The Government intends to recoup this £2 billion cost from other businesses, by denying immediate full reductions to those whose bills should fall as a result of the revaluation. They will be allowed to reduce by only 4.6% next year.
Schurder criticized this as "all but negating the purpose of revaluations. The Government has presented the £2 billion relief scheme as if it is funding the cost, but the truth is that it is the 60% of businesses that ought to be benefitting from the revaluation who are meeting the bill by having their reductions capped and phased in".
"Revaluations are intended to redistribute liability in line with relative shifts in property values. Those whose values have fallen are likely to be businesses suffering more and therefore in greatest need of the benefits revaluations are intended to bring." He said.
The Government expects the Uniform Business Rate (UBR) to reduce by about from 48.1p this year to about 41.3p next year. The final Uniform Business Rate will be confirmed in the autumn as it is linked to the Retail Price Index for September. Other adjustments are also made which is why the UBR estimate is merely indicative at this stage.
Source: Brown Lloyd James Financial