The CBI are right- reform business rates to help the self-employed

Last week, the Confederation of British Industry (CBI) called on the government to look again at business rates. Business rates, which are the tax on physical workplaces, are one of the few issues which can bring people together from across the House of Commons – in disdain. In recent years they (along with other land use taxes such as council tax and stamp duty) have come in to much criticism. Why?

Rates are based on the market value of a property and in 2017, all properties were revalued. The system is very complex, with the nations of the UK using different methods of assessing how high a rate should be for any given property. The rates are then calculated via an abstract multiplier system. The revaluation updated the rates from 2010, however this period included a vast increase in property values, especially in London and the South East – increasing costs for businesses across the country.

Now, the CBI has called for a “shake up” to the “unintelligible” system, citing entrenchment of regional disparities for businesses and the poor health of many high street firms. Business rates may at first appear to be on the drier end of policy debate. However, rates are one of, if not the, biggest costs for any business. Although there is business rate relief for the smallest businesses, there are still problems affecting the self-employed.

Serving the self-employed

IPSE agrees with the CBI that rates don’t work. Our specific concern is that they unfairly damage shared work spaces. We have repeatedly called on the government to reduce or even remove business rates for shared work spaces.

Also known as “work hubs”, these house dozens of modern, dynamic small businesses and freelancers driving innovation. They encourage networking and co-working opportunities whilst combating loneliness (which 19 per cent of remote working freelancers find a challenge). In IPSE’s recently published remote working report, a vast majority (87%) of the self-employed worked remotely at some point in the last year.

They are spaces which encourage physical, as well as digital, collaboration where freelancers can exchange ideas and support each other. As The London Enterprise Action Partnership reported last year, co-working spaces are vital incubators of SME’s, particularly in London.

Co-working spaces are charged business rates as if they represent one business. Recent rises in rates (although long overdue) have doubled the rent costs of such businesses, pushing many to the brink and dampening their opportunities to foster innovation and enterprise. Small businesses are generally eligible for relief – the only difference in a workspace? An open plan office. This may look like one business but in reality, it is a myriad of micro-businesses operating in one roof with the communality of a traditional office.

In reality, co-working spaces represent multiple businesses that would normally be too small to be charged business rates. Charging the co-working space company itself results in costs being passed down to businesses that are supposed to be protected. This is unfair, producing a stifling effect on some of the economy’s most innovative enterprises.

To support the multi-sector participants using co-working spaces the government should consider reforming or removing business rate charges for co-working spaces to encourage the creation of more. For example, the business rate relief that already exists for small businesses should be extended to work hubs. Government should also widely publicise abandoned or empty buildings that could be transformed into work hubs in both rural and urban settings.

Next April the City of London will alter their business rates regime, separately from the rest of the capital. This could provide the perfect trial for forward-looking policy changes to support our freelancers in work hubs.

Meet the author

Ryan Barnett

Economic policy adviser