Gareth Jones: ‘We were squeezed out. You can negotiate on rents but not rates’ © Anna Gordon/FT

Gareth Jones and his wife Natalia closed their luxury chocolate shop in Notting Hill, west London, in March, laying off three staff.

Mr Jones, a former car industry executive, opened the shop, Alexeeva and Jones, almost five years ago, winning favourable reviews from Vogue and the Times.

But with his business rates set to increase from about £23,000 a year to £40,000 after a revaluation this year, he decided it was impossible for the shop to turn a profit. Instead, he has moved the business online and continues to supply his customers, including the Dorchester hotel, from home.

“We were squeezed out,” he said. “You can negotiate on rents but not rates. We just could not make any money. There is a limit to how far you can put up prices.”

The revaluation, which was revenue neutral for the government, was intended to rebalance some £3.6bn of rates across the country, leaving London bills higher but cutting rates in regional towns and rural areas.

So far, it has had a crippling effect on small businesses in London, but left companies outside the capital unhappy that their rates are not falling as fast as they hoped.

Sue Terpilowski, who heads the London policy board of the Federation of Small Businesses, said members had been contacting her daily since the April rates rise to say they might have to shut or move.

“London is at a tipping point,” she said. “It is the independent traders that are going because they cannot afford the rates. Many of them are not even making the minimum wage.”

Business rates are soaring across London © David Parry/FT

Ms Terpilowski’s own business, a PR firm in the Docklands, has seen its rates triple. But a government scheme to phase in the rates change over five years has seen her bill capped this year at a 60 per cent increase.

Rates in London have gone up almost 24 per cent after the first revaluation for seven years — with Hackney the biggest increase at almost 50 per cent. The increase in the ratable value of properties also lifted many traders out of a small business category that offered them discounts on rates.

“There is a real fear that eventually many of these businesses will be forced out of the city, as is starting to happen,” said Colin Stanbridge, chief executive of the London chamber of commerce.

But outside London, companies have complained that the effect of the transition cushion means many businesses have only seen 5 per cent cuts in their rates, despite being promised reductions 10 times as large.

“Those who have been overpaying for years continue to do so. It is holding back the revival of empty high streets,” said Jerry Schurder, head of rates at Gerald Eve, a consultancy, said:

Nationally, 12.2 per cent of retail premises are vacant, according to the Local Data Company. In Burslem, Stoke-on-Trent, a third of shops are shut and rates should be falling by about 15 per cent.

Instead, businesses now face a 3.9 per cent inflation-linked increase in next month’s Budget. “Some [firms] will never get the full reduction as there will be another revaluation in five years,” said Mr Shurder. The British Chambers of Commerce has called on Philip Hammond, the chancellor, not to bring in the increase in the November budget, funding the move by pausing planned cuts to corporation tax.

Gary Saunders, who runs a Saturday market at an airfield at North Weald near Harlow, Essex, said he is saddled with high rates — even though the revaluation cut the site’s value in half. He has missed out on a £113,000 reduction this year because of the transition phase.

“The value was set when the market was far more lucrative. It has been through a tough time,” he said. “We want to invest but that is limited by the rates bill. It is going to take us longer to make a success of it. We will still be paying too much in five years. The system should be more flexible.”

Business lobby groups want a switch to uprating from RPI to the lower CPI index planned in 2020 brought forward, more frequent revaluations, extra support for those facing rises and a review of the whole system.

The chancellor — who needs every penny he can get to narrow the budget deficit — has damped expectations.

The Treasury said: “There are no plans to change the current business rates relief package. Following the revaluation, we announced a £435m support package to help businesses facing the steepest increases in their business rates.”

That included a £300m discretionary relief fund that councils can use to provide discounts. Only £30m has been requested so far.

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