‘Labour should not tax the spaces where small businesses are building Britain’s future’

We came into government with a clear promise: to be the party of business, working people and growth. Two years on, with a new leader, we have renewed our desire to partner with business. We have said that we will deliver growth in every postcode so that the more than 1 million young people not in employment, education or training (NEETs) can get good work near to where they live.

That is the right direction for a Labour government. For too long we have let opportunity be concentrated in a small number of places in our country.

Places in our constituencies – Rochester and Strood, Hertford and Stortford, and Camborne and Redruth – speak to the challenges that so many of our places face. In order to tackle this we need an active state to help us generate more start-ups, small businesses, skilled jobs and local enterprise. They need the spaces where working people can build something of their own, close to home and rooted in their communities. 

As constituency MPs, we see this up close. We speak to small business owners, sole traders, freelancers and local employers who are working hard to grow, often with little margin for error. They ask us for a fair chance, a bit of certainty, and a tax system that does not pull the rug from under them. Increasingly, flexible workspaces are where those people are. That is why the ongoing changes to how these spaces are being assessed is so concerning. The businesses that depend on reliable and affordable workspace are already being affected, and it will have an economy-wide impact.

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These businesses and their owners are the beating hearts of what we mean by growth in every postcode. Growth does not always look like a glass tower in a major city centre. It can look like a small team taking on its first office, a self-employed worker moving from the spare room to a hot desk, or a local firm taking on one more person because it finally has the space and confidence to do so. 

Flexible workspaces are not a niche part of the property market, they are now the economic infrastructure of modern Britain. They give growing firms somewhere to begin, meet customers, hire their first employees, and grow without being locked into long leases. For many small firms, flexibility is the difference between growing and standing still.

That is the everyday economy Labour was elected to back, and it is why the Government’s current approach to the business rates treatment of flexible workspaces could be so devastating.

For decades, the system recognised how these spaces actually operate. Valuations were applied at the level of the individual unit, reflecting the reality that flexible workspaces are home to many separate businesses, each using space in different ways. 

Now that approach is being changed. These spaces risk being treated as single larger assessments. In practice, that means the small businesses inside them can lose access to the small business rates relief they rely on. Operators also lose the ability to manage the normal churn that comes with supporting new and growing firms. The consequence is not technical at all. It is a major indirect tax rise on businesses in every constituency and every sector.

Analysis by former Treasury economists suggests the change will increase business rates liability for the sector by around £600 million. Those costs will flow through to the small businesses using these spaces, often adding around £5,000 per unit. For a start-up, small business or local employer trying to take on another member of staff, that can mean delaying a hire, shelving an expansion, or giving up the space that helps them operate professionally.

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The most damaging part is backdating. Office spaces that made decisions in good faith, under a system that had been settled for decades, are now facing retrospective bills of up to three years. For many workspaces, it is an existential threat.

Flexible workspaces support high streets, town centres and local supply chains. They bring workers into local economies. They support cafés, shops, printers, cleaners, tradespeople and service businesses. They allow enterprise to happen outside the handful of major city centres that usually dominate economic debate. If this change goes ahead, up to 150,000 workers could be pushed back to their kitchen tables, with around £260 million of high street spending put at risk.

This is not a call for special treatment. It is a call for the tax system to reflect reality. Flexible workspaces are not occupied by one large business. They are home to many small businesses, many of them run by people taking risks, creating jobs and serving their local communities. These are exactly the people Labour came into government promising to champion.

The Government should restore the previous approach to valuation and stop backdated bills, at a minimum. That would provide certainty, protect small businesses from an unaffordable tax hike, and show that Labour understands the practical conditions businesses need in order to invest and grow.

Being the party bringing economic life closer to communities is about the practical decisions that determine whether businesses feel confident enough to expand, hire and invest. 

Labour has set the right ambition: growth that is broad-based, productive and felt in every community in the country. To deliver it, we need to protect the infrastructure that allows small businesses and working people to grow. We should not tax the ground beneath their feet.

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