The City of London Corporation has been warned that hiking business rates to cover its £70m budget shortfall would undermine the Square Mile’s global “competitiveness”.
The local authority is weighing up whether to increase the business rates multiplier it charges businesses in the Square Mile, but a member of its finance committee has warned that this would amount to “spreadsheet” thinking.
While business rates are set nationally and usually absorbed into central government tax receipts, the City of London charges an additional multiplier – known as the City Premium – to cover local services like the City police force.
The local authority held an emergency finance meeting last week to discuss how to plug an unexpected shortfall in central government funding and is weighing up a hike to this multiplier to generate more income, as first reported by the Financial Times.
Stephen Hodgson, a City councillor and a member of the finance committee, has urged the local authority to resist further hikes to the business rates multiplier, warning that a higher tax burden could undermine the finance hub’s global reputation.
He told City AM: “It’s a big political decision. It’s not a spreadsheet decision, and I think it’s [being] interpreted as a decision about plugging a gap on a spreadsheet. And actually, it should be about attractiveness, competitiveness, [and] economic growth.”
The City Premium was first introduced in 1990, and the finance committee member said that recent hikes to the premium mean that “there is a noticeable gap between the level in the Square Mile versus anywhere else”.
For the 2026/27 financial year, the City set an additional 3.2p business rates multiplier, up from 0.8p in the 2020/21 financial year. In the last financial year, the City raised £45.7m from its business rates premium.
Hodgson said the mood in the local authority is leaning towards further hikes: “There’s very much a discussion along the lines of ‘we’ve got this gap, let’s just put business rates premiums up’”.
But he said he is attempting to lobby the City against a “spreadsheet” approach. “This is a matter of strategic importance in terms of competitiveness, [because] businesses respond to higher costs.”
City faces Budget tax raid
Hodgson pointed towards looming Budget tax raids – including the bank surcharge and government-set business rates multipliers for office buildings – which are set to hit the City hard.
“When we do have control of something, and it’s entirely in our control, such as business rates premiums, we need to be on the side of businesses,” he said.
Tax revenue raised by the City of London Corporation is used to cover services for its 9,000 residents – like council housing and adult social care – as well as the City of London Police, which focuses on fraud and economic crime.
The future of the Square Mile’s police force is hanging in the balance. An upcoming Home Office review is weighing up whether to scrap the force, by rolling it into the Metropolitan Police.
The abolition of the City of London Police, while unwanted by many in the Square Mile, would weaken the case for higher business rates multipliers because the City would not have to cover its budget, Hodgson claimed.
A spokesperson for the City of London Corporation said its members are “considering a range of options as part of the budget-setting process” and will set out its five-year financial plan in March next year.
They added: “The City of London Corporation provides high-quality public services that workers, residents, visitors, and students expect of a global financial district.
“This matters, as the Square Mile is home to the UK’s financial and professional services sector, which generates 12 per cent of all tax receipts and helps pay for vital public services delivered across the UK.”