Boris Johnson today called on the government to drop plans for a 10% hike in business rates, which will hit London and its businesses far harder than the rest of the UK.

The proposals would see business rates in London rise by an average of 10 per cent, before inflation, over the next five years. Yet businesses in regions like the West Midlands and the south east would see falls in their rate bills of 7% and 5% respectively, as well as receiving money that should remain in the capital.

London already pays over £400m a year more to the Government in business rates than it gets back in grants to fund local services. If these proposals are implemented it would add £565m to the costs of the capital’s businesses by 2015, resulting in London subsidising services in the regions to the tune of nearly £1bn year.

‘These poorly thought out plans will hit London the hardest and at the worst possible time, as we begin to emerge from this recession,’ the Major of London said. ‘It is grossly unfair to bleed the capital of the hundreds of millions of pounds its businesses need to subsidise services in the regions. In effect London is being punished just because it happens to have a volatile property market.

‘The Government’s plans to offer transitional business rate relief are a mere drop in the ocean to businesses that are really struggling, and I urge them to reconsider the impact of such an arbitrary hike before it sets its final levels for business rates in the autumn.

The Department for Communities and Local Government’s plans are based on property valuations as at 1st April 2008, when rental values in London were at their peak, and before the recession took hold. Since then commercial rents in London have plummeted by up to 40%..

Under the government’s scheme for phasing in these changes some businesses in the capital could see increases of 12.5% next year, with a potential doubling of their current rate bills by 2015.

Although the new rates will be phased in over four years, many large businesses in London could see rises of 12.5% next year with a 5% increase for some small businesses before inflation.

Johnson believes the government should provide one-off funding to ensure no business ratepayer sees a rise in their bills next year, before inflation, so that the UK’s economic recovery, in which London plays a critical role, is not put at risk.

He also believes the government should review the operation of the whole business rates system, to assess how it could be more responsive to the sort of extreme market conditions that have been experienced in commercial property over the last 18 months. It cannot be acceptable to introduce new rateable values in London next April, based on rental data which is 18 months out of date and overstated by up to 40%.