For just over a year, the flexible space sector has been fighting a technical change to how flexible space is valued. Despite our warnings that this change will be catastrophic, the Government has decided to press ahead. If they keep going, they will in practice impose a £600 million tax rise on a sector that underpins thousands of small businesses across the U.K.
Flexible space has become essential economic infrastructure. It allows businesses to start quickly, scale without friction, and enter new markets without taking on long-term liabilities they cannot afford.
A firm can grow from a handful of desks to a full office within the same building, adjusting as it wins work or faces setbacks. That flexibility is what makes early growth possible.
It is why we are the home of modern small business in our fastest growing cities and most productive sectors. It is why, for nigh on a decade, we have been the fastest growing segment of the office market.
What’s changed?
For decades, the business rates system recognized that model. Valuations were applied at the level of the unit, reflecting the reality that these spaces operate as a home for multiple independent businesses, all operating in their own ways with a shared need, space that grows with them.
It was a settled, practical approach that gave operators certainty and kept workspace accessible.
Following some cases about ATMs and barristers’ chambers (no, I am not kidding) the Government has decided to come after our whole market.
Under the new approach, flexible workspace is being lumped together, taking away the small business rates relief that our occupants rely on and depriving operators of the ability to get relief as those tenants move on and they bring through and nurture new generations of firms.
The result is a £600 million increase in business rates liability for the sector, according to analysis by former Treasury economists.
And it is already having an effect.
Operators are facing backdated bills. Investment has stalled.
In some cases, centers will become unviable overnight. Closures will not be gradual. They will begin as soon as those new liabilities land, particularly for providers stretched on thin margins with little capacity to absorb sudden increases in fixed costs.
Those that remain open will have little choice but to pass costs on. That means higher prices for the SMEs that rely on these spaces, often an increase of around £5,000 per unit.
For early-stage and scaling firms, that is the difference between hiring and holding back, between expanding and standing still. This will be a brake on growth.
This is not asking for special treatment. Both the Federation of Small Businesses, and the Confederation of British Industry agree with our case and are contributing to putting that case to Government.
Why these taxes hurt everyone
The wider effects will be felt locally. Flexible workspaces sustain footfall in town centers, support local supply chains, and allow businesses to operate beyond a handful of major cities.
If this tax is imposed, 150,000 workers could end up back at their kitchen tables, and £260m of high street spending will go with them, damaging the footfall that cafes and shops up and down the country rely on so heavily.
That is why the Flexible Space Association has been pressing this issue so strongly. The economic and societal harms of this change are profound.
We have met the responsible minister three times, setting out how the sector actually operates and what this change will mean in practice. We have worked with MPs from every major party to raise it in Parliament, because the implications extend far beyond our sector and get to the heart of what modern business in Britain will look like.
The case is simple. If you want more start-ups, more scale-ups, and more regional growth, you need the infrastructure that makes those things possible. Flexible workspace is a critical part of that infrastructure. Undermining it makes those goals harder to achieve.
There is still time to course-correct and we continue to urge the Government to do so.
The previous approach to valuation was in place for decades because it reflected reality. Returning to it would restore stability and prevent further damage. This is not about special treatment. It is about not dismantling something that has worked for decades and continues to fuel national growth.
