The provision of flexible workspace goes hand in hand with the growth of SMEs and fostering entrepreneurialism - so should there be more political encouragement to this fast growth sector?
The flexible workspace industry has grown by double digits each year for the past five, but some within the sector believe it could expand even more rapidly with greater political support. At a time of significant political uncertainty, with the ongoing spectre of business rates threatening many firms and a dire need to encourage productivity in the market, can co-working do more to assist the economy if it was really encouraged to grow?
Business rates:
In April this year, the government announced the changes to Business Rates, which will invariably inflict financial pressure on operators and, ultimately occupiers, as rates will have to be passed on in one form or another.
This “hidden and hugely expensive tax” has infuriated many across the board especially those in retail and leisure – and understandably so. But this will impact the flex market too, with some operators potentially seeing 100% increase in the rates they are paying. This will leave them no choice but to rethink some pricing for clients.
Zachary Douglas, who owns flexible office space operator Orega, says “I would like to see some control on the rise in business rates as these are simply a hidden and hugely expensive business tax, for which little or no business benefit is gained and have a significant and uncontrollable impact on the cost of delivering our product to our customers”.
According to a report conducted by Smith & Williamson, only 35% of business leaders and entrepreneurs believe that government policy is supportive of private enterprise, and this is understandable given the financial pressure the revised business rates bring.
Concerns for the process of appealing business rates has been voiced by The Business Centre Association who has joined with trade associations, such as the British Property Federations and the CBI, to raise potential issues with the proposed business rate appeal system. The suggested system, outlined in a consultation document recently released, could lead to businesses over-paying tax by 10%, or more, for several years which could subsequently lead to struggling businesses filing for insolvency due to the financial demands.
However recent reports suggest that Philip Hammond could succumb to the pressure of businesses across the UK and abandon the 4% rise to business rates planned for next year. Some of the UK’s leading business lobby groups have raised apprehensions that the rise would deter confidence and investment, further pushing firms to relocate ahead of the UK leaving the EU in March 2019.
A more progressive approach to the tax might see operators be incentivised to find locations for small startups or to provide more, discounted for local firms. Furthermore, one thing that operators have proven to excel at is fostering business development networks for SMEs, so could the government look to offer some form of collective rebate to those that sign up a certain number of small, local enterprises?
Government initiatives:
In Wales, ICE (Welsh Innovation Centre for Enterprise) has contributed over £13.8m to the economy and created more than 375 jobs since starting up in 2011 – and government funding has aided this. In 2013, they raised £350,000 from government funding alongside £300,000 private finance which has in turn allowed them to contribute to the economy and create a significant amount of roles.
“In some parts of the UK we have seen successful partnerships between co-working operators and the Government, where even moderate investment by local authorities has brought about significant return on income based on job creation and ultimately money invested back into the local economy” says David Johnstone, who recently left CBRE to start his own co-working centre.
Initiatives, such as the aforementioned, provide benefits for operators, members and the government. But they could go further - we have seen excellent work from some local councils freeing up dormant local office space, and releasing it to co-working operators from the surrounding community.
If central Government was to encourage this behaviour, offering local governments more opportunity to foster the SME community in their locality, then more space could become available, bulk-buying of IT and services, and pooling local talent pools to promote knowledge transfer and create local jobs.
Brexit:
As the uncertainty around the UK’s political future continues, flexible workspace will continue to grow as it has done in the last few recessions as it provides a relatively low risk route to market for businesses that are unsure about future growth plans, especially when research suggests that 74% of business leaders say political uncertainty is negatively impacting their business.
The provision of more flexible space will send a clear signal that Britain is open for business and can accommodate companies looking to base themselves here. At Instant, we have undoubtedly seen demand for flex space in the capital grow in the months since the Brexit vote and London is going to have to work hard to retain its business base. The provision of excellent office supply of all varieties must surely be a priority.
Competition:
Europe is rife with competition when it comes to startups – and after Brexit, it’s essential to keep London as Europe’s version of Silicon Valley.
Typically, whilst they’re open to all, flexible workspace appeals to those in a startup environment, or freelancers, where they have the flexibility to upscale as their business growths with little risk of being committed to long leases.
The mainland European cities are becoming increasingly attractive to startups, with France’s new President Emmanuel Macron keen to attract entrepreneurs to Paris announcing: “I want France to be a nation that works with and for startups, and a nation that thinks and moves like a startup”.
Alongside this very vocal support from the president, Station F – which is the largest start-up campus in the world – launched in Paris after French billionaire Xavier Nell funded it.
And within the UK, history speaks for itself. In 2012, David Cameron pledged £50m funding to Old Street which soon became Europe’s version of Silicon Valley and has played a critical element in regenerating part of the capital but also providing a base for its tech industry. The time is now overdue for the Government to fund a new project of similar vision and push us forward.
From our research, the suburbs of London and the large regional cities are all growing at pace. The Treasury would do well to give these regional entrepreneurs some incentive to grow their business in the next budget whether that is by looking at progressive tax breaks or helping with training costs.
Autumn’s Budget – a New Hope?
With the Autumn Statement fast approaching, on Wednesday 22nd November, the Government needs to consider how firmly it wants to uphold the UK’s reputation of startup capital within Europe.
Government encouragement, either through initiatives or reduction in business rates, would foster the growth of SMEs and boost the influx of entrepreneurs whereas heavy taxes for operators could lead to price increases subsequently deter businesses taking up residence in flexible workspace.
