Recent business rate reclassifications for serviced offices will deliver a £600m annual hit to the sector, threatening both serviced offices and the government’s economic growth mission, according to analysis from ChamberlainWalker.
The research, conducted on behalf of industry body FlexSA, follows a change in how the Valuation Office Agency (VOA) assesses business rates for serviced offices, shifting full rates liability for whole buildings on to operators and removing small business rates relief for thousands of small firms that occupy them.
Reclassifications started in 2025, with concerns first being raised in November 2025, when more than 60 UK serviced office providers penned an open letter to the government to voice “urgent and deeply serious concern” over reclassifications being made by the VOA.
Now, research conducted by economic consultants and a former Treasury and government economist, has calculated that the change will add an average £5,400 in annual overheads to every small business operating out of serviced offices, as growing bills for operators are passed on to occupiers.
This adds up to an annual burden of £593.8m for the sector – the impact of which will trigger office closures, according to the research. It predicts that around 150,000 workers could be forced to work from home as companies are forced out of their offices, with the vast majority of the impact concentrated on micro-businesses and SMEs in regional economies.
The research forecasts that up to £260m a year could be lost from high street spending as a result of higher flexible office costs and more workers staying at home.
It argues that flexible workspaces are a critical part of the infrastructure that underpins small business growth, with the flexible workspace sector estimated to support up to 1.75 million jobs across the economy.
Chris Walker, founder of ChamberlainWalker, former Treasury and Ministry of Housing, Communities and Local Government economist and primary author of the report, said: “The report shows that changing assessments for serviced offices are not a marginal or technical adjustment, but a material cost to a part of the economy that disproportionately supports small high-growth firms and local high street ecosystems.
“This seems entirely at odds with the government’s economic growth objectives. It is just about the most damaging way I can think of for a government to raise what would be a modest amount of revenue.”
The report adds that the change is avoidable as it stems from how the rules are being applied, not from a deliberate decision to raise taxes. FlexSA has held talks with chancellor Rachel Reeves over the change, but said no solution has been forthcoming.
Jane Sartin, FlexSA’s executive director, said the VOA “has gone completely rogue”. “Workspace operators have repeatedly warned the VOA that changes to business rates assessment were already creating serious risks for flexible workspaces and the small businesses that rely on them.
“We urgently need the Treasury to intervene against a backwards and harmful tax hike that they never signed on to,” she added. “This report now shows just how significant the risks are. What looks like a technical change could cause irreparable damage to the sector, with major consequences for jobs, growth and local economies.”
Tina McKenzie, policy chair at the Federation of Small Businesses, said the changes would be “a major blow for thousands of small businesses” and urged the government to rethink the reclassification urgently.
“It may not stop at office space too, with thousands more businesses based in retail, foodhalls, workshop and market spaces potentially at threat too,” she added.
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