London: BNP Paribas Real Estate
Increases in 2018 business rates to be bigger than expected
Calls for the Chancellor of the Exchequer to switch annual rates increases to CPI
Yesterday’s confirmation of the September RPI hitting 3.9% is bad news for business ratepayers. The percentage increase that is applied annually by councils to the rate in the pound and transitional relief that is used to calculate business rates charges, is based on the RPI for the preceding September.
Businesses and trade bodies have been calling out for the annual adjustment to be based on CPI. This measures the changes in the cost of a narrower range of goods and services than RPI. The government has hinted that it may make the switch. Labour has said that it will make the switch if elected. The CPI figure for last month was 2.8%.
With the Chancellor of the Exchequer having to back down on the reforms to National Insurance that he announced in last year’s budget, an RPI switch could be straight forward to implement and would be an easy “good news story”. More likely however, is that he may cap the increase at less than 3.9%, a measure used by his predecessor. This would enable him to pass on the full RPI increase in subsequent years.
Should the full 3.9% be passed on rather than the CPI increase then BNPPRE calculates that the difference in revenue for 2018/19 will be £97m and over the life of the five year rating list, could amount £1.22bn.