Treasury bows to pressure and reaffirms £1billion business rates tax cut from 2020

Thursday, July 20, 2017

The Government Finance Bill allowed the Treasury to specify the indexation rate that is to be used to set non-domestic rating multipliers used to calculate business rates.

At present, the Uniform Business Rate multiplier (UBR) is linked to the Retail Prices Index (RPI) inflation rate. The Government announced at the Budget in 2016 that it wished to change this indexation in relation to the Consumer Prices Index (CPI) inflation rate by 2020 and the Bill enabled that. But, with the General Election being called, the Bill failed.

With the public sector pay crisis, it had been reported that Ministers were considering dropping the change to the inflation rate used to determine business rates, together with a number of other Budget commitments, in order to help fund public sector pay rises.

But, in a major policy decision, the Treasury only last week bowed to pressure saying "We are committed to switching business rates indexation from RPI to CPI from 2020 and will introduce legislation in due course."

The Treasury said that the change would save business £1billion in the first 3 years of implementation.

Our data shows that over the next 2 financial years until that switch, rising RPI inflation could add an extra £781million more to the gross business rates yield compared with the lower CPI measure.

This means that businesses still face £2.13billion of inflationary increases in rates through RPI over the next 2 financial years until the 2020 switch.

The Chancellor has moved quickly and decisively to quell speculation. Reneging upon the switch would have been a double whammy for business with higher than forecasted inflation this year and its compound effect.

The purse strings at the Treasury need to be loosened as Property Taxes are already the highest of any G7 and EU country. They need to be competitive especially when we leave the European Union and the switch in uprating goes someway to working towards that.

But Guy Ware, Interim Director of Finance at London Councils, estimates that the switch from RPI to CPI will take £80billion of spending power out of local government over 20 years.