New inflation figures announced today, showing (RPI) inflation running at 3.9 % is creating yet another punitive business rate hit on UK businesses according to John Webber, Head of Business Rates at Colliers International, the global real estate agency and consultancy.
Because business rates for April 2018/April 2019 are currently linked to the rate of inflation six months earlier, today's September 2017 RPI inflation figure showing inflation running at 3.9%, means businesses will see a 3.9% rise in their rates bill in April next year. This is on top of some of the most punitive business rates rises ever seen that many businesses suffered in April 2017.
The pain would not be so great if business rates were linked to CPI as opposed to RPI measures of inflation, since CPI is lower (now at 3 %) but the Government’s decision to delay the switching of business rates indexation until 2020 seems to be having costly implications for businesses.
Webber continued: "It's a bizarre scenario. The Treasury has recognised that many businesses are suffering from the business rating revaluation in 2017, but instead of helping by introducing the new indexation immediately, as we have campaigned for, is it waiting three years to 2020. One wonders how much pain do businesses have to suffer? With inflation on the rise at the moment, by the time we reach April 2020, we could see some very uncomfortably high rating levels."
Some London high street retailers that saw massive rises in their rates bill this last year are therefore already looking at further rises in the coming year, as the impact of the April 2017 Revaluation is phased in. Bond Street for example saw its rateable value climb over 100% in the revaluation, Westfield White City saw a 62% hike rise and London's Regent Street saw close to 40% increases for its prime retail locations. These were translated to some retailers paying a rates bill of close to 50% higher for 2017/18 and they will be facing similar rises in 2018/19 of close to 40%.
According to the British Retail Consortium, (BRC), retailers, which account for a quarter of business rates, will face a rate hike of £280 million in the coming year with RPI nearing 4% On top of the other issues retailers are facing- rises in the NLW and uncertainty over sterling, many are going to struggle with such punitive rates.
And it is not only those companies that saw business rate hikes in April 2017, following the Revaluation that are finding the situation difficult. Those businesses located in areas that were particularly hard hit during the financial crisis and are continuing to get back on their feet and have seen their rateable value decrease following the Revaluation, are not benefitting as much as expected. This is not just because of the two-year delay in the reduction of their rates bill when the Revaluation was delayed from 2015 to 2017, but also because of the introduction of the five-year transition period before they are allowed to pay their bills at the new lower revalued level.
"A company could find itself with a lower rateable value, but because of transition, is only seeing a 2% or 3% decrease in its rate bill each year for the next five years. With RPI at 3.9% any benefit is immediately wiped out. And for some companies, it is even more ridiculous. They could have a 50% decrease in rateable value but due to rising inflation actually find themselves with higher rate bills next year. Hardly an improvement in their finances."
"The Treasury has claimed the change to CPI indexing would save companies £1bn in the first three years, including a £250m saving for the retail sector. If this is the case, the Government should act now. Many businesses have been hammered in the recent business rates revaluation, particularly the high street retailers and with delays in receiving promised reliefs and the failures of the new business rates appeal system, many are finding themselves squeezed or even worse."
Yet again the Government is tinkering at the edges, rather than tackling the issue. The whole business rates system needs root and branch reform.
Colliers Manifesto for Business Rates Reform includes:
1. More frequent revaluations, three-yearly, at least, by 2022;
2. Increase funding for VOA in order to deal with existing appeals’ backlog;
3. Release VOA from pressure exerted by local councils and HM Treasury;
4. Introduce a register of appeals professionals – removing the ‘cowboy’ element;
5. Root and branch reform of current business rates exemptions and reliefs.