BRC: CPI Figures Mean £137m Business Rates Hike For Retailers

Responding to yesterday's CPI figures, showing a 1.7% increase in prices, Dominic Curran, Property Policy Advisor at the British Retail Consortium, said:

“Today’s CPI announcement means retailers will have to cough up an extra £137 million from April. Already, while retail accounts for 5% of the economy, it pays a massive 25% of all business rates. This £137m increase will reduce the ability of retailers to invest in their business, their staff and their shops. The Chancellor must take action on rates in the forthcoming Budget and scrap ‘downwards transition’, which takes £1.3 billion from retailers and uses most of it to subsidise rates in other industries. Meanwhile, with the retail industry facing store closures and jobs losses, the Government should freeze the impending business rates increase.”

Explanation of Terms

• Business rates are essentially council tax on properties – the amount payable is determined by the Valuation Office (VO) periodically making an estimate of a property’s annual rental value and multiplying that by ‘the multiplier’, a number that rises by CPI each April, using the previous September’s CPI figure as the reference.
  
  
• Downwards transition - When revaluations of the rateable value of properties (essentially the annual rental value) result in a business needing to pay less business tax, they do not immediately change to the ‘correct’ level. Instead they will be slowly ‘downwards transitioned’ and the money generated from this is used to stagger the rate of increase for businesses that need to pay more. The effect of this ‘transitional relief’ is to take £1.3bn from retailers who are overpaying, and give back only £0.6bn to those who are ‘underpaying’.
  
  
• The calculation of £137 million in additional business rates for retailers in England comes from Altus Group - a property consultancy. The total increase for all sectors in England will be £536 million. There will also be additional rises in business rates in the devolved nations beyond the figures given above.
  

• UK Business rates receipts overall for 2019/20 estimated by OBR in Spring Statement to be £31.3bn

• On 1st January 2019 the retail sector in England and Wales accounted for 25.7% of all Rateable Value. Scotland was 22%. We estimate approximately a quarter of business rates are paid by retailers

• In England the multiplier is currently 50.4p for larger businesses, and 49.1p for smaller businesses. This means that if a property’s annual rent is £100,000, the business rates liability for this year is either £50,400 or £49,100

• When the current business rates system started in 1990 the multiplier was 34p. In 2010 it was only 40p
  
  
• Business rates are paid regardless of the profitability of a business or its ability to pay a tax and the rate has risen over time to be unsustainable
  
  
• Legislation to increase the frequency of revaluations – to make sure that VO estimated rental values are in line with the actual rent paid – fell at prorogation earlier in October and wasn’t in the Queen’s speech. It is not known if/when it will be brought back. 

Source : Insight DIY Team and The BRC

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