Recent inflation figures mean rates will rise but trade bodies are now calling for a cap rather than a freeze
UK retailers are facing a collective business rate increase of £200m next year if campaigns for a cap fail to win over the Government.
Business rates are set annually according to the Retail Price Index (RPI) figure for the previous September.
Figures published this week by the Office for National Statistics showed that this measure of inflation has dropped marginally from 3.3% in June to 3.1% in July, although it is still well above last year’s rates increase of 2.6%.
Last year, campaigns to freeze the rate for 2013 failed and in this spring’s Budget business rates were not even mentioned. That meant an additional tax burden of around £175m for bricks-and-mortar retailers.
If similar campaigns are unsuccessful this year, industry experts told Drapers the bill was likely to reach £200m.
The British Retail Consortium this week wrote to its members to say it would no longer campaign for a freeze and was taking what it hoped was a more realistic approach by calling for a 2% cap on rates. This echoes previous calls made by the Confederation of British Industry.
BRC director general Helen Dickinson said: “Any freeze would have to be for the whole of the rateable estate, rather than just retail premises (state aid rules, among other issues, play a part here).
“A freeze would therefore cost HM Treasury almost £1bn in year one alone - an unrealistic ask. Therefore, as we know [our members] would not want us to be silent on business rates changes in the short term, we will align ourselves with the call for a cap as well as promoting our reform objective.”
So far this has been met with approval by fellow associations, although concerns have not been fully allayed.
Chief executive of the British Council of Shopping Centres, Michael Green, said whether the campaign was successful or not, retailers were “facing a nasty shock”.
He added: “It’s a relatively pragmatic approach, which may be beneficial in the long term, but I don’t think anyone should kid themselves it’s going to be tough.”
Michael Weedon, deputy chief executive of the British Independent Retailers Association, agreed it was a “very pragmatic approach”.
“Any moderation of business rates is vitally important, so if it stands a better chance of success than the freeze, wewould be in support of it,” he said.
“But the big story is not caps or even freezes, it’s wholesale reform. We are very determined that the whole tax basis is no longer fit for purpose and needs reform. It’s the big win we are after.”
The use of RPI as the base measure for business rates has long been contentious and has come under further scrutiny in recent months, with the ONS saying it does not meet “the required standard for designation as National Statistics”.
Instead, the body is trialling a different measurement called RPIJ, which on average comes in at 0.5% less than the current index. However, it is thought this is unlikely to be adopted to set rates ahead of the election in 2015.
A Treasury spokeswoman said: “The Government will consider any implications of the National Statistician’s announcement on its approach to RPI indexation across different policy areas in due course.”