Tax & admin · 7 August 2017

“Flawed” inflation measure could cost owners an extra £781m in business rates

"Row of shops in an inner city area. Many are boarded up and in disrepair. This is Moss Side, Manchester, UK."
The Treasury is committed to switching the inflation measure for setting business rates in 2020

The inflation measure used to calculate how much business rates rise each year has been labelled “flawed” by the Office for National Statistics (ONS), with experts predicting the model will see company owners hit with an additional £781m in bills over the next two years.

The retail price index (RPI) is the formula currently used by government to control business rates, with a plan to switch to the consumer price index (CPI) in 2020.

However, Britain’s Statistics Authority declared in 2013 that the calculation of RPI did not meet international standards, and the model has since ceased being an official statistic.

In a statement, Jonathan Atow, ONS director general, confirmed the organisation was working on an alternative to the RPI.

“We will continue to produce RPI for legacy uses. However, the RPI is a flawed measure of inflation with serious shortcomings and we do not recommend its use,” Atow said.

Currently, the RPI sits at least 70 points higher than the headline CPI rate. CPI is calculated through consumer measures such as housing costs.

“CPIH is our lead measure of inflation and offers the most comprehensive picture of how prices are changing in the economy”, Athow added.

In response to the ONS’ claims, experts at business rates specialist CVS have urged policy makers to reconsider an early switch to CPI ahead of the Autumn Budget in late 2017.

A statement from CVS suggested that, over the next two financial years, business owners could be hit with an additional £781 onto bills due to unfavourable rates from the RPI inflation measure.

CVS chief executive, Mark Rigby, met with communities secretary Sajid Javid ahead of the Spring Budget in March 2017 to try and accelerate the switch to CPI.

However, the Treasury recently reiterated its plan to move business rates indexation from RPI to the CPI in 2020.

“We are committed to switching business rates indexation from RPI to CPI from 2020 and will introduce legislation in due course,” read an official statement from the Treasury.

Financial support for small firms seeing the highest increase in business rates, in the form of a £124 rate relief fund, has so far failed to reach owners.

Following months of disputes between the Department for Communities and Local Government (DCLG), local authorities and small business lobby groups, founders are still waiting to have their bills adjusted.

The government has now set a deadline of 21 August to ensure local councils are equipped to provide founders with revised bills.

Infographic: How independent retailers plan on surviving the current plight of high street business

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ABOUT THE EXPERT

Simon Caldwell is a reporter for Business Advice. He has a BA in politics and communications from the University of Liverpool, and previously worked as a content editor in the ecommerce industry.

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