The inflation measure used to calculate how much UK business rates rise each year will switch to the consumer price index (CPI) in 2018, the chancellor has announced.
In his Budget speech, chancellor Philip Hammond confirmed plans that the CPI would replace the retail price index (RPI) in April 2018, two years ahead of the planned introduction in April 2020.
Hammond claimed that the early move to new indexation would save businesses £2.3bn over the next three years. Business rates rises next year will be tied to September’s CPI rate of three per cent.
According to the Federation of Small Businesses (FSB), the switch to the CPI meant owners of small firms would see almost one per cent taken off their business rates bills.
It was previously estimated by property tax specialists CVS that maintaining the RPI over the next two years would put an additional £781m onto business rates bills, due to the way RPI is calculated. The CPI is calculated through consumer measures such as housing costs.
Responding to the earlier switch to CPI, Alex Probyn, president of the business rates division of Altus Group, Britain’s largest ratings advisory, said the chancellor “should have gone further”.
“A switch to CPI brings a concession in tax rises of about £266m, but this is a pretty cheap giveaway by government.
“A rates liability freeze was the minimum that business needed.”
Autumn Budget 2017: No reduction to VAT threshold for small businesses
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