The Consumer Prices Index (CPI) figures affect business rates liabilities because the Uniform Business Rate (UBR) multipliers are now to be increased annually in line with CPI inflation, rather than, as before, in line with Retail Prices Index (RPI) figures. The September CPI figure is the one that is used to make this adjustment, so business ratepayers will look at this figure with great interest. The figure has been announced and shows an increase of 2.4%.
The UBR multiplier for 2018/19 is 48.0 pence for small properties and 49.3 pence for large properties in England. In Scotland the multiplier is also 48.0 pence for small properties, but it is 50.6 pence for large properties. In Wales the multiplier is 51.4 pence for all properties. The September 2018 CPI figure sets the increase that the Minister is expected to make, at 2.4%. If Ministers in England, Wales and Scotland were to apply this uplift, then the current figures can be expected to increase to 49.1 pence for small properties and 50.4 pence for large properties in England, 49.1 pence for small properties, and to 51.7 pence for large properties in Scotland, and 52.6 pence in Wales, for the 2019/20 rate year, which commences on 1 April 2019.
These estimates will not be finalised until the local government finance settlement early next year. They assume that there would be no change to the Small Business Rate Relief (SBRR) Supplement in of 1.3 pence England and 2.6 pence in Scotland, which is not capped by any CPI uplift. It is worth noting that whilst the Barclay Review report commented on the high level of the SBRR supplement in Scotland, and recommended to Scottish Government that this should be reduced to the same level as in England, Scottish Government has said that this will only be done “when it is affordable to do so”.
There has been continued criticism of the annual increase in the UBR multipliers and the Government has responded to this by moving from an RPI uplift to a CPI uplift, a difference typically of about 1%. Under the legislation the RPI increase is the maximum increase allowed in the UBR multiplier, so the move to CPI is a concession of sorts.
The RPI figure also affects liability calculations for those properties where business rates liability is subject to transitional adjustments following last year’s rating revaluation. The maximum transitional increases in England of 10% for “small” properties, 20% for “medium” properties, and a whopping 49% for large properties will also be uplifted by a 2.3% inflation increase, adding further pressure to bills for those facing large uplifts. Those ratepayers expecting reductions in liability following the revaluation last year will also be affected by the inflation figures as the maximum level of reduction will, in part at least, be offset by an inflation increase. So, for ratepayers of large properties subject to transitional adjustments, the maximum decrease in rate liability, which would otherwise be a meagre 5.9%, will be reduced to a reduction of only 3.6% because of the inflation adjustment.
All of this lends weight to the view that the business rates system requires fundamental review and reform. The state of the economy and of the property market do not justify these high levels of tax, nor the burden of the transitional scheme introduced following the revaluation last year. Scottish Government at least made a move in the direction of reform by carrying out a review (the Barclay Review) that we have commented on elsewhere in these news pages. That review was fettered by a requirement to be “fiscally neutral”. But in England there is still no sign at all of the fundamental review of the business rates system promised by Government more than three years ago. The system creaks on and these latest inflation figures will only add to the burden.