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The Retail Prices Index (RPI) figures affect business rates liabilities because the Uniform Business Rate (UBR) multipliers are normally increased annually in line with RPI inflation. The September RPI 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 3.9%.
The UBR multiplier for 2017/18 is 46.6 pence for small properties and 47.9 pence for large properties in England. In Scotland the multiplier is also 46.6 pence for small properties, but it is 49.2 pence for large properties. In Wales the multiplier is 49.9 pence for all properties. The September 2017 RPI figure sets the maximum increase that the Minister can make at 3.9%. If Ministers in England, Wales and Scotland were to apply this maximum uplift, then these figures can be expected to increase to 48.4 pence for small properties and 49.7 pence for large properties in England, 48.4 pence for small properties and 51.0 pence for large properties in Scotland, and 51.8 pence in Wales, for the 2018/19 rate year which commences on 1 April 2018.
These estimates will probably not be confirmed until the Chancellor’s Autumn Statement on 22nd November and may not even 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 RPI uplift. It is worth noting that recent Barclay Review report commented on the high level of the SBRR supplement in Scotland and that Scottish Government has indicated its intention to reduce this to the same level as in England when it is able to do so, but has not yet set a suggested date for this.
There has been much criticism recently of the annual RPI increase in the UBR multipliers and there have been previous occasions when the Chancellor has capped increase at less than the full RPI uplift. For example, the September 2014 RPI increase was 2.3% but the Chancellor took the decision to cap the UBR increase for 2015/16 at 2% and the devolved governments in Scotland and Wales followed suit.
Under the legislation the RPI increase is the maximum increase allowed in the UBR multiplier. In every year since 1990 (when the current system was introduced) up until 2014/15 the Government increased the tax rate by the maximum amount allowed under the law – that is to say the RPI increase.
Given the acute criticism of the level of business rates in the UK, it would be little surprise to see some limit to the increase in the UBR multiplier in England as part of the Autumn Statement announcements. Such an announcement in England could lead to equivalent moves in Wales and Scotland.
The RPI figure also affects liability calculations for those properties where business rates liability is subject to transitional adjustments following this year’s rating revaluation. The maximum transitional increases in England of 7.5% for “small” properties, 17.5% for “medium” properties, and a whopping 32% for large properties will also be uplifted by the 3.9% RPI increase, adding further pressure to bills for those facing large uplifts. Those ratepayers expecting reductions in liability following the revaluation will also be badly affected by the RPI figures as the maximum level of reduction will, in part at least, be offset by an RPI increase. So, for ratepayers of large properties subject to transitional adjustments, the maximum decrease in rate liability, which would otherwise be a meagre 4.6%, will be reduced to a reduction of only 0.7% because of the RPI offset. Ratepayers who should be due significant reductions in rate liability will instead see only token reductions of less than 1% where this happens.
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 earlier this year. Scottish Government has at least made a move in the direction of reform by commissioning 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 two years ago. The system creaks on and these latest RPI figures will only add to the burden.
