The British Retail Consortium (BRC) has warned that the business rates burden on retailers could break the £8bn barrier despite the country falling into deflation.
- Retail Price Index (RPI) rose 0.8% in year to September, while the Consumer Price Index (CPI) fell 0.1%
- Business rates increases are based on the RPI, so are likely to rise despite deflation (measured by the CPI)
- British Retail Consortium estimates business rates will increase £70m to exceed £8bn
- BRC says a rise would be unfair on physical stores as retail sales growth is being driven by online
The Office of National Statistics revealed yesterday that the UK entered deflation in September, but at the same time there was a rise in the Retail Price Index (RPI), the statistic used to calculate any increase in business rates.
RPI increased 0.8% in the year to September as the Consumer Price Index, which is the official measure of inflation, fell 0.1% across the same period.
Retailers were also hit by a 1.9% drop in overall shop prices in September, but despite this, business rates still look set to rise because the Treasury bases any changes to the tax based on September’s RPI figure rather than CPI.
The BRC estimates the rise in RPI will mean the business rates burden placed on retailers will increase £70m to pass £8bn.
BRC director general Helen Dickinson argued such a rise would be unfair on those with a bricks-and-mortar presence because the growth in retail sales is being driven by online, whereas online retailers are not required to pay business rates.
Dickinson warned that with the new National Living Wage looming, the added burden of increased business rates could force retailers to shut stores to help the bottom line.
She added: “For retail, the overall burden of business rates is too high, whether it is based on RPI or CPI.”
However, Chancellor George Osborne has stated that any changes to the business rates system would have to be “fiscally neutral”.
The industry is unclear on whether this means the ongoing structural review of the business rates system will mean there will be any reduction for retailers.
It is expected Osborne will flesh out further details next month at the Autumn Statement.
Dickinson said: “We have to recognise there is a deficit that has to come down, but the way to square the circle is to make changes across the whole of business taxation and not just business rates.”