Inflation could create £2bn rise in business rates

Inflation-linked business rates could rise by up to £2 billion next year, which would be the “final nail in the coffin” for many struggling retail and hospitality firms.

Business rates are due to be recalculated in April using the government’s multiplier, which is typically pegged to September’s rate of consumer price inflation (CPI).

With CPI confirmed yesterday at 6.7 per cent, analysts at Colliers International forecast that the tax will rise from £26 billion in 2023-24 to £27.7 billion in the next financial year. Altus Group, the property intelligence firm, put the increase slightly higher at £1.95 billion.

John Webber, head of business rates at Colliers, said: “All sectors are suffering from increased costs, whether from increased wage bills, materials or energy costs. They cannot cope with the hike in rates bills too.”

The property tax is based on the rateable value of business premises, which means that retailers, restaurants and pubs in expensive high street locations are disproportionately affected. It has been held at 51.2p for every pound in rateable value since April 2020 when the pandemic struck, but would rise 6.7 per cent to 54.6p in the pound if the multiplier was reinstated next year.

The British Retail Consortium has calculated that the sector would face paying an extra £470 million in tax. Helen Dickinson, its chief executive, said: “This will inevitably put renewed pressure on consumer prices. As a result, retailers are publicly calling on the chancellor to freeze the business rates multiplier, allowing them to keep driving down prices, and invest in new shops and jobs.”

Latest figures from the Insolvency Service suggest that the number of companies going to the wall has risen by almost a fifth in the past year, with 2,308 businesses collapsing in August including Wilko, the 90-year-old hardware chain.

UK Hospitality said businesses in the sector would suffer a £234 million rise. Kate Nicholls, chief executive of the group, said the expected jump in tax bills paid by pubs, restaurants and hotels painted a “bleak picture”.

She added: “Almost a billion pounds in extra costs from business rates alone is unfathomable, and insurmountable, for many. Such dramatic cost increases would undoubtedly be the final nail in the coffin for many businesses. It would be particularly perilous for small, independent businesses, for which ongoing relief measures are a lifeline at a challenging time.”

Alex Probyn, global president of property tax at Altus Group, said: “Our clients tell us that the business rates burden is a disincentive to invest and are already at an unsustainable level.”

Last autumn Jeremy Hunt, the chancellor, announced a support package worth £13.6 billion to help businesses still recovering from the Covid-19 lockdowns.

It included freezing business rates and increasing the discount for retail, hospitality and leisure businesses from 50 per cent to 75 per cent for 12 months, capped at £110,000 per company.

The Treasury has calculated that freezing the increase for the past three years has saved business an overall £14.5 billion.

A Treasury spokesman said: “Whilst one third of businesses don’t pay business rates at all due to government tax relief, we recognise the challenges the retail, hospitality, and leisure sectors face, which is why we have slashed their bills by 75 per cent, protected them from rising energy costs and are keeping the duty on pints down through our Brexit pubs guarantee.”