UK inflation fell to 1.7% in the year to September, the lowest level for three-and-a-half years, an unexpected piece of good news for the economy that at the same time is only ratcheting up the property industry's calls for urgent reform of the business rates system.
The figures mean September’s Consumer Prices Index (CPI) measure of inflation is rising below the Bank of England's 2% target, paving the way for further interest rate cuts.
But business rates bills rise in line with inflation every year and are based on the CPI figure for the previous September.
That is because at the Autumn Budget in 2017, the previous Conservative Government switched the annual uplifting of business rates for inflation from the Retail Price Index (RPI) to the lower headline rate of inflation (CPI) in the preceding September from 1st April 2018.
Adviser Altus says today's figures mean business rates bills across all sectors of the economy will now rise by £488 million in England next April, of which £224 million will be shouldered by the retail, hospitality and leisure sectors.
It points out that coupled with the upcoming loss of the 75% business rates discount for retail, hospitality and leisure firms in England it will mean a 300% rise in business rates for more than 250,000 high street premises in England next April.
Altus estimates the average shop will now see its business rates bill lift from £3,589 to £14,599 next April for 2025/26 without intervention from the Chancellor at her upcoming Autumn Budget on 30 October.
The average business rates bill for pubs will increase from £3,938 to £16,020. Restaurants will see their average bill rising from £5,051 to £20,548.
Alex Probyn, President of Property Tax at Altus Group, urged the Chancellor to use her Autumn Budget on 30 October to act saying: "The Chancellor must not only set stringent targets for the clearance of tens of thousands of outstanding challenges to facilitate the return of years of overpayments allowing firms to invest that money and grow their businesses but also look at ways of permanently ending the policy of increasing tax rates by inflation annually and how to lower the burden once and for all rather than leaving firms on this an annual cliff edge.”
Colliers says the CPI figures mean businesses are due to pay an extra £500 million in rates bills next April, on top of the £1.74 billion rise seen this year. It is calling for the government to freeze the 2025/6 multiplier for all sizes of business.
“Such rises year on year are unsustainable long term for all sectors of the economy,” said John Webber, Head of Business Rates at Colliers, in a statement. “It’s really time the government steps in and properly addresses the multiplier.”
Colliers points out that the logistics and manufacturing sector also pay 27% of the total business rates tax bill and saw steep rises in its rates bills last year, as a result of the 2023 revaluation. Colliers estimates the sector will see its rates bills rise by around another £135 million in April, on top of the £453 million rise seen this year.
Similarly, the offices sector representing 23% of the total rates bill is expected to face an extra £115 million on its total rates bill, on top of the £401 million rise experienced this year. Colliers says at a time when companies are still analysing their office space requirement, this is certainly not going to help the “case” for investing in office space.
According to Webber the continued upward march of the multiplier every year is unsustainable. “In two years (2024/5 and 2025/6) the burden of business rates will have increased by £2.25 billion across the board."
Webber added: “It is desperately disappointing that at the Labour party conferences there was no real mention of what to do on “the business rates question” apart from a pledge to reform, whist raising the same amount of tax and “saving the high street.
"With rises of over £0.5 billion looming again next year, we are fearing a 'head in the sands' approach yet again. We’ll have to see what materialises in practice. “
Following the publication of the September inflation data, the British Property Federation warned it is unsustainable for business rates to continue to rise in line with the Consumer Price Index (CPI).
Ion Fletcher, Policy Director, British Property Federation said in a statement: “Falling inflation is a good thing. But it still means a tax increase for hard-pressed businesses come next April, thanks to business rates being automatically increased in line with September’s figure. It’s simply not sustainable for business rates to rise every year regardless of rents and other property costs, or how well a business is doing.
“Government has previously acted to hold back these automatic increases to give breathing space to high street businesses and should do so again in the Budget. This has to be followed by business rates reform, as promised by Government, to fix the underlying level of tax, ensure rateable values are closely linked to market rents and increase the period of empty property relief to reflect the amount of time it takes to find a new business to occupy empty premises.”
Simon Green, Head of Business Rates at property consultancy Gerald Eve, said: “Without significant intervention in the forthcoming Budget, September’s CPI of 1.7% will feed into a staggering £3.16 billion increase in business rates paid next year by firms in England, with over £2.7 billion of this falling on the retail, hospitality and leisure sectors.
“The September CPI figure is significant for businesses as the government uses it to calculate the maximum annual increase in the Uniform Business Rates (UBR) multipliers used to calculate rate bills for the following year, so it directly informs how much companies may be expected pay out in business rates next year.
“The rate of inflation of 1.7% means businesses across England could see a total of £510m added to their rates bills next year if the government chooses to increase in line with inflation.
“The remaining £2.65 billion increase arises from the ending on 31 March 2025 of the 75% discount provided to properties in the retail, hospitality and leisure sectors (capped at £110,000 per business).
“Having promised in its manifesto to ‘replace the business rates system’ in England, since taking office, the government has noticeably said very little on what is a key issue for the economy generally and for all businesses large and small. With the autumn budget fast approaching, companies want to know what the government’s plan is and will be expecting concrete plans from the Chancellor rather than a continuation of the approach of the Conservatives, which was to kick the rates problem into the long grass by means of short-term ‘sticking plaster’ reliefs, tax freezes and endless inconclusive consultations.
“Despite promises from successive governments to reduce the burden of business rates, they remain among the highest of comparable property taxes in the Western world. If the government is serious about unlocking economic growth, it needs to fulfil its manifesto pledge and tackle business rates now.”