Call for urgent action on rates as retailers face £350m tax hike

THE UK and Scottish governments face demands to reform the controversial business rates system as retailers warn they will be hit with a “highly damaging” £350 million hike from April after the inflation measure used to calculate bills hit a 20-year record in September.

Figures from the Office for National Statistics yesterday showed the retail prices index (RPI) jumped to 5.6 per cent last month, spelling bad news for hard-up retailers and other business rate-payers whose bills during the next financial year will increase by the same percentage.

Business groups claim the system of basing rises on September’s RPI is a “lottery”, particularly as inflation is soon expected to tail off sharply. They warn that a 5.6 per cent hike in business rates would hit retailers and other businesses hard at a time when they can ill-afford it – economists expect the UK economy to suffer similarly anaemic growth in 2012 to this year.

Both governments are facing calls to set the “poundage rate” below the level of inflation, given the major economic challenges on the horizon.

The Scottish Chambers of Commerce warns the outlook for retailers north of the Border is especially poor given the Scottish Government’s £110m “health levy” to be paid by large supermarkets selling alcohol and tobacco through their business rates. Garry Clark, head of policy at the SCC, said: “It’s a combination of circumstances that are very damaging for businesses. We hope the UK government will see some sense and that the Scottish Government will follow suit.”

The British Retail Consortium has calculated that the extra burden from the record inflation figures would add £350m to retailers’ bills across England, Scotland and Wales. Scottish retailers would have to meet “at least” £35m of that sum, according to experts.

British Retail Consortium director-general Stephen Robertson said: “With trading conditions staying tough, an increase on this scale would have a hugely detrimental effect on retailers’ ability to invest and create jobs.”

In addition to adjusting next year’s poundage rate, Robertson called for longer-term reform of the system “so that future increases are more predictable and more affordable”.

The British Property Federation has called for a fixed rate of, for example, 2 per cent – bringing it in line with the Bank of England’s inflation target.

Alex Salmond’s government can set its own poundage rate, but has insisted it will stay in line with the English figure for the length of this parliament. A spokesperson said: “The Scottish Government has committed to continue to match the English poundage rate – a policy measure business in Scotland long called and – rightly – campaigned for.

“This is in stark contrast to the previous administration, who for seven consecutive years allowed all Scottish businesses to pay more than their English competitors by setting a higher Scottish poundage rate.”