State pensions and public sector pensions now index against the Consumer Prices Index (CPI), which tracks roughly 0.8% below the Retail Prices Index (RPI). Further evidence of the impending demise of RPI comes from the Office for National Statistics which describes it as “not meeting the required standard for designation as a national statistic”. The Minister has reportedly written to the British Retail Consortium (BRC) to confirm that a move away from RPI will be considered for the business rates regime.

Compound inflation lacks finesse

The use of September’s RPI as the inflation index for business rate increases in the following year has come under close scrutiny in recent years as inflation rates and interest rates have diverged. Evidence from the past three years clearly shows that simply compounding the inflationary effect based upon the previous September’s RPI statistic has failed to take account of the wild swings in valuation which can occur in the intervening periods. An ‘annual average’ approach to the indexing of business rates, based upon CPI, has been tabled by the BRC.

Submit ideas and widen the debate

Though primary legislation would be required to alter the indexing of business rates, it is clearly under consideration by the government. Any proposed change to the legislation ought to trigger a period of consultation during which opinions from all stakeholders would be sought. In recent years, inflation has been unkind to business ratepayers. This is your opportunity to submit your ideas.

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This article is part of the spring 2013 edition of Rating in Brief.