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Business calls for £1.6bn rates boost from the Budget

Businesses are urging the Chancellor to deliver a radical overhaul of business rates in this week’s Budget to save firms a massive £1.6 billion over the next five years.

The Confederation of British Industry is spearheading the demand that George Osborne should scrap the link between rates and the Retail Prices Index and instead use the typically lower Consumer Prices Index measure of inflation.

Rain Newton-Smith, the CBI’s director of economics, said: ‘We know over the course of this Parliament the overall burden from business rates will go up by £5 billion.’

Demand: George Osborne is being called on to scrap the link between rates and the Retail Prices Index and instead use the typically lower Consumer Prices Index measure of inflation

A separate analysis for The Mail on Sunday by business rates consultant Paul Turner-Mitchell concludes that switching to CPI would save companies £1.6 billion.

He said: ‘CPI is the main government measure for inflation – used for pensions in particular. But for business rates it appears they have made a special case. 

‘It just so happens that special case also means the Chancellor will be able to generate an extra £1.6 billion from a tax which has already caused growing problems across multiple sectors like retail and heavy industry.’

Business rates and rent adviser CVS said there would be a second hit for beleaguered small retailers when a discount put in place to ease the burden of successive above-inflation rates increases is lifted. That will add another £284 million to the tax bill for small shops over the next year, it said.

But the Chancellor may be hard-pressed to find room for tax reductions as City economists believe he will be forced this week to admit he has missed his targets for cutting the deficit by £5 billion this year.

In November, the Government predicted borrowing this year would be £73.5 billion, but Samuel Tombs of consultancy Pantheon Macroeconomics said: ‘Borrowing of about £78 billion seems more likely, overshooting plans by nearly £5 billion.’

Osborne will also face bad news from the Office for Budget Responsibility, which is expected to cut its predictions for economic growth from 2.4 per cent to 2.2 per cent.

But consultancy Capital Economics believes the cut to growth will be short-term.

It said: ‘The more recent slowdown appears to be related to worries about global growth and Brexit, which should be temporary. This would mean that the OBR could revise growth up slightly in subsequent years.’

As well as rates reform, the CBI and the Institute of Directors have called for improved incentives for business investment and a clearer Government energy policy.

IoD director-general Simon Walker told The Mail on Sunday: ‘We have one other specific point which affects quite a lot of our members. 

‘When your income gets to £100,000, you start to lose the Personal Allowance. That means that in effect the income tax rate then is 62 per cent.

‘It would be great if he gave back the Personal Allowance, but if he can’t do that, if he smooths out the tax scale that would be a help.’