Cost of living rises
Firms face £80m rates bill after inflation hits six month high
Firms struggling with rising costs have reacted with alarm after the inflation rate soared unexpectedly to 2.7%.
If this holds until next month, when the CPI figure is used to calculate the business poundage rate for next year, it would add £80 million to business rates bills. Scottish retailers could face an extra £18 million on their annual bill from April 2019.
Should the Scottish Government not repeat last years’ decision to limit rises to CPI, but instead use RPI (which is currently 3.5%), the £18m figure could rise to over £23m.
Scottish businesses also still have to pay a higher Large Business Supplement in Scotland and all ratepayers who operate out of town face the prospect of a new rates surcharge under ministerial plans.
The retail industry makes up 6.6% of the economy (Gross Value Added) and pays over a fifth of the business rates bill.
David Lonsdale, SRC Director, said: “Retailers are already facing stiff headwinds from rising costs and cash-strapped consumers. With stores under enormous pressure, and sadly closures becoming a feature in many places, it’s ridiculous to consider further increasing the property taxes paid by businesses often operating on a knife edge.
“Whilst there may be a superficial appeal to squeezing the last penny out of stretched businesses, doing so puts stores at risk, threatening jobs and future tax revenues.
“The SRC are calling for a freeze on the poundage in this year’s Scottish Budget. This isn’t about paying less, it is simply not reasonable to continue hiking up bills on struggling businesses. With the retail industry, and indeed the Scottish economy, going through a period of immense change under enormous pressure, this is the time to focus on growth not on further tax rises.”
Inflation rise surprises analysts
Economists had expected a Consumer Prices Index rate of 2.4%. The pound rose after the data was released by the Office for National Statistics.
Wages are still rising more than inflation, with data last week showing wages, excluding bonuses, grew by 2.9% in the three months to July.
Suren Thiru, head of economics at the British Chambers of Commerce (BCC), said: “Inflation surprisingly rose for the second successive month in August, largely wiping out the recent recovery in real wage growth and emphasising the continued squeeze on consumers.
“The strong growth in producer prices indicates that inflationary pressures further down the supply chain remain significant and could lift inflation higher in the coming months. However, the upward pressure on prices remains transitory, and inflation should resume its ease back towards target once the impact of the recent increase in oil prices drops out of the calculation.
“The possibility of a disorderly Brexit is the key risk to the UK’s outlook for inflation as it could result in a substantial decline in sterling, which could significantly increase inflation and exacerbate the financial squeeze on consumers and businesses.
“With UK economic conditions subdued, and little evidence that higher inflation is translating into materially stronger pay growth, the MPC has sufficient scope to opt for a prolonged period of monetary stability.
“Against a backdrop of significant political and economic uncertainty, more needs to be done to boost UK growth and productivity, including kickstarting business investment, through tackling the high upfront cost of doing business in the UK.”
Scottish economy grows
The Scottish economy grew by 0.5% during the second quarter of 2018, according to statistics announced today by Scotland’s Chief Statistician. The figure means Scotland outpaced UK growth of 0.4% growth.
Change in gross domestic product (GDP) is the main indicator of economic growth in Scotland. The first estimate of Scotland’s GDP statistics, covering the period April to June 2018, show that the economy grew by 0.5% in real terms compared to the previous quarter. Over the year compared to the second quarter of 2017, the Scottish economy has grown by 1.7%.
During the first quarter of 2018 output in the Services sector grew by 0.4%, output in Production grew by 0.6% and output in the Construction sector grew by 1.8%.
This is the first quarter for which a first and second estimate of Scotland’s GDP will be published and is the quickest that Scottish GDP has ever been published. The second estimate of Scotland’s GDP will be available in Quarterly National Accounts Scotland, published on 31 October.
Liz Cameron, chief executive, Scottish Chambers of Commerce, said: “It’s fantastic to see Scotland’s economy growing despite some of the uncertainty surrounding the broader trading environment. Over the year, we’ve seen Scotland outpace the UK, with GDP increasing by 1.7%, compared to the UK’s 1.3%.
“Growth was driven by a range of industries, including distribution, hotels and catering, manufacturing, and business services and finance.
“It’s also excellent to see our construction sector, which was particularly challenged by the adverse weather in the first quarter of the year, return to growth rapidly. These recent statistics suggest growth of 1.8% this quarter, higher than the 0.9% observed across the UK as a whole.”