DEREK Mackay has been urged to follow the Chancellor’s example and link business rate rises to the lower measure of inflation to save firms millions of pounds.

The Scottish Retail Consortium said that shops alone could end up paying £5m more in rates if the Finance Secretary failed to do so, with costs potentially passed onto consumers.

In his Budget this week, Philip Hammond announced he was bringing forward a plan to link increases in the business rate poundage to the consumer price index (CPI).

Originally scheduled for 2020, this will now take effect from next April.

CPI is lower than the rival measure of inflation, known as the retail price index (RPI).

In September, the key month for determining the poundage, CPI was 2.8 per cent and RPI was 3.9 per cent.

With business rates raising around £2.8bn a year for Scottish public services, an RPI rise next year would mean firms paying around £30m more than under a CPI rise.

The Scottish Retail Consortium (SRC) calculated shops would be liable for £5m of this.

A link to CPI was backed by the recent Barclay Review of business rates in Scotland led by former RBS chair Ken Barclay.

Because such a change was beyond the Review's remit, it was never a formal recommendation to SNP ministers.

However the Review did warn that if Scotland didn’t keep step with England “a disadvantage may be created for ratepayers in Scotland” that was "likely to grow with each financial year”.

It said a switch to CPI should be considered "to ensure Scotland retains [a] competitive non-domestic rate environment”.

SRC director David Lonsdale said failure to act would lead to a widening “rates gap” between Scotland and south of the border.

He said: “Implementing the switch to CPI indexation for future rates rises would be a step towards a more sensible and affordable rates regime.

“What is crucial is that Scotland adopts this in short order, ideally from April.

“Otherwise firms here will be paying a headline business rate higher than that facing competitors and counterparts down south.”

He added: “Retailers are grappling with profound changes in shopping habits, squeezed consumers and relentless rises in costs.

“Decisive action in the Scottish Budget next month to cap the inexorable cost rises and keep down the burden of business rates would increase retailers’ confidence about investing in new and refurbished shop premises, help revive high streets and town centres.”

The Scottish Chambers of Commerce is also backing a switch to CPI.

At the moment in England, the annual poundage rate, which determines the size of a rates bill, is capped at the RPI measure of inflation.

There is no such cap in Scotland, but Scotland tends to shadow what happens in England.

Tory finance spokesman Murdo Fraser backed the calls for a link to CPI.

He said: “It’s important that Scottish business is not put at a competitive disadvantage.

“In the past, Scottish ministers have made it clear that they also take the view that the business rates regime in Scotland should mirror that in England in terms of what people pay, so their own logic would suggest this a reasonable step for them to follow.”

A Scottish Government spokesperson said: “We are doing everything within our powers to support our economy, including our retailers.

"For example, this year we have reduced the business rates poundage by 3.7 per cent and funded total rates relief of around £660m, including the Small Business Bonus Scheme which will lift 100,000 properties out of rates altogether. Further detail, including confirmation of the rates poundage for next year, will be confirmed in the Draft Budget next month.”