Retiring benchmarks

Publication March 2018

LIBOR to go …

The Financial Conduct Authority has announced its intention to retire the LIBOR benchmark interest rate setting scheme by 2021.

It is not yet clear what will replace it or whether transitional arrangements will be put in place to cover current financing transactions at the date of LIBOR retirement.

Parties should bear this in mind when negotiating new contracts where LIBOR may be relevant. They will also need to consider what the consequences of LIBOR retirement will be for any existing contracts that continue after that date.

… and RPI too?

In a release dated 8 March 2018, the Office for National Statistics (ONS) stated that: “Overall, the Retail Prices Index (RPI) is a very poor measure of general inflation, at times greatly overestimating and at other times underestimating changes in prices and how these changes are experienced ... : we do not think it is a good measure of inflation and discourage its use ... ”

The ONS prefers the Consumer Prices Index (CPI) as a measure of inflation. In recent years, the RPI inflation rate has generally been around 1 percentage point higher than the CPI: a shame for business rates payers as the level of business rates is linked to the RPI. Three cheers then for the announcement in the Autumn Budget that business rates indexation will switch from RPI to CPI in April 2018, a move worth £2.3bn to businesses over the next five years, according to Chancellor Philip Hammond.

On the subject of business rates, the Chancellor also announced in the Spring Statement that the next rates revaluation will be bought forward by a year to 2021, having already stated that revaluation will in future take place every three, rather than five, years.


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