Calls are growing for sweeping reform of Scotland’s business rates system as thousands of firms are hit this week with another rates hike.
Last week Scot-Buzz splashed on the issue, with a call for fundamental reform of business rates the main story on our website. It is sent out to thousands of SMEs, business organisations, government ministers, MSPs and media.
The latest two per cent rise – when inflation has fallen to zero – is reckoned to add another £150 million in tax revenues, bringing the total business rates take in Scotland to £2.8 billion – three times as much as the forecast tax revenue from North Sea oil.
Liz Cameron, Chief Executive of Scottish Chambers of Commerce, said the fact that inflation now sits at zero per cent “reveals just how out of step business rates increases have become.
“Indeed, since the last revaluation in 2010, business rates revenues in Scotland are projected to have increased by £731 million by 2015-2016, which represents some £470 million over and above the rate of inflation.
“With the Scottish Parliament’s basket of taxes growing and a full review of business rates being implemented in England, it is time for constructive change here in Scotland.” Leading the call for business rates reform is the Scottish Retail Consortium.
Says David Lonsdale, SRC Director, “The current system of business rates is not fit for purpose and acts as a drag on Scottish economic growth.
“It acts as a disincentive to invest and as this recent tax hike demonstrates it fails to flex with economic circumstances and only ever rises.
This has manifestly been to the disadvantage of businesses and town centres right across Scotland.
DISINCENTIVE TO INVEST
“The UK Government has launched a fundamental review of business rates in England and we would encourage the Scottish Government to do the same.
After all, the Scottish Government’s recently announced review of the Council Tax proves that reform of local government finance is not impossible.
“A fundamental reform of business rates is urgently required in order that we can have a system that better supports economic growth and job creation. It acts as a disincentive to invest and as this recent tax hike demonstrates it fails to flex with economic circumstances and only ever rises. This has manifestly been to the disadvantage of businesses and town centres right across Scotland.”
The tax rise will hit retailers particularly hard as they contribute around one-quarter of the £2.8 billion paid in business rates.
Since 2009 business rates revenues derived from retail have increased by over 30 per cent whilst there has been around 1800 fewer shops.
Every 1 per cent rise in the shop vacancy rate equates to a loss of around 2,550 retail jobs in Scotland.
The Scottish government retorts that Scotland’s business rates increase was capped again this year, mirroring the English rate, with most of the revenue uplift due to other factors such as new properties.
Said a spokeswoman, “Small and medium retailers in Scotland already receive the best deal in the UK, with over 96,000 properties estimated to benefit this year from the Small Business Bonus Scheme, and the prospect of rates relief up to £4,800 in 2015-16.
“Unlike previous administrations, this government has never set a higher rates poundage than in England.
“An estimated 64 per cent of retail premises in Scotland pay zero or reduced rates, and our 2015-16 rates relief package estimated at £618m will help Scotland retain the most competitive business tax environment in the UK.
“The UK government’s consultation on the other hand offers little new thinking or prospect of reform.” However, comparisons with the system down south overlook claims by English campaigners that property rates are more than twice as much as any other OECD country.
Bearing in mind that our business rate poundage and system of valuation in Scotland is similar to that in England, this applies to businesses here. Says North West of England rates campaigner Paul Turner-Mitchell,
“Any taxation system has to be fair, transparent and the burden should be equally borne irrespective of sector. Sadly these traits are currently missing from the business rate system.
“There is no doubt that retailers are angry and quite rightly so.
The high street has been treated as a cash cow for far too long. However, to a certain extent, that anger does not stem from the rating system itself but the amount of money it derives.
“In 1990, when the national business rates system was introduced, business rates raised £9.6 billion. Last year before reliefs that amount had rocketed to £24.5billion and the OBR predict by 2017 that will hit £31.2billion.
“2015 will also be a watershed moment not because of a general election but because revenue from business rates will outstrip council tax for the very first time.”
We stated our view last week and we state it again today…
“It is time we stopped treating business ratepayers as milch cow for every new spending wheeze and vote-catching political gimmick.
“Business Scotland needs to unite and to campaign for a business rates review.”