Rates: com­plex, con­vo­luted and in need of rad­i­cal change

DEREK CON­NERY ex­plains the anger and re­sis­tance to plans for a mas­sive in­crease in the lo­cal taxes paid by busi­nesses

The Oban Times - - News -

AS SOME of you will be aware there has been a re­view of the non-do­mes­tic rates (NDR), but what ac­tu­ally does that mean?

Ba­si­cally, the NDR is a ‘tax’ levied on busi­nesses in much the same way as coun­cil tax is levied on pri­vate house­holds.

So what does NDR ac­tu­ally mean? Well, pe­ri­od­i­cally ‘asses­sors’ as­cribe a value to all non-do­mes­tic premises in the coun­try (and, be­lieve it or not, that in­cludes no­tice­boards). That value is used along with a num­ber called ‘poundage’ to work out how much money each busi­ness should pay to the Scot­tish Gov­ern­ment as a prop­erty-based tax.

Fairly straight­for­ward? If only. A commercial sur­veyor once tried to ex­plain the sys­tem for val­u­a­tion to me, but he might as well have been speak­ing Greek.

The start­ing point is what sort of rental value could your prop­erty at­tain. Then there is square me­ter­age (swm).

So, for ex­am­ple, there is a shop in Oban on one level with a to­tal 180 sqm. How­ever, ac­tu­ally, this con­sists of 120 sqm of prime re­tail space (up to 9m from the door) which at­tracts a rental value of £120 per sqm, and then 60m of class B re­tail (more than 9m from the door) which has a value of £60 per sqm. So mul­ti­ply­ing through the square me­tres gives you, in part, the po­ten­tial rental value. There are still a num­ber of other fac­tors to con­sider: for ex­am­ple, if there are stairs to get into the shop, a dis­count is ap­plied.

Added to that, the pre­vi­ous val­u­a­tion was car­ried out in 2010, but it used 2008 rental val­ues (pre-fi­nan­cial crash) and, as a re­sult, busi­ness rates for the past seven years have been based on rental fig­ures from be­fore ar­guably the big­gest fi­nan­cial cri­sis the coun­try has seen.

Stick­ing with re­tail for the mo­ment, since 2008 the in­crease in on­line shop­ping has put the high street un­der pres­sure, so now lots of towns are see­ing empty shop units and rental rates fall­ing ow­ing to the highly com­pet­i­tive na­ture of the re­tail mar­ket.

But the shops re­main empty due in part to the fact that even if your rent was vir­tu­ally noth­ing, you would still be lum­bered with a rates bill based on in­for­ma­tion that is nine years out of date. So, roll into 2017 and we would all agree that there needs to be a re­view of the rate­able val­ues on busi­ness prop­er­ties. Yes?

It is ir­refutable that the Scot­tish Gov­ern­ment needs to raise money by tax­a­tion in dif­fer­ent forms and, as time passes, in­evitably taxes rise as costs rise. Equally, none of us likes pay­ing tax, but if we didn’t then we re­ally would be in a bind. Re­gard­less of what gov­ern­ment – lo­cal, na­tional and cen­tral – does with tax rises or cuts, there is a still an amount that is re­quired to be raised in or­der that they can pay their bills. Also, I think most peo­ple would agree that your taxes should re­flect your cur­rent sit­u­a­tion and not be based on your his­tor­i­cal sit­u­a­tion. Just like in­vest­ments, earn­ings can go down as well as up.

Now we reach the reval­u­a­tions. Asses­sors ap­ply a very com­pli­cated (at least for me) se­ries of rules and as­sump­tions to a prop­erty to as­cer­tain its rate­able value. Given the chang­ing world since 2010, it fair to as­sume there would be some re-align­ment of rates to more evenly spread the bur­den of tax­a­tion across busi­nesses and sec­tors.

This has, in­deed, hap­pened and there have been some win­ners and losers. The prob­lem is the scale of change that some busi­nesses have been ex­posed to and the fact that the ac­com­mo­da­tion providers would ap­pear on the sur­face to be the hard­est hit.

One lo­cal busi­ness has seen a dou­bling of its rate­able value (from around £ 37,000 to £61,000), which equates to an an­nual in­crease in its op­er­at­ing costs of around £12,000. To put it more sim­ply, this is al­most a full-time job or re­quires an in­crease in turnover of in ex­cess of £100,000. That is a big ask.

That ex­am­ple was for a mod­est ho­tel. When you dig deeper and look at some of the rises for larger ho­tels, you get to a stage where you can per­haps un­der­stand why an owner might not wish to con­tinue trad­ing.

Bizarre, given that tourism in Scot­land is one of our big­gest in­dus­tries and is cur­rently in growth. To put in bar­ri­ers and al­most force clo­sures would seem coun­ter­pro­duc­tive, not just in the re­duc­tion in avail­able rooms and jobs but also the im­pact to the other busi­nesses that both serve and ben­e­fit from vis­i­tors.

It is im­por­tant to point out that a so­lu­tion will not be easy to find. How­ever, when a method­ol­ogy is so clearly flawed, surely to persist with it is mad­ness. The best way to il­lus­trate this is with three real ex­am­ples ac­tu­ally in Oban.

1. A 24-bed­room, three-star ho­tel – cur­rent rate­able value (RV) £ 37,000, new RV £61,000.

2. A dis­tillery – cur­rent RV £ 50,000, new RV £74,000.

3. Large high street chemist – cur­rent RV £ 83,000, new RV £ 85,000.

This is noth­ing to do with the busi­nesses, but il­lus­trates the dis­par­ity the sys­tem cre­ates. Equiv­a­lent to a mod­est fam­ily sa­loon, a larger ex­ec­u­tive car and an ar­tic­u­lated lorry all be­ing judged by a sys­tem to be of com­pa­ra­ble value. Derek Con­nery is chief ex­ec­u­tive of Bid4Oban.

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