Draft Budget opens door for radical improvements in rates system

THE Scottish Government’s Draft Budget for 2016-17, published last month, has reignited the debate over Scotland’s system of business rates. At the time, Scottish Chambers of Commerce highlighted the fact that the Scottish Government was planning to raise an additional £130 million in business rates this coming year and it is worth examining these plans and their implications in more detail.

The Scottish Government has proposed a range of changes to business rates in Scotland which extend the burden of this tax upon business. Firstly it has signalled a break in its policy of shadowing English business rate levels by unilaterally doubling the tax supplement that applies to “large” businesses. This will apply to almost 29,000 business premises across Scotland. This is significant not only because it will cost businesses more – in the case of some larger businesses, around £26,000 a year extra – but also because it will finally dispel the Scottish Government’s oft-repeated claim that Scotland has “the most competitive business taxation in the UK”. Taken together with a further drastic reduction in the reliefs available to the owners of empty business properties, the delay of the regular rates revaluation to 2017, and court rulings which have restricted the capacity of businesses to appeal their rates bills on the basis of a material change in circumstances, business rates have in fact become a major cost pressure on businesses in recent years, despite the generous reliefs that have been made available to some smaller businesses. However, welcome as the small business bonus scheme is, it is not enough to provide the economic boost that Scotland currently needs.

More welcome in the Scottish Budget was the commitment from the Deputy First Minister to a review of the business rates system in Scotland. However our hope is that this review will result in radical improvements, as the Scottish Government has a chequered history in this regard. November 2012 was the last time the Government promised “a comprehensive and fundamental review of the rating system” but the resulting consultation has produced no meaningful changes to the existing tax. Indeed Scottish businesses are still awaiting the Scottish Government’s response to a further consultation on the rating appeals system which closed almost a year ago.

Business rates has been the key tax on business that the Scottish Government has had at its disposal since devolution in 1999. Over the past year, the UK Government has begun to signal greater flexibility in the way the tax operates south of the border, with more powers and accountability for local councils.

It is time for similar strategic thinking in Scotland and all political parties must deliver clear plans for this tax, with timetables for implementation. Liz Cameron is chief executive of Scottish Chambers of Commerce