Baffling ‘broken tax’ is not transparent and desperately needs reform

BUSINESS rates is a broken tax and once again the results of the revaluation process have left many businesses furiously angry.

Alongside the Scottish Tourism Alliance, the Scottish Licensed Traders Association and the Glasgow Restaurants Association, Glasgow Chamber of Commerce is calling for a temporary freeze on the introduction of the new rates regime for licensed traders.

The Barclay Review commissioned by the Scottish Government to make recommendations for change to the business rates system reports in the summer, and we are proposing that we wait until we understand the outcomes of that report before finalising the introduction of the new rateable values.

If you want to understand fully why the issue of business rates is so controversial, you might want to listen to an excellent podcast on the British Chambers of Commerce website, and in particular catch comments made by Christian Spence from Greater Manchester Chamber. He explains all the key problems.

Business rates are charged irrespective of how well a business is doing; and are pretty much unrelated to profitability. This is the most irksome issue for the licensed trade, who have their rates set by the assessors, not using property rentals as is the norm, but using estimates of the maximum achievable turnover for each business.

So general rises in costs are all but ignored, and business rates become a fixed cost of simply opening your doors.

Business rates are also not transparent. Owners are often left baffled by why they have a massive increase in their rateable values while similar businesses do not. It might not please central or local governments, but that’s why we routinely advise business owners to appeal at the first opportunity.

There are also long gaps between revaluation processes. The last one was done before the financial crisis, and the current one is based on conditions in 2015. Therefore rates bills are often detached from current economic reality.

Also those big gaps between revaluations can mean the baffling changes to the rates bills can be dramatic, explaining why we are hearing of rises over 100 per cent.

And then there are perverse incentives. If you invest in your business or in the area around it, you might find your rates going up to reflect those improvements.

Any tax that discourages investment, is unrelated to ability to pay and is hard for the taxpayer to understand desperately needs reformed.

‘‘ The big gaps between revaluations can mean the baffling changes to bills can be dramatic

Stuart Patrick is chief executive of Glasgow Chamber of Commerce.