Scots business rates need a radical rethink

THE primary and ultimate responsibility for the parlous state of the high street lies with its customers, or former customers, since we are increasingly giving our custom to online retailers instead. The latest figures from the Office for National Statistics show that one pound in every five spent in the UK retail sector is online, while the number of shops is being reduced by almost 1,800 a year. While lamenting the physical decline of city centres, consumers have made the UK the world’s third-largest e-commerce market.

It is, however, far from being a tale of market preferences, or the free market. The stalls and shops in physical markets and high streets have restrictions and costs far beyond the innate differences between cyberspace and the real world, most imposed by government at local, Scottish and UK levels. Yet its response to these threats to employment (85,000 retail jobs were lost last year), the economy, competition, infrastructure and social cohesion has been sluggish.

Retailers, those in hospitality and others on the high street identify business rates as their primary handicap in remaining competitive. While landlords, facing economic reality, have cut rents, their tenants continue to pay crippling rates predicated on fanciful valuations.

The implementation of reforms recommended by the Barclay review is welcome but – in a rapidly deteriorating climate for sales – a three-year lag after evaluation is still too slow a reaction, especially when the Scottish Fiscal Commission estimates a whacking 25 per cent increase in the rates burden over the next three years.

Last year was the worst on record for UK retail sales; in 20 years it has gone from annual growth of almost eight per cent into negative territory. Since online has been growing all that time, that’s a catastrophic collapse for bricks-and-mortar retailers, and to expect them to find more – let alone 25 per cent more – is simply unrealistic.

Yet the money, of course, must be found somewhere, especially since it’s needed for other measures essential to the continued survival of the high street: transport, parking, regeneration of environment and services to entice shoppers. The most obvious step is to ensure that physical and digital retailers are even in the same competition. When Amazon paid £220 million in direct taxes last year on UK revenue of £10.9 billion, that race looks not just unequal, but impossible.

Measures such as the Scottish Government’s small business boost are a step in the right direction and to be commended, but much more sweeping and imaginative changes – rates holidays, rapid reaction to market costs, assessment of margins and not just bottom lines, even abolition – must be made.

That will involve tax rises or cuts: there is no easy solution. But the current system doesn’t so much hinder our high streets’ ability to compete as put them in the position of heavily handicapped horses, being asked to match the time set by Formula One teams.