Nathalie Thomas: Swinney pushes his luck

Published on Thursday 13 January 2011 14:00

IT'S USUALLY where business leaders go to let their hair down at awards ceremonies or unwind in the spa after a hard day at the office, but as a procession of some of Scotland's biggest names in retail filed through the doors of Edinburgh's Sheraton Hotel last week, the mood was far from relaxed.

Representatives from the big four supermarkets and high street giants such as Marks & Spencer, John Lewis and Debenhams, travelled to the Lothian Road hotel on Wednesday in response to a battle cry from the Scottish Retail Consortium over John Swinney's plans to impose an unpopular tax on big retailers.

They were joined at the table by some of the country's most influential lobby groups, including CBI Scotland, the Institute of Directors and Scottish Chambers of Commerce (SCC), as what started out as a single paragraph in the Finance Secretary's one-year budget last November turned into a full-blown crisis, with threats that 8,000 planned jobs in Scotland are now at risk. It was the first time in recent memory that so many businesses and lobby groups had come together to fight a single policy.

For Swinney and the SNP, it is rapidly turning into the biggest challenge to their power to date.

The atmosphere could not have been more tense as the newly-formed campaign group thrashed out a war plan against the shock policy, which will push up business rates for supermarkets and many other well known retailers by 35 per cent at a time when the high street is still struggling to return to a stable footing.

"The mood around the table was one of anger and frustration at the position the government has taken," said one of the attendees, Garry Clark of the SCC. "We've all been turning this around in our heads and are struggling to imagine how this has even come up."

"Sneaked" into the budget two months ago, the proposal, which Swinney has admitted will bolster the government's coffers by 30 million, caught Scotland's retailers off guard. Originally sold as an extra supplement on controversial out-of-town supermarkets, it has since emerged that a raft of high street names will be hit by staggering additional increases in their business rates bill.

Swinney plans to slap firms with retail premises valued at more than 750,000 with an extra levy of between 2.5p and 15p in the pound, which will be decided on a sliding scale. The big retail tax comes on top of an already significant hike in many firms' business rates after a revaluation in April saw some bills soar by more than 200 per cent.

According to figures released by the Scottish Conservatives last week, the extra tax will see shops on Scotland's busiest high streets saddled with millions in extra costs. Stores on Edinburgh's Princes Street, for example, will collectively have to find an extra 1.2m a year. It's a similar story in Glasgow, where retailers on Buchanan, Sauchiehall and Argyle streets are also looking at a 1.2m hike. The additional bill for Aberdeen city centre is 372,000.

Retailers point out that this unwanted burden comes at a time when the high street is once again in the doldrums - sales hit their lowest level in eight months in December, a month that is usually their strongest trading period of the year.

As revealed by Scotland on Sunday in November, the SRC has been examining a potential legal challenge to Swinney's proposal, which it argues, unfairly targets just one part of the economy - and one of the few sectors which has pledged to create jobs this year.

But the dispute took on a new urgency last Sunday - the day before the Finance Secretary was due to return to his desk after recess - when the boss of Sainsbury's waded in.

Justin King was the first of the big four food supermarket chains to speak out publicly on the issue, telling this newspaper exclusively last weekend that the tax was "penal" and "unfair" and would make expansion north of the Border "more burdensome".

Three days later King was still gunning for a fight, telling hacks who had gathered for the firm's latest trading update in the City, that the penalty could see Sainsbury's scrap plans for further stores north of the Border if it went ahead. King labelled the tax a "dampener" on job creation.

The big four supermarkets plan to open 20 stores north of the Border over the next two years, creating 8,000 jobs. But retail bosses have warned these plans are in serious danger of being "slowed or halted" unless the SNP climbs down.

Once King had broken silence, it wasn't long before other big retail bosses added their voice to the swelling row. B&Q chief executive Euan Sutherland said he too would be forced to reconsider expansion plans north of the Border if the proposal came into force.

The tax would cost B&Q 2m more a year and would impact 14 of its 29 stores in this country.

"It makes Scotland less competitive," Scots-born Sutherland said. "B&Q is actively looking at opening more stores in Scotland. It would be a great shame if we were forced to reconsider whether that investment is viable."

The Liberal Democrats have been long-term of opponents of the move, but Swinney soon realised he would have a political fight on his hands when the Tories and Scottish Labour signalled on Tuesday that they too would vote against the levy's introduction. With the three opposition parties together enjoying a clear majority in parliament, the SNP is staring defeat in the face over the issue.

Insiders at Holyrood say Swinney will either have to find another way of raising the 30m needed to balance the books or the SNP could be forced into calling an early election. Sources say it's looking increasingly unlikely that he'll muster enough support to pass his entire 28bn budget, which could force the Government's hand on an early election rather than making concessions on this tax and other areas to get it through.

With his face splashed across the newspapers, Swinney sought to calm the growing storm at a meeting on Thursday with SRC chief executive Fiona Moriarty and a number of other retail representatives.

Despite what was later described as a "robust, strong and clear" discussion, Swinney dug his heels in, stating that the 30m this tax seeks to raise, would be an "essential part" of the revenue required to fund Scotland's public services. He has consistently argued that the additional cost would, for most of the retailers affected, amount to a tiny percentage of their turnover.

"It's a cost that is very much at the periphery of the cost base of these organisations," he said.

Retailers and business leaders remain hopeful that Swinney will perform the same eleventh hour U-turn on this issue as he did on local income tax, as members of Holyrood's local government committee prepare to vote on a motion to annul the penalty on 26 January.

However, regardless of Swinney's actions over the next few days, business leaders are privately warning that the supermarket tax is just the latest in a string of policies that are seriously testing the trust between big firms in Scotland and the SNP.

Tempers were already high after April's business rates revaluation which caused some firms, such as Stobo Castle health spa, to lay off staff in order to meet the "extraordinary" increases in their outgoings. The Scottish Government consistently argued that 60 per cent of companies were no worse or even better off after the revaluation, which was based on property prices in 2008 before the market collapse.

But the government's apparent lack of sympathy for the other 40 per cent - some of which saw their bills double or even triple overnight - has stuck in the memories of many business owners, particularly as Scotland no longer has a transitional rate relief scheme to cap rises in any one year.

Sources within the private sector say that Swinney, who went to such lengths to court business prior to the last general election, is fast losing the faith of the business lobby.

As one business leader said: "John Swinney was seen as somebody who was very business friendly within the government. There has been a great deal of surprise and disappointment about decisions he has taken on transitional relief and this big retail tax as well.

"He and (Enterprise Minister] Jim Mather put a lot of time and effort into engaging with business before and after the last election and there was quite a warm feeling from business towards them. Now there are a number of concerns."

David Lonsdale, deputy director of CBI Scotland, says other parts of the private sector are nervous that they could be the next victims of the SNP Government's fundraising efforts if Swinney continues to face tight settlements from Westminster.

"If they (the SNP] don't get the savings they need or don't get the income they want next year will they lower the threshold for this retail tax? Will they apply this to other sectors that are also successful? Companies are saying, now its the supermarkets, who will be next?"

Clark of the SCC fears that because Swinney has very few methods at his disposal of raising capital, business rates could be an easy target from now on. "Looking forward, if a tax is introduced, how often is it abolished?"

While Swinney can, on this issue, rely on the support of the small firm lobby which believes out-of-town supermarkets should pay a supplement, those running larger businesses say their patience is wearing thin.

CBI Scotland director Iain McMillan gave a flavour of the sentiment in some parts of the private sector towards the SNP Government when he warned "the shine had come off" Alex Salmond's administration in comments accompanying his New Year message.

While others, not least former investment banker Ben Thomson, now chairman of think tank Reform Scotland, were quick to contest McMillan's views, the fact that a normally non-partisan lobby group would even get involved in such a row was telling.

On the retail front at least, Peter Muir, a business rates expert at Colliers International Scotland, says the trust has been broken.

"This retail tax has undoubtedly dented confidence" he says. "This and the removal of transitional relief were introduced by the SNP government without any period of consultation."