Hike in rates 'will drive out top retailers'

John Swinney

Business bodies claim that the finance minister's decision to single out large retailers for additional rates hikes is "shortsighted and counter-productive".

In a joint letter to the Scottish Government, six organisations including the Institute of Directors, CBI, Scottish Retail Consortium (SRC) and Scottish Chambers of Commerce warn of a "disincentive to large retailers to choose locations in Scotland" and a "disincentive to Scottish businesses to grow beyond a certain level".

It comes as research obtained by Scotland on Sunday reveals massive and "unfair" charges for dozens of familiar names with stores in town and city centres. Under government plans, retailers with properties worth more than 750,000 will pay an additional tax as part of a funding settlement for councils.

Due to kick in from April, the scheme will work on a sliding scale, with the lowest rates being 2.5p in the pound, rising to 15p if premises are worth more than 2.1m. Major supermarket chains such as Asda and Tesco and large out-of-town superstores were the main targets of the levy.

However, detailed calculations based on rates assessment data reveal the full extent of the tax swoop. Debenhams will have to stump up an estimated extra charge of 602,000 from next year on ten properties, John Lewis Partnership faces a 643,000 surcharge on three stores, while the additional bill for a trio of House of Fraser branches amounts to 441,000.

Among the 28 other retailers facing the so-called large retail supplement is Marks & Spencer, whose levy on a mix of 12 high street and out-of-town stores tops 1.2m. Harvey Nichols' sole Scottish store, in the heart of Edinburgh, is facing a potential charge of 107,000, according to the research.

Tim Bunker, a partner and business ratings expert at property firm Ryden, said the figures may shock many big names, coming on top of a rise in the uniform business rates from 1 April.

"I would doubt many have calculated exactly how this will affect them," said Bunker. "This is a per annum charge, not a one-off, and could run for a number of years with possible changes to the scale. There doesn't seem to be a fair approach to this - it's a bit all over the place."

According to Ryden's calculations, 31 companies owning some 230 properties will pay a total of 31.4m through the controversial scheme. The figures are roughly in line with those outlined by the Scottish finance secretary.

Bunker noted that some retailers are likely to have already lodged business rates appeals, so may yet avoid paying the supplement.

The biggest losers under the plans are the four big supermarket operators - Tesco, Asda, Morrisons and Sainsbury's. They face bills ranging from about 8.5m on 48 shops in the case of Tesco, to 2.6m for Sainsbury's, covering 17 of its branches.

The Edinburgh and Glasgow branches of Swedish home furnishings group Ikea are likely to be stung with a combined additional charge of more than 850,000.

Bunker said: "This is all off the bottom line. Maybe a manager in control of the budget for his own store has to let some people go or headquarters might say 'We won't build that new unit now.'"

Gordon Drummond, general manager at Harvey Nichols Edinburgh, said: "I am amazed at the figures quoted here and we will have to look at this proposed retail tax early in the new year once Christmas trading is behind us."

Today's letter to Scotland on Sunday from the six business bodies warns: "At a time when job creation and private sector investment are particularly crucial to the Scottish economy, the introduction of unfair rates on a select number of retailers calls into question whether Scotland really is as open for business as ministers try to make out."

Fiona Moriarty, director of the SRC, said the consortium was taking legal advice, adding: "We have got some very interesting soundings back in terms that the levy might contravene state aid rules."

A Scottish Government spokesperson said: "The proposed new levy, which will apply to only the very largest retail premises, will help redress some of the imbalance between profitable large supermarkets, particularly those located in retail parks, and smaller independent retailers in town and city centres. It will affect less than 0.1 per cent of all non-domestic properties in Scotland.

"It is estimated that an additional 30 million will be generated, of which over 75 per cent will come from the largest supermarket stores. This will help maintain key frontline services provided to businesses by councils, and contribute to the cost of the Small Business Bonus Scheme which has delivered average savings for small and medium sized firms of 1,403.