Court bid to block budget tax increase

• If Swinney were to lose a legal challenge, it would remove a key plank of his budget Picture: PA

Furious retail chiefs have warned they are considering legal action after finance secretary John Swinney decided "out of the blue" to hit big stores with a 60 million increase in their rates bill.

The cash is to be used to prop up local authorities, but retailers claim the move could be illegal and are planning to drag the SNP government into a legal battle. The measure was announced last week as part of Swinney's 28 billion one-year spending plan following a Westminster cut in Scotland's overall budget for 2011-12.

Retailers are to take Swinney to task under European law, which bars governments from discriminating against firms by size. He used his spending statement to indicate he would "increase business rates paid by the largest retail properties, including supermarkets and out-of-town retail parks".

Fiona Moriarty, the head of the Scottish Retail Consortium (SRC) said: "We will be looking into whether it is legal to charge different rates for different businesses."

Another senior supermarket source said: "There is a sense of deep frustration that retailers have been targeted as they have been investing and creating jobs in a tough economic climate."

David Hunter, a supermarket consultant, added: "The law at the moment doesn't allow that. The law says you pay a tax based on what the property is worth - and they already pay quite a lot."

If Swinney were to lose a legal challenge, it would remove a key plank of his budget, depriving him of tens of millions of pounds in tax receipts to hand to councils. It would force him to look elsewhere for even deeper cuts than outlined last week, when he imposed a one-year pay freeze on public-sector workers and ordered all hospitals, schools and government departments to cut costs by a further 3 per cent.

Industry representatives say the new tax could also jeopardise the creation of new stores.

Moriarty added: "When it comes to it, they (the government] see an easy target to grab cash, but the short, medium and long term impacts will be felt for a considerable time."

If it is viewed as legal, the tax would have to be passed by MSPs next year before Swinney could reap the dividends.

Conservative MSP Gavin Brown said: "There has been no consultation, no discussion, no hint to anybody in the business community that this was even an option. One of the fundamental rules for government when dealing with the business community is there shouldn't be too many surprises. The government needs to be frank and fair and candid."

Officials have told industry bodies the supermarket tax is aimed at "disincentivising" development of massive retail projects outside city centres. But retailers claim planning processes already control out-of-town retail parks. A Scottish Government spokesman said: "Legislation will shortly be laid before parliament setting out the detail of this proposal, designed to help redress the balance between town centres, and the large supermarkets and out-of-town retail parks. In the meantime we welcome feedback on the draft budget."

David Lonsdale from the Confederation of British Industry argued retailers already have been hit with "double digit" increases in rates revaluation. Larger firms are also paying a supplement to fund the government's small business bonus to aid smaller retailers, and others will also pay more to support "business improvement districts".

"This could be a fourth surcharge," he said.

However, Swinney received backing from the Federation of Small Businesses in Scotland. It highlighted research which showed new supermarket developments in Alloa, Dingwall and Dumfries have led to a collapse in rival independent retailers.

Stuart Mackinnon, FSB public affairs officer, said: "We're broadly supportive given the dramatic drop we've seen in independent high-street retailers.

"It's often more expensive to operate a business in a town or city centre than on the outskirts. Although it won't be a panacea, we hope this move could result in a slightly more even playing field."

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