John Swinney sets up £850m business tax trap

SCOTTISH businesses are being lined up to pay an extra £850 million in tax over the next three years to top up flat-lining government coffers, the small print in this week’s SNP Spending Review has revealed.

The tax rise, to be hauled in through the non-domestic rates that firms pay to councils, equates to a 23 per cent increase between 2011 and 2014, according to independent analysts – who predicted that some firms could go to the wall as a result.

It prompted fury from business chiefs last night who warned they were being stung for “huge rises” that would inevitably reduce their ability to create jobs and help move Scotland away from the threat of recession.

The increases are contained in figures within a 250-page document on the Scottish Spending Review, published on Wednesday, which shows that ministers have built in massive increases in the yield they expect from the rates from April next year.

The non-domestic rates are payable on properties such as shops, offices, warehouses and factories, although some public sector buildings are also charged, often at a reduced rate.

Revenue from the levy is expected to rise first by 4.2 per cent, then by 7.6 per cent and finally by 9.4 per cent by 2014-15, equivalent to annual increases of £92m, £264m and £493m, adding up to a cumulative £849m.

About £100m of the total figure is expected to be piled on supermarkets under a new health tax that is set to penalise them for selling alcohol and tobacco, announced by finance secretary John Swinney on Wednesday.

There will also be a huge increase in bills for firms with empty properties, after Mr Swinney decided to crack down on the rates relief they currently receive.

An analysis of the Scottish budget plans published yesterday by the independence think-tank, the Centre for Public Policy for Regions (CPPR) warned: “If businesses thought they might be sharing in the Scottish Government’s desire to cap tax pressures on consumers by maintaining a council tax freeze, they were sadly mistaken.”

The tax increases, which are passed to Scotland’s 32 councils, will offset Wednesday’s cuts to the grant given them by Scottish ministers.

The Scottish Government was forced to pass on cuts after its own £28bn annual grant from UK Treasury coffers was effectively frozen for the next three years, as the Westminster government seeks to slash Britain’s gaping budget deficit.

The CPPR warned last night that the increased reliance that councils now had on business rates made their own funding situation more uncertain. There are fears that the expected yield from rates may fall over coming years if the economy does not pick up.

Business chiefs reacted furiously to the detail of the spending review proposals last night, saying it damaged the case made by the SNP to devolve other business taxes to the Scottish Parliament.

David Lonsdale, deputy director of CBI Scotland, said: “If this huge rise in business rates is a foretaste of what could be expected under a devolved corporation tax, then the case for devolving it is immeasurably weakened.”

Garry Clark, head of policy at the Scottish Chambers of Commerce, said: “On the back of a budget which was generally positive for the economy, it is extremely disappointing that the Scottish Government has once again sought to take more resources away from business through a further increase in business rates.”

He added: “This is £500m less for business to invest in creating the jobs Scotland needs to take us forward out of recession and towards the increased sustainable economic growth that the Scottish Government has stated as its central purpose.

“This does not appear to be a policy which will help Scottish business to succeed.”

David Melhuish, director for the Scottish Property Federation, said his members were particularly concerned by the ending of empty property rates relief.

He said: “Unfortunately this is an own-goal by the Scottish Government. Businesses struggling to downsize as a result of the recession will also be caught.”

He also said that the experience in England – where relief has also been ended – had shown that tax revenues did not rise by as much as expected, with some firms choosing to demolish empty buildings rather than pay rent.

He went on: “Worse, the removal of relief for empty properties adds significant risk to investors in new and redeveloped commercial buildings and in the current fiscal climate this will further reduce any appetite for economic development.”

Researchers at the CPPR warned last night that the impact on firms could be deeply damaging.

Economist Jo Armstrong said: “[The Scottish Government] might argue that the Tescos and the Waitroses of the world might be able to afford it, but it is the group in the middle who are the biggest employers who will take the biggest hit.

“In a sluggish upturn, then that will push them into a non-sustainable business.”

The warnings formed part of a critical report into Wednesday’s spending review in which the group also said they were sceptical over Mr Swinney’s claim to have produced efficiency savings and to be boosting economic growth.

The CPPR said the efficiency savings should be better termed straight cuts to budgets, which inevitably will lead to further job losses.

The report also said that there was not enough evidence to prove that the SNP government’s policy of boosting capital spending had helped Scotland outperform the rest of the UK, as claimed by SNP ministers over recent weeks.

It warned that the spending proposals were likely to come under pressure over the coming three years, as rising demand for services ratcheted costs up further. On Wednesday, Mr Swinney said he hoped to deal with this by spending more on so-called preventative measures, designed to cut costs.

A spokeswoman for the Scottish Government said last night that total business rate increase should be 493m “in terms of a cumulative figure”.

She added: “Aside from the normal inflationary rises, the income from non-domestic rates will be impacted by a range of factors in the next three years. This includes economic assumptions, such as appeals losses and buoyancy, an additional £110m in income from the public health supplement and savings of £36m from reform of empty property relief.”

She added: “The report fails to reflect the clear evidence that this government’s actions to increase strengthen Scotland’s economy are producing positive results.

“Our spending decisions have been focused on supporting recovery in the face of Westminster cuts, and we continue to call on the UK government to act now and introduce a ‘Plan MacB’ to protect Scotland’s economic recovery and jobs.”

On Wednesday, Mr Swinney laid out how he intended to deal with cash cuts of £3.3bn in the Scottish budget from 2010-11 to 2014-15.

Along with the increases in business rates, he was forced to freeze public sector pay for a further year and increase contributions that public sector workers pay into their pensions.

SNP ministers said they were prioritising capital spending, with up to £9bn of projects lined up over the coming three years, in the hope these will maintain employment and keep Scotland out of a double-dip recession.