Bill Jamieson: Business rates would be the kindest cut

The Forth Crossing is now not far from completion. Photograph: Scott Louden

This is the question now troubling Scottish business. The economy has slowed to a standstill. Confidence has been hit by uncertainty over the Brexit vote. And forecasts for the year ahead are grim.

The good news is that a start has been made. Last week the Scottish Government announced a £100 million boost to capital spending. There will also be programmes to help businesses deal with uncertainty.

The package has been broadly welcomed by business organisations. For months evidence has mounted of a hiatus in capital spending and infrastructure work as major projects such as the Forth Crossing have neared completion. A boost to public works should help to pick up the pace.

But in tackling the slowdown and the evident slump in business confidence and morale, it only takes us half of the way.

What thousands of businesses need – and what leading business organisations from the Scottish Chambers of Commerce to the Scottish Retail Consortium have loudly called for – is a cut in business rates.

The calls have been growing for more than a year. But the combination of economic slowdown, a persistent rise in rate revenues and the approach of a rates revaluation in eight months’ time has added urgency to these pleas.

Why has the Scottish Government not responded? Last week investment secretary Keith Brown provided an answer. “The most effective way”, he declared, “to make an economic impact, to provide certainty in terms of jobs and to businesses is to invest in infrastructure, not just because it employs people right away but because it improves the productive capacity of the country.

“If you improve the infrastructure, your roads, your hospitals, your colleges and so on you improve the potential capacity of the country and that is why we think it is right to focus on this.”

Now that is a good answer – as far as it goes. Few would question the need for a boost to infrastructure spending that has the twin benefit of providing (almost) immediate employment and boosting our competitiveness. Continuing to improve Scotland’s attractiveness as a place to work and do business is a cardinal responsibility of government.

But it does not address the wider problem across the economy of the ever- rising cost of running a business. And one of the biggest costs is business rates.

This is a property-based tax charged to business, and the next revaluation falls in less than a year. The Scottish Government has matched the poundage rate to that applying in England, currently 48p, a level that does not recognise the continuing slower pace of the economy in Scotland compared with south of the Border.

In addition there is a “large business supplement”, raised from 1.3p to 2.6p in the pound from April of this year. This has been sharply criticised by the Scottish Retail Consortium, speaking for a sector that employs more than 250,000. For the first time firms now fork out more in business rates than they do in corporation tax in the UK. SRC figures show that for every £1 retailers pay in corporation tax they now stump up £2.31 in business rates.

All told, non-domestic rates brought in £2.8 billion in 2015-16, the single largest source of revenue under the control of the Scottish Government. This figure has climbed from £1.9 billion in 2008-09. The rise of more than 40 per cent compares with an increase of 7 per cent in revenue from council tax over the same period.

It’s bad enough to use Scottish businesses as a milch cow – when businesses have no vote. But to do so with the air ringing with warnings of recession would be iniquitous. This has to be the second leg of the Scottish Government’s response to the economic slowdown. And while Brown has chosen not to make an immediate announcement on rates, I note that the door is not totally slammed shut.

He said last week that business rates and air passenger duty – another tax that business would like to see reduced – would be reviewed “in due course”. The administration’s business rates review group will be meeting shortly. And while it is not currently expected to report until next July – three months after that pending rates revaluation – it would be absurd if this review was not brought forward.

As Liz Cameron of the Scottish Chamber of Commerce has argued, “inaction is no longer an option for the Scottish Government on business rates. This is a rates time bomb that must be defused now.”

The benefits of a business rate cut – ideally accompanied by a commitment to a freeze on rates for the foreseeable future – are manifold. It would provide an immediate fillip to business confidence at a most difficult time – particularly to firms in town and city centres already facing lacklustre growth at best in household spending.

Second, it would help encourage business investment and expansion – perhaps even taking up the glut of retail space currently boarded up or occupied by charity shops.

And third, it would encourage business start-up, particularly if there is some certainty that non-domestic rates would not be constantly hiked regardless of business conditions.

But can the government afford both an infrastructure boost and a business rate cut? The wherewithal for that £100m boost comes from a £155m underspend in 2015-16. And while some of that cash has strings attached, there’s enough unencumbered cash in the kitty to enable the administration to bring forward new capital projects.

As for the revenue effects of a cut in business taxes, there’s surely no higher authority than former first minister Alex Salmond, champion of the Laffer Curve, which showed how revenue losses are more than made good by business growth and higher revenue in subsequent years.

There is a compelling opportunity for the administration to act: cut business rates and peg them for five years. What a boost to enterprise this would be.