Need for stability in levying of business rates

The Scottish Government’s expectation, revealed in its Budget last week, of bumper additional revenues from business rates over the next couple of years looks somewhat optimistic.

David Lonsdale, assistant director of CBI Scotland. Picture: Complimentary

An extra £450 million a year in revenues is be raised from non-domestic rates by 2015-16. This is despite the current, still muted, state of the economy and only modest forecasts for economic growth over the next two years.

Indeed, the projected rise in revenues will be even harder to achieve given the £131m in extra business rates taxes that have already been levied this past year, on larger retailers and firms with empty premises.

Moreover, it suggests that the discriminatory rates levy on larger retailers who sell alcohol and tobacco, and which was due to end next year, could well be extended into 2015-16 and beyond. Might the levy threshold be lowered too over the next two years, making a wider range of shops liable for the tax in order to generate more revenue?

Furthermore, if there ends up being a shortfall in the devolved administration’s budget – due to less revenue than expected, or a failure to achieve efficiency savings – might ministers seek to tap other successful sectors of the business community with similar tax rises?

The CBI has supported much of the current administration’s rates agenda, for example over poundage rate parity with England and the reliefs available for small firms’ and enterprise zones. However, the £95m levy on larger retailers is a distortion which puts off much needed investment and jobs here in Scotland, and undermines business confidence in the rates system.

There needs to be much more predictability and certainty built in to Scotland’s rates system, with a move away from the ad hoc introduction of new or additional business rate levies.

Firms value year-on-year predictability as it makes it more straightforward to budget, which in turn makes it easier to know how much is available to re-invest.

The devolved Budget should be amended, with a moratorium on any further new levies which make Scotland a more expensive or less attractive place to invest during the current parliament.

• David Lonsdale is assistant director of CBI Scotland