Small earthquake in rates that could have huge consequences

In the next few weeks the relentless business exodus from our town centres is set to inflame a major political row in Scotland over proposed changes to the setting of business rates.

BIg discounts reflect the pressure on high street traders. Picture: Stewart Attwood
BIg discounts reflect the pressure on high street traders. Picture: Stewart Attwood

At any other time, such a topic would barely cause a ripple beyond the business pages. Are there not always moans about business rates? Such stories normally have the news impact equivalent of “Small earthquake in Chile, not many killed”.

But two factors have combined to give this latest row a double electric charge. One is a proposed amendment to the Non-Domestic Rates Bill currently before Holyrood. This amendment, proposed by the Scottish Greens, would have the effect of transferring the setting of business rates – currently raising a total of £2.8 billion – to Scotland’s 32 local authorities. This has the potential to blight a mosaic of reliefs and exemptions on which many small firms depend to continue in business.

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The second is the unrelenting pressure on councils to raise more revenue from business rates to meet their spending commitments – and this when tens of thousands of small firms have been forced to close or move out of town centres.

The massive switch to online shopping has been the key factor. But the coincident killer punch for many businesses has been the constant rise in their rates bills, oblivious to the slump in business conditions.

The amendment to the non-domestic rates legislation has already provoked fierce opposition, not only from the Scottish Retail Consortium, which has led the protests, but also concern from an array of other trade associations and business lobbies. These include the CBI, the Scottish Tourism Alliance, Scottish Land and Estates, the Association of Convenience Stores and the Scottish Grocers Federation.

The Bill – though not the amendment – is supported by the Scottish Government. It wants to keep the Uniform Business Rate intact. But this is a minority administration, other parties have indicated support for the amendment, and there is no guarantee that the government will get its way.

The prospect of a return of rate-setting by local authorities fills business with deep foreboding. Business rates in Scotland are already at a two-decade high. The Scottish Retail Consortium has already been urging the SNP administration to adopt a recommendation of the Barclay Review (back in 2017 and at risk of being lost in the mists of time) to scrap the large firms’ rates surcharge having to stump up an extra £65m over and above that faced by competitors or counterparts down south. It has now broadened its attack to what it sees as “a worrying ad-hoc and piecemeal localism which has crept into devolved policy-making”.

This, together with the introduction of workplace parking levies, “are but two prominent examples” it cites of where the business heart of our town centres is being squeezed.

But devolved policy-making, say the amendment’s supporters, is the key attraction. Many town centres and rural areas in Scotland acutely feel being “left behind”.

Was not the general election result in large part a call for urgent help and support as traditional communities have been neglected while London and the south-east have enjoyed massive financial support?

Projects such as CrossRail, airport development and the High-Speed Rail Link, which critics say will be of benefit mainly to the London area – testify to the imbalance. Devolved empowerment – locally determined spending and rate-setting – are exactly what is needed to catalyse regeneration of our deprived and blighted areas.

But where is the evidence that locally determined rates will bring about a transformation of the type and scale required? This proposal, say critics, just like the workplace parking levy, has been arrived at out of the blue and without any economic or business impact assessment.

And there are wider impacts and consequentials. “Our concern”, says the SRC, “about the dearth of wider stakeholder involvement in this has been heightened greatly by the vote to end the uniform business rate. After all, replacing council tax could have significant implications for household disposable incomes and consumer spend, for employers, and for other parts of local government finance.” Someone has to pay, for it is never “faceless corporations” that pay, but customers and suppliers in higher prices, and employees through lost jobs.

As if the rates bill was not enough, retailers faced a further £13.2m uplift in their rates bills in April. Earlier this year every Scottish local authority set inflation-busting rises in council tax, with many as high as 4.8 per cent. If a similar figure had been applied to business rates, the increase across all types of ratepayers would have been £134m, rather than the actual £58.6m. For retailers, the increase in their rates bills would have been £30.2m rather than the £13.2m uplift actually experienced.

“Inflation-busting increases in council tax,” says the SRC, “only add to concerns that ratepayers would see higher bills if rates were set by councils.” It points to Northern Ireland, where councils set the business rate and rates bills are 19 per cent higher than in Scotland. And previous experience here is not reassuring. Only three of the 32 local authorities have ever used their existing power to cut business rates, reinforcing a fear across the business community that we could be set for a return to the bad old days.

A recurring concern is that the Small Business Bonus Scheme, which exempts premises with low rates valuations, would come to an end. Recent analysis by the Scottish Fiscal Commission calculates that this move alone would deprive business of £355m in support.

The Scottish government hopes to have the amendment overturned. Andy Wightman, the Green MSP who tabled it, has apparently indicated that removal of such reliefs such as the Small Business Bonus Scheme was a drafting error and this will be corrected in the next phase of legislative scrutiny. But welcome though this would be if successful, it still leaves the core change in the amendment in situ – and it is on this that the battle is set to intensify in the weeks ahead. Meanwhile, the devastating trading pressure on high street businesses shows little sign of ending.