After a widespread outcry in response to changes in business rates announced in December’s draft budget, Finance Minister Derek Mackay unveiled changes yesterday providing welcome relief to firms facing crippling increases.
But while the news was given a tentative welcome by the business community, concerns remain that such a move fails to address fundamental issues with the system as a whole, which is seen as instead needing a root-and-branch overhaul.
Unveiling the new measures, Mackay said it became evident that the increase to rateable values in some sectors and regions was “out of kilter with the wider picture of the revaluation”.
With increases of up to 620 per cent, it was all-too imaginable that for firms operating in an already-challenging market, the increase would be the difference between staying afloat and quickly being dragged under.
There were countless examples of such jumps, with one Edinburgh bar and restaurant facing a bill increasing from £7,350 to more than £40,000 next year, for example. “I cannot fathom how they work it out — there doesn’t seem to be any rhyme or reason to it,” its owner said.
And she wasn’t the only one; while many small, independent firms reported facing vast hikes, there were cases such as the rateable value for the premises at 129 Princes Street occupied by Sports Direct being slashed by 35 per cent from £645,000 to £419,000.
Nonetheless, Mackay has heeded calls for change, capping business rate increases at 12.5 per cent for the hospitality sector and office premises in Aberdeen and Aberdeenshire to reflect the impact of the downturn in the North Sea economy.
He said measures already put in place by the Scottish Government meant seven out of ten business premises would be better or no worse off after the revaluation, with more than half paying no rates at all.
Mackay also said the relief for hotels, pubs, cafes and restaurants will benefit about 8,500 premises, “and provides proportionately more support to the sector in Scotland than is available in the rest of the UK”, while the boost for Aberdeen City and Aberdeenshire will help a further 1,000 premises.
Such moves were inevitably welcomed in the business community, with the Scottish Tourism Alliance, British Hospitality Association and Scottish Licensed Trade Association at the most positive end of the scale. In a collective statement, they said yesterday’s news “will be welcomed by tourism businesses across Scotland, businesses which [the previous day] were facing serious financial challenges post-April and in many cases, closure and the loss of many jobs”.
But from other parties, widespread concerns nevertheless bubbled to the surface. Ken Thurtell, partner and head of property consultant Gerald Eve’s Glasgow office, said Mackay’s latest announcements “are indicative of mounting pressure on the finance minister to address the flaws in the system, something we have been campaigning on alongside industry bodies for some time.
“But for those industries and areas that don’t benefit from this largesse, there will be real questions about favouritism and the government picking winners. A half-baked transition scheme that has all the hallmarks of being formulated on the hoof will be of little comfort to those sectors and regions who don’t benefit from these reliefs – such as education, healthcare, large industrials and utility companies – and many will feel they are being treated unfairly.”
Many business leaders voiced their view that Mackay’s amendments simply highlight that the whole valuations system is needing an overhaul. Liz Cameron, chief executive of Scottish Chambers of Commerce (SCC), said the revision fails to “get to the root of the problem”.
She continued by saying SCC has proposed a “full expert review of the methodology of valuations in the hospitality, motor trade and energy sectors, with a view to ensuring that every business in Scotland can be confident that it is subject to a correct business rates valuation of its premises.” In her view, this would “complement” the Barclay Review, chaired by former Royal Bank of Scotland chairman Ken Barclay and set up to look at the current system of non-domestic rates across Scotland.
Cameron’s call for reform was echoed by Brian Rogan, head of rating and taxation for property consultancy CBRE in Scotland, who said the capping unveiled by Mackay “does little to support the credibility of the Scottish Government’s policies on this area of tax and will do nothing to rebuild confidence in the current business rate regime.
“The fact that these measures have had to be introduced shows the extent to which the current rating legislation is not fit for purpose.”