Scott Macnab: Tax hike that could break Scots firms

As Scotland's economy struggles, a huge increase in business tax is grim news for companies says Scott Macnab

The hospitality industry in Scotland fears lay-offs and closures after an overhaul of business rates

Workers facing the axe across one of Scotland’s biggest industries, pay and hours being cut for countless others, and many firms staring down the harsh prospect of going to the wall. This is the bleak reality which smaller businesses across Scotland fear could be the impact of one of the most draconian tax hikes they have ever faced. The proposed overhaul of Scotland’s business rates has not attracted the same fierce debate as the hikes in the personal taxes of Scots which has dominated this year’s Budget. But as the Scottish Government’s spending plans for next year face the real prospect of defeat over income tax when they come before MSPs tomorrow, industry leaders fear most politicians are missing the hard economic impact looming of “unsustainable” rises in their own rates.

All this comes at a time when Scotland’s ailing growth is being outstripped by the rest of the UK. The situation has provoked widespread anger particularly among the flagship tourism and hospitality sector, an industry which is crucial to Scotland’s economy generating about £6 billion, roughly 5 per cent, of the country’s GDP and employing around 340,000 people both directly and indirectly. The anger stems from a controversial revaluation of the “rateable values” (RV) of individual firms which has been undertaken by the Scottish Assessors Association (SAA). Small operators running guest houses, bars and hotels have reported soaring increases of up to 240 per cent in these values.

The Fort Charlotte Hotel in Shetland, a five-bedroom guest house in Lerwick, will see its RV soar by 160 per cent from £2,000 to £5,200 under the proposed changes. The Old Bank Bar in Dundee is facing a rise of 183 per cent from the current £28,5000 to £80,700. This is not what the firms will actually have to pay, which is calculated by multiplying the rateable value by the poundage rate which has been cut to 46.6 pence by the Scottish Government. Nonetheless the Scottish Tourism Alliance is now demanding talks with Nicola Sturgeon to persuade the First Minister to intervene amid stark warnings that it will mean many operators face closure, redundancies and recruitment freezes, as well as future investment being choked off.

STA chief executive Marc Crothall has even branded the Assessors’ approach “flawed and unfair” as well as lacking transparency. Pubs are also unfairly penalised because their rates are, uniquely, based on their turnover rather than the size of the premises. It caps a difficult time for landlords across Scotland who have struggled to deal with the impact of the smoking ban, new drink driving curbs and duty hikes which are driving away customers who can no longer afford the prohibitive costs of drinking in city centres.

And the hikes haven’t been restricted to the hospitality industry. The Conservative leader Ruth Davidson confronted Nicola Sturgeon recently with the case of the North East engineering firm Precision Tools, with a workforce of just 12, which will see its rates go up by 63 per cent in April. The Peterhead-based Score group, which runs one of the biggest private apprentice-ship programmes in the country, may now have to restrict this because it faces a hike of £120,000 in its business rates, Ms Sturgeon was also told by the Tory leader. The fear is that the assessor’s re-evaluation was largely carried out in the North-east before the impact of the oil and gas downturn really began to bite. Finance secretary Derek MacKay felt the full brunt of local anger during a stormy meeting with owners of North-east firms last week.

Nicola Sturgeon needs to look at this issue in the context of the wider malaise currently facing Scotland’s economy. GDP north of the border is growing at barely a third of the modest UK rate of 2.3 per cent annually. And while unemployment across the rest of the UK is falling to record lows, in Scotland it is firmly on the rise as the economic shock of the oil and gas industry downturn continues to take its toll. The number of Scots in work fell by 14,000 over the most recent three-month measure and is down by a worrying 29,000 over the year. The economic activity rate is also down which indicates that many people have simply given up looking for work and withdrawn from the labour market completely.

And the future looks bleak with confidence among smaller firms having fallen again at the end of last year, capping an 18-month slide. They fear the situation will deteriorate in Scotland in the year ahead with 55 per cent highlighting the domestic economy as the biggest barrier to growth in a recent FSB survey.

Ms Sturgeon has so far kept her distance on the rates hike, insisting the assessors are independent of Government and that councils keep all the cash raised from business rates. Ministers point to the success of the Small Business Bonus which will be expanded again and see 100,000 firms lifted out of paying rates completely. Firms can also appeal against the eventual rate they will have to pay, but this is a lengthy process and many owners fear the damage will be done before a resolution is reached.

A wide ranging review of business rates and the role they play in supporting growth being carried out by former RBS executive Ken Barclay will also be too far down the line to help those affected by the current situation. So as Holyrood politicians occupy themselves with the prospect of income tax hikes for Scots workers, it is surely time to place a greater emphasis on these business tax hikes which could have such a devastating impact on the country’s economy. The First Minister may believe her hands are tied, but she must find a way to intervene in this process to stave off the impact of this change which is causing such concern across a major tranche of Scotland’s wealth creators. The Scottish Government is proposing to allow councils to put up the council tax for the first time in a decade - but increases are being restricted to 3 per cent to minimise the impact on hard-pressed Scots families. So how can it be deemed acceptable to hit firms, many of them small family-run outfits, with such exorbitant increases?