Scotland’s private schools will have to pay full business rates after MSPS voted to pass new tax legislation which also saw a proposal to hand £3bn of rates revenues to councils defeated.
MSPs voted down an amendment from the Scottish Conservatives to the Non Domestic Rates Bill which would have allowed independent schools to continue to benefit from 20 per cent relief on their rates bills. As a result, from September the schools will have to pay full business rates.
Tory education spokesperson, Liz Smith said there had been a lack of engagement around the removal of tax relief for private schools and a cost benefit analysis has not been carried out.
She warned that smaller schools would be at the “tipping point” of survival and may not be able to offer “generous” bursaries, making them “more elitist” and reducing parent choice. She added that if private schools closed, there would be more strain on the state sector.
However public finance minister Kate Forbes said schools had had three years to prepare for the change and Labour’s Sarah Boyack added the move would create a “level playing field” as state schools did not get rates relief.
And despite the Scottish Liberal Democrats backing the Conservative amendment, it was defeated by 81 votes to 30.
MSPs also voted by 103 to 10, against a move by Scottish Green MSP Andy Wightman to devolve the setting of business rates back to local authorities - a power which was shifted to central government by Margaret Thatcher.
Mr Wightman said his proposal, would have “righted a fundamental wrong”. He also dismissed concerns raised by business organisations and Cosla about the speed at which the power would be given to councils, saying that it would not happen until 2024.
The proposal had caused a row between the Scottish Greens and the SNP, with the former accusing the government of “scaremongering” amid claims the plan would see small businesses face a rates hike of more than £7000 as rates relief could end.
Despite the idea being backed “in principle” by Labour and the Conservatives, both parties voted against the amendment, with only the Scottish Liberal Democrats voting in support.
Mr Wightman said: “Non Domestic Rates are a local tax and for well over a century they were under full control of the level of government to whom they belonged before being centralised by Margaret Thatcher’s government.
“This vote today is the first time in the history of devolution to make provision for this historic wrong to be corrected. It’s a vote for democracy and to make Scotland a normal European country by giving local authorities the right to control their own tax base.
“Non Domestic Rate is a local tax, it belongs to local government and councils. Just as the Scottish Parliament sets Scottish tax rates so too should local authorities set local tax rates.”
Responding to the concerns of business and councils, he added: "I've always recognised that returning rate setting powers to local authorities could not, and should not, be achieved overnight. Discussions need to take place between government and Cosla over the local government settlement and fiscal framework, and and that's why my amendment allows that time."
He said his amendment also ensured that "the power to offer rates relief" would remain, and also allowed for the "2024 date to be changed so if four years is not enough it can be extended."
However Kate Forbes, said that the amendment had jeopardised local authority funding guarantees and “would have seen 32 different rates introduced by local authorities across Scotland.
She added: “Some parties may ideologically believe that’s right but to do it in one vote with scrutiny or thought to what it means is no way to set such a change in motion.”
The defeat was welcomed by the Federation of Small Businesses’ Andrew McRae, who said: “This was not the time to hit small businesses with new annual rates bills in excess of £7,000.”
However Public Finance Minister Kate Forbes, said that the amendment had jeopardised local authority funding guarantees and abolish rate relief worth £300m, and would have seen 32 different rates introduced by local authorities across Scotland. "Some parties may ideologically believe that's right but to do it in one vote with scrutiny or thought to what it means is no way to set such a change in motion," she said.
"Andy Wightman is to be commended for raising the profile of this issue. I know Cosla are keen to see fiscal empowerment and the way in which local authorities are funded will now be part of the fiscal framework taken forward at pace.
"That includes looking at integrated local government funding mechanisms and all local government taxes, including looking at implications of devolving Non Domestic Rates but also how it sits within wider local government funding."
Scots Tory finance spokesperson Murdo Fraser called for a more comprehensive review of the business rates system, which he said was "creaking at the seams" and the question of funding of local government needs to be tied into a "broader discussion about the role of councils".