IT HAS been seven years since the last commercial property revaluation. With two Holyrood and two General Elections, two referendums, and enormous fluctuations in economic conditions since then, not even Nostradamus would have been able to confidently predict each businesses liability in advance.
Although rates revaluation sounds tedious, it’s crucial to the health of the retail industry. Business rates are the single largest tax paid by retailers, many of whom scratch their heads wondering what they receive in return. Last year retailers paid one-quarter of the £2.8 billion raised from rates.
To explain the problem, the current approach to revaluation is a bit like getting a new council tax bill – but with little idea why or how the band your house is in came about, with only weeks to prepare, and as if the tax rate had risen consistently over the past seven years. It’s unsurprising firms have been concerned.
For businesses in geographical areas or sectors deemed to have done well over the seven years, the likelihood is they will face significant rises. For retailers operating in a highly competitive market with narrow margins that might well mean a significant extra hit on top of a number of other costs, including the new apprenticeship levy.
The theory is this rates rise should be offset elsewhere. However, in areas which have performed less well, businesses may already have suffered. To learn that their rates bill might now be lower is little comfort.
There is a systemic problem here. Business rates are a revenue for government, but retailers have found themselves forking out more, most notoriously the 5,077 businesses who still pay the Large Business Rates Supplement, which doubled last year. Meanwhile, shop numbers have fallen 1,700 over these seven years, with 10,000 fewer retail jobs.
It’s this tinkering which has created a tax leviathan. The current system is anachronistic, unwieldy, unresponsive and broken. That’s why the SRC campaigned for fundamental business rates reform. We were delighted when ministers announced Ken Barclay would lead a review, and we’ve already made our arguments to his commission.
The case is straightforward. Retailers want a system which is flexible, simple, and competitive. First, we want to see a commitment to three-yearly revaluations. That would ensure the tax flexed with economic circumstances and gave firms certainty. It would reduce the enormous number of appeals which bedevil the system.
Secondly, the whole system needs simplified. Why does Scotland have 14 Assessors who calculate valuations when the whole of England and Wales has one? Similarly, politicians’ endless tinkering with the system has created innumerable reliefs and levies – these need simplified.
Finally, business rates need to be focused around promoting economic growth rather than just raising revenue. To the Government’s credit the small firms’ relief is a start. But the case for only promoting small businesses is flawed. One of the structural failings of the Scottish economy is the failure of SMEs to upscale their businesses. When the tax system disproportionately penalises them for doing so, it’s hardly a surprise.
Instead, ministers should plan to reduce the rates burden over time, and restore the level playing field on the Large Business Supplement in short order.
They should build a simple, flexible, and competitive business rates system which encourages businesses to invest in productivity and innovation. That will stimulate economic growth, and in the long term both higher and more sustainable revenue streams for the Government.
David Lonsdale is the director of the Scottish Retail Consortium.
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