Tax controversy dismissed as ‘sideshow’ in battle to save Scotland's high streets

The new powers have been set in train because of an amendment made to the Non-Domestic Rates (Scotland) Bill, and will move into law unless a counter measure lodged by ministers gains support when MSPs debate the legislation in the Scottish Parliament on Tuesday.

READ MORE: Scottish high streets 'in peril' over business rates move

Groups such as the Scottish Retail Consortium, Federation of Small Businesses and the Scottish Grocers’ Federation say the pressure on finances means local councils will inevitably hike business rates if given the chance to do so.

However Phil Prentice, chief officer of Scotland’s Town Partnership, has dismissed the rate-setting controversy as a “side issue”.

He declared that much bolder action is needed to transform local government finances and help town centres fight back from the relentless shift to internet retailing.

And he said the idea of a physical property tax such as business rates is “absurd” in the digital age because it disadvantages bricks and mortar retailers.

READ MORE: ‘Bleak midwinter’ on Scottish high streets

Mr Prentice said: “The problem is that, over the last 20 years, governments have seen rates as the perfect tax – it is a predictable, stable and potentially ever-increasing tax take; they do not want to give it up, whatever the side-effects.

“Within that the retail sector has been particularly disadvantaged as traditionally it has been a big property user and the take from the sector has risen absolutely and as a proportion of all business rate take.

“Our view is that local setting or variation is a sideshow in the major issues. Rates have to be radically reformed and other income streams to run local government and general taxation introduced.”

Mr Prentice also questioned the wisdom of giving rates relief to small firms in Scotland, including the Small Business Bonus Scheme. Scottish Government figures show a total of 169,760 reliefs, with a total value of £738 million, were in place on May 31 last year, with 158,690 properties (62% on the valuation roll) receiving some form of relief.

READ MORE: Grim festive retail sales fuel talk of UK interest rate cut

He believes that the relief mechanism, which he described as the “biggest single economic investment” made by the Scottish Government each year, needs to be examined.

He said: “Even if there was a flat rate of £200 a year for every single business and charity in Scotland, that would allow a lot of services to be funded, and it would mean there would be more equity across the piece.

“I don’t think it is fair to allow these small businesses off from paying something, because they still have the lights, the roads, the bins being collected. At the end of the day, if you can’t afford to pay £200 a year in rates, you don’t really have a viable business in my view.”

He added: “If you go across the entire country, probably about 60% of small businesses benefit from the Small Business Bonus Scheme. The ones that are totally exempt, with rates (rateable values) of less than £15,000 should all be asked to pay something… [say] £200 per year.

“And, if you multiplied that up, it creates a huge tax base for the councils to reinvest. It could be ring-fenced for town centres or high streets, but at the minute that money is not being collected and services are suffering.”

However, the idea of scrapping relief for small firms was dismissed by the Federation of Small Businesses in Scotland.

Colin Borland, director of devolved nations, said the concept runs counter to the general move towards reducing taxation for the least well-off in society.

He also questioned whether such a move would generate enough revenue to “wipe its face” when the cost of administration and collection is taken into account.

“In the scheme of public finances, would it make a difference?” Mr Borland asked. “Would it turn around funding for our town centres? Even if we did enforce it… how much of it would make it anywhere near public services or town centre improvements?”

Mr Prentice said it had been wrong of Scottish Finance Secretary Derek Mackay to ask Ken Barclay, whose report on business rates informed much of the draft legislation, to approach reform as a “zero sums game” when the former banker was asked to review the system in 2017.

Mr Prentice said: “Barclay’s instruction was basically, the Scottish Government relies on £2 billion a year from business rates, at the end of your review we expect to see £2bn worth of business rates. He had his hands tied and to me that is the fundamental error in a fast-changing world, just to assume we were going to end up in the same place.”

Mr Prentice also claimed that charities, which can apply for 80% rates relief in Scotland, continue to receive “disproportionate benefit to the cost of independent private businesses”.

And he added: “I do think bigger businesses and retail parks should pay more, because they do have an advantage with free car parking, but even at that level you have to be really careful, because you could put these bigger companies out of business.

“Tread carefully and don’t just think they are a cash cow.”

Mr Prentice believes a 2% digital transaction tax could help establish a more level playing field between physical and online retailers. But he stressed the UK should not act alone, observing that it would leave the opportunity for other countries to undercut its rate.

Stressing the need for a “global solution”, he said: “I think in 18 months, two years, we will see an online tax. And once the online tax is in place, everything is fixed. If we need more money, we will just add another per cent on to it.

“If your buying something online at £30, are you going to baulk at the fact you are going to pay another 40p for it? That will just go through like a tourist tax, nobody will even see it.”