Business rates inquiry chief: Devolving tax power was never part of the plan

THE former banking chief who led a high-profile review of business rates in Scotland has declared controversial moves to devolve control of the tax to local councils is inconsistent with the remit his team was given.

Ken Barclay, a former chairman of Royal Bank of Scotland in Scotland, was asked by Finance Secretary Derek Mackay to make recommendations to improve the business rates system following the last revaluation of non-domestic properties, which had resulted in huge bill increases for many firms.

Mr Barclay, whose report was published in August 2017, said his inquiry gave consideration to devolving the control of rate-setting to local councils, which became part of the Non-Domestic Rates (Scotland) Bill after it was amended at stage two of its progress in December.

Scottish ministers last week lodged a counter amendment to retain the Uniform Business Rate (UBR) and ensure rates continue to be set centrally, which they hope will gain sufficient support when the Bill is debated in the Scottish Parliament for the final time tomorrow.

Mr Barclay said his committee explored the idea of devolving rates but concluded it was inconsistent with the remit he was given by the Scottish Government.

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Speaking exclusively to The Herald, Mr Barclay said: “One of our principle objectives was to try to stimulate investment and therefore as a consequence economic growth, and one of the things we kept hearing was that consistency was important.

“As far as I can see, if we devolve [rate-setting] to local authorities one of the things we will not get is consistency, because some local authorities will have different rates than others.

“One of the key briefs we were given… was to improve the system, reduce administration and support business growth. As I reflect on that now, my perspective would be that if a business is operating in 32 different local authorities, then it will potentially have 32 different poundage rates.

“That, to my mind, does not make it easier. It is certainly not simplifying it.”

Mr Barclay’s comments come hard on the heels of a special series in The Herald last week, which underlined growing fears in the business sector over giving councils control of the £2.8 billion tax.

The Scottish Retail Consortium said devolving rate-setting power was liable to lead to higher rates bills for its members, as local councils would seek to boost under-pressure coffers. It argues this would ultimately undermine retailers’ ability to invest, create jobs and combat challenging tradition conditions.

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The Federation of Small Businesses said the amendment to the Bill, which was introduced by Scottish Green MSP Andy Wightman and backed by the Scottish Conservative and Labour parties, would have “huge significance” for tens of thousands of firms if councils decided to scrap business rates relief.

Mr Barclay noted it was “not clear” whether the Small Business Bonus Scheme would have any “longevity” , or whether some small firms would now have to pay rates if the Wightman amendment makes its way into the final Bill.

“That I would view as a potential unintended consequence of devolving rates,” Mr Barclay said. “If you start to make businesses pay more, or pay something when they are currently exempt from paying, again, that has the potential to stifle investment and to reduce employment.”

Mr Barclay added: “If I go back to the poundages, the question that was on my mind was whether you would have a race to the top or a race to the bottom.

“What I mean by that is, if you are a business you may end up paying significantly more for your rates in one local authority area and less in another. If a local authority feels it is appropriate to reduce business rates, you then create competition across local authority boundaries. Or, if you are short as a consequence of some businesses moving out, the non-domestic rates that businesses pay increases.

“So that, to my mind, is one of the unintended consequences. Are those that are left, left to shoulder the financial cost of those that leave? Because, actually, at the margins, if you increase rates some businesses will either not be able to survive or potentially move across the border into another local authority. That’s not going to happen wholesale, but at the margins it is potentially a consideration.”

Mr Barclay said one of the recommendations his report was to reduce administration for businesses which operate in different local council areas, which he said would become more complicated if rate-setting was devolved.

In his view, there needs to be a broader enquiry into local government finance, including council tax, business rates and the Scottish Government’s local authority settlement, which he believes would be the best way of addressing the “unintended consequences” of the Non-Domestic Rates (Scotland) Bill.

He said: “My view was that what we should be thinking about is a strategic review of local authority funding. If that came first, then you could consider all the unintended consequences of devolving non-domestic rates to local authorities.

“If you take a strategic perspective on this, then I think you are far better-placed to be able to deal with the unintended consequences that come as a result of the changes that are made.”

Beyond his comments on devolving rate-setting, Mr Barclay noted that the bulk of his committee’s recommendations, some 28 out of 30, have made their way into the Bill, which he said was a “reasonable outcome” in terms of the remit it was given.