A criticism sometimes levelled at the Scottish Parliament is that it doesn’t really “do” business – being more interested in high-minded matters around spending money than the grubby affair of making it.
This is unfair, or at least simplistic. I can’t think of an MSP who doesn’t appreciate that, if you want a successful local community, you need a successful local economy (and vice-versa).
But it is true that, if you’re in business, Holyrood taking a decision that directly impacts your bottom line isn’t exactly a daily occurrence.
Not so today, though. This afternoon MSPs will vote on the final stages of the Non-Domestic Rates Bill – which, unless the crunch votes go the right way, will see thousands of bills rocket.
The problem, as regular readers of these pages will know, is that, when the Bill was in Committee, amendments were passed to hand control of business rate poundages and reliefs to local councils.
And, unless these changes are reversed this afternoon, it’s the end of the Scotland-wide uniform poundage and lifeline national rates reliefs, such as the Small Business Bonus Scheme.
Now, some might think this is a great idea – striking a blow for local democracy; making local rates reflect local circumstances – and ask what’s wrong with setting business tax rates locally.
Well, the short answer is, when so few businesses have any financial breathing space, we’re worried the rates will go up.
Look, for example, at Northern Ireland, where the poundage rate is made up of a “Regional Rate”, set by Stormont at 34p in the pound, and a “District Rate”, set by each council. Even in the area with the lowest council-set rate, 21.8p in Fermanagh and Omagh, NI businesses pay a total of 55.8p in the pound – some 6.8p higher than the Scottish poundage rate of 49p. That rises to 61.4p in Belfast and 65.1p in Derry and Strabane.
There’s also the concern that locally set rates, without complicated rebalancing mechanisms, entrench inequalities. As you would expect, commercial properties in the more prosperous parts of the country have higher market values and, hence, higher rateable values. That, in turn, means they return higher revenues, making it easier for their councils to consider cutting their rates while still balancing the books. Meanwhile, council areas with a less buoyant economy – and therefore less valuable commercial property – would almost certainly be tempted to hike rates to generate the revenue they need, thus becoming an even less attractive place to invest and do business.
On the prospect of abolishing Scotland-wide reliefs, scrapping the Small Business Bonus alone would see firms having up to £7,350 added to their bills. And what might replace it? Councils already have powers to introduce their own targeted reliefs, but they’ve hardly been in a hurry to use them (a grand total of three have done so at present).
Little wonder, then, that new FSB figures show that three quarters of Scottish firms believe giving councils additional powers over non-domestic rates would be bad for business and four in five oppose abolishing national rates reliefs.
So, Scotland’s small businesses will be looking to their MSPs this afternoon to reverse these amendments and return the Bill to the sensible and overdue piece of legislation it started out as.
The question of locally-set tax rates is an absolutely legitimate part of the ongoing debate about local government finance. There are hard questions and tough choices to be confronted there, but they deserve more detailed scrutiny and discussion than this episode has afforded them.
Colin Borland is director of devolved nations at the Federation of Small Businesses.
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