Scottish shops 'staring down barrel' of business rate hikes

Ministers said the freeze delivered the lowest basic property rate in the UK for the sixth year in a row and is expected to save ratepayers £37 million compared with an inflationary rise, which would have resulted in a basic property rate of 53.1p.

However, the Scottish Government also said in the Budget that the intermediate and higher property rates will both increase in line with inflation for the 2024-25 financial year, which begins in April. That means the intermediate property rate, which applies to properties with rateable values between £51,001 and £100,000, will increase to 54.5p from 51.1p April. The higher property rate, charged on properties with a rateable value above £100,000, will rise to 55.9p from 52.4p.

READ MORE: Sainsbury's shares plunge as Christmas sales disappoint City

The poundage rates are multiplied by the rateable value of a non-domestic or business property in order to calculate its annual rates bill.

In response to a written question from Liz Smith, Scottish Conservative and Unionist MSP for Mid Scotland and Fife, Tom Arthur, minister for community wealth and public finance, responded that a total of 10,450 properties would be subject to the intermediate property rate in 2024/25. This includes 2,140 shops, 1,770 offices, 420 public houses, 390 hotels, 2,420 industrial subjects, and 480 properties classed as leisure, entertainment, or caravans.

Mr Arthur also confirmed to Ms Smith, in a separate question, that 11,670 premises will be subject to the higher property poundage. This figure includes 2,410 shops, 1,770 offices, 190 public houses, 590 hotels, 2,500 industrial subjects, and 560 properties classes as leisure, entertainment, or caravans.

The Scottish Retail Consortium noted that the increases in intermediate and higher property rates mean that more than 4,500 shops will be subject to “bumper” rises in their business rates bills from the start of the new financial year.

It also observed that premises liable for the higher property rate will pay a higher business rate, 55.9p in the pound, than their counterparts in England, which pay a poundage of 54.6p.

READ MORE: Shares plunge as M&S reveals festive trading update

David Lonsdale, director of the SRC, said: “Trading conditions remain challenging, the cost of doing business is elevated, and the near-term economic outlook is weak. The decision in the Scottish Budget to freeze the basic property rate was very welcome, however a large proportion of retailers operate from medium-sized and larger premises and these 4,500 shops are staring down the barrel of a bumper rates hike from April.

“For these shops their business rate will escalate to a 25-year high. Indeed, almost 2,500 stores will continue to pay a higher business rate than competitors and counterparts down south.

“This increases the cost of maintaining a store estate and serves to make things even trickier. We need to see a faster pace towards restoring the level playing field with England on the higher property rate.”

The forthcoming rises in the intermediate and higher property rates come as the retail sector continues to grapple with difficult trading conditions. The SRC reported last week that sales at Scottish stores had been disappointing at Christmas, as consumers continued to hold back spending amid concerns over the cost of living.

Total sales in Scotland were found to have increased by 1.9% over the five weeks from November 26 to December 30, compared with December 2022 when they had grown by 11.3%.

Individual major retailers themselves have reported mixed fortunes, with Next upgrading its profit guidance again after a strong festive season but JD Sports signalling that the period had been less successful.

READ MORE: Scott Wright: Why is NatWest addicted to controversy?

A growing number of retailers are also expressing concern over the attacks on commercial ships by Houthi rebels in the Red Sea. Marks & Spencer, which reported better-than-expected sales figures for Christmas, warned last week that the disruption would delay the arrival of new clothing and home stock due to arrive in February and March as shipping companies take longer routes to avoid the Suez Canal, and may lead to price rises in this part of its business.

Meanwhile, the SRC has expressed its concern over the Scottish Government’s proposed reintroduction of a non-domestic rates public health supplement for large grocers ahead of the next Budget. Addressing the proposal, which was flagged in Budget documents, in an article for Reform Scotland, Mr Lonsdale said the proposal had caught the industry by surprise and showed “flagrant disregard for the New Deal for Business introduced by the First Minister only last year”.

Mr Lonsdale told The Herald: “We were shocked to see in the Budget that active consideration is being given to an arbitrary surtax on grocers. Introducing such a tax would be a brazen disregard for the New Deal For Business, introduced just months ago by the First Minister, and utterly at odds with promises of less complexity and a more supportive and competitive approach to business rates. The sooner ministers shelve this surtax the better.”

A Scottish Government spokesperson said: “In 2024-25, the basic property rate for non-domestic properties with a rateable value up to and including £51,000 will be frozen, delivering the lowest such rate in the UK for the sixth year in a row. The Budget also ensures that over 95% of non-domestic properties continue to be liable for a lower property tax rate than anywhere else in the UK. The small business bonus scheme offering up to 100% relief from non-domestic rates will be maintained.

“There have been calls to replicate non-domestic rates retail, hospitality, and leisure relief available to businesses in England. While Scottish ministers are sympathetic to these calls, doing so would have meant that the Scottish Government could not provide the NHS, schools, or emergency services with the funding they require.”