Business leaders have called for fundamental reforms to business rates, ahead of the Scottish parliament elections, describing the way non-domestic rates are set as disproportionate and unsustainable.
While domestic council tax payers have been protected by the controversial council tax freeze, Scotland’s businesses have had no such amnesty.
Although the revenue raised by council tax has risen by just seven per cent since 2007, the tax take from business rates has increased by 42 per cent in the same period. This does not seem entirely fair. The Scottish Retail Consortium (SRC) says businesses are now bearing a disproportionate share of the burden and that this amounts to a tax on jobs and growth.
They would, of course, say that, wouldn’t they? For instance, we know times are hard for the retail sector. But to blame job losses in the sector on business rates is arguably disingenuous when automated tills, stock checking and other profit-driven reforms have made their own contribution to the 3,500 jobs lost over the last year alone. And it is right that successful businesses make a substantial contribution to the infrastructure which keeps their businesses going, educates their workers and keeps them healthy.
Nevertheless, representatives of other business sectors are also backing the call for rates reform, including business leaders in manufacturing, engineering, accountancy, tourism and publishing.
At a time when council tax reform is on the agenda, businesses are entitled to call for a similar debate about non-domestic rates. As manifestos are being drawn up for the Scottish Parliament elections it is right that not only the Scottish Government but all the political parties are challenged to come forward with ideas about how to protect jobs and investment while addressing some of the anomalies about business rates, such as the clear disincentive to invest in the property a business occupies, when to do so could be to increase its rateable value, regardless of a firm’s profitability.
A lack of flexibility to recognise when firms are doing well or badly is one of the SRC’s biggest complaints, and there is a case for looking at whether the system could better reflect the profitability of a firm.
However this would need careful consideration. The fundamental strength of a property-based tax is that it is hard to evade, for both domestic and commercial tax-payers. One only needs to look at the discredited corporation tax to see how large firms have found ways to explain away and hide profits, using legal but unethical dodges to leave them invisible to the taxman.
The Scottish Government’s response so far has involved allowing councils to set their own business rates to suit local circumstances. This is one response but risks provoking a race to the bottom if neighbouring councils respond by trying to lure more companies to their area by cutting business rates.
So yes, the SRC is saying what we would expect them to say. But that does not mean there isn’t strong case for reform and their call is a timely starting point for discussions.
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