Business rates row saw governments scrambling
Fake news and uncertainty: a row over non-domestic rates masks bigger concerns for business
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The revaluation of business rates usually causes some consternation, but the most recent one has seen a furore add to an already volatile political milieu. It even saw Trump-style allegations of ‘fake news’ from political heavyweights.
The next revaluation takes effect from 1 April, the first since 2010, and governments both at Holyrood and Westminster have seen angry and vociferous lobbying on behalf of businesses who expect to see their tax burden rise considerably.
Because the revaluation process takes around two years, the 2010 valuations of business properties took place during the global financial crash, which saw property rates in some areas plummet.
This means the new revaluation rides on the back of economic growth fuelled again by property values, and will cause some very large rises, particularly in areas which suffered most from the economic crash in 2008.
This business version of council tax has been devolved to Holyrood since the establishment of the Scottish Parliament. The Scottish Government has therefore always had the levers to create its own system of balancing tax take and a competitive business environment.
The latest Scottish Government proposals to change the system, laid out in Finance Secretary Derek Mackay’s budget, will actually see it raise less in tax revenue from non-domestic rates.
The threshold for businesses to start paying the tax will be raised from £10,000 to £15,000, while business will also pay a lower percentage, or ‘poundage’, of their rateable value. This means this year it is projected to bring in £2.605bn, down from the £2.768bn raised in 2016-17.
In contrast, proposals for the revaluation for rates in England are expected to net the UK Government an extra £1bn, Communities Secretary Sajid Javid and Chief Secretary to the Treasury David Gauke have conceded to concerned Tory backbenchers.
The Federation of Small Businesses (FSB) claimed more than 500,000 businesses across the UK face a bigger bill, with some rates set to rise by as much as 300 per cent. The impact would be felt disproportionately by smaller businesses, it said, and lead to closures on the high street.
It is perhaps surprising, then, that the most vocal opponents to the Scottish Government proposals have been the Conservatives, who have accused the SNP of being “anti-business”.
Scottish Conservative shadow finance secretary Murdo Fraser demanded a ministerial statement from Mackay.
“This is fast becoming a crisis for businesses the length and breadth of the country,” he said.
“Many say they face closure, while others are being forced to hike their prices to cover these increased costs. This is not an acceptable state of affairs, and we need to know what Scotland’s finance secretary intends to do about this.
“It’s time for the SNP to prove it’s not an anti-business government and take some meaningful action to help these businesses which are the lifeblood of our economy.”
Scottish Labour argued the impact could hit public institutions, suggesting universities and hospitals also faced tax hikes under the proposals.
And like the UK Government, the SNP also had to deal with dissenting voices from within. Former first minister Alex Salmond voiced concern for businesses in the north east, and the independence-supporting Business for Scotland group said they had been lobbying Mackay on the matter.
The group’s chief executive Gordon MacIntyre-Kemp said: “We need the Scottish Government to step up and be the champion of the business community on rates and to propose a robust set of rates relief measures that protect business from rapid rates rises and therefore protect jobs and economic growth.”
Despite claims by Salmond that his concerns were being overstated by the ‘Yoon media’, Mackay nevertheless seemed to bow to the pressure, appearing before MSPs to make the statement Fraser had called for, and it contained what some saw as a U-turn.
Under his plans 50 per cent of business premises in Scotland will pay no business rates at all, he said, and 70 per cent will see bills stay the same or reduce.
But he also announced new additional measures to ease the burden on businesses. These included capping any increases at 12.5 per cent for hotels, pubs, cafes and restaurants, a similar cap for businesses in Aberdeenshire to reflect the collapse in the oil industry and a range of relief measures for small renewable energy schemes.
Mackay said he had “engaged constructively” with businesses who had concerns.
“Although councils retain all the revenue from business rates and have the power to offer rate reductions, it has become clear that there are some sectors and regions where the increase in rateable values is out of kilter with the wider picture of the revaluation,” he said.
The cap is only applicable in the first year while the Scottish Government considers the outcome of a review into business rates led by former RBS chairman Ken Barclay, which will report this summer.
Business groups welcomed Mackay’s concessions, but said further reform was to follow.
Head of the FSB in Scotland, Colin Borland, said: “The furore associated with this year’s revaluation shows why the system is long overdue for reform. And it’s important to note that much of the help outlined today is only funded for one year.
“Therefore, a programme of modernisation must be delivered soon after the Barclay review reports. In addition, Scottish councils should be considering supplementing these measures, with a particular focus on smaller businesses on local high streets and nurseries.”
Business for Scotland chairman Rob Aberdein said: “We hope that following the Barclay review we can move from the welcome sticking-plaster solution of today to an overarching strategic approach that will avoid future radical changes in rates and reliefs.”
Fraser was gleeful. “At last, the cabinet secretary has been forced to come to Parliament and offer some relief to some of the many businesses that are affected,” he responded.
Meanwhile in England his Conservative colleagues in the UK Cabinet faced calls to do the same.
Rumours grew that Chancellor Philip Hammond could perform a similar retreat in his budget in March, after senior Tory backbenchers called for some sort of “transitional relief” to soften the blow.
Like Salmond, Javid and Gauke had initially lashed out at the way the rise was being reported. They wrote to rebellious backbenchers in a letter accusing them of a “campaign of misinformation”.
“Unfortunately, this year’s revaluation has been preceded by a series of reports claiming that rates are going to soar, that appeals are being banned and that hundreds of thousands of businesses will be forced to close,” they wrote. “Such claims are simply untrue.”
What followed was confusion. Prime Minister Theresa May promised “appropriate relief” for businesses during Prime Minister’s Questions. Javid then told MPs “more needs to be done to level the playing field,” indicating something would be done in the budget.
But by that same evening Downing Street had issued a statement denying any extra money had been committed.
It is with remarkable chutzpah, then, that the Scottish Tories have managed to put some clear water between themselves and their compatriots holding the purse strings south of the border, while Scottish Labour’s attempts to highlight the plight of public bodies in expensive properties have fallen on deaf ears.
Meanwhile, Britain’s economy recorded its fastest quarterly growth of the year at the tail end of 2016. Interestingly though, this seemed to be in part driven by consumer spending and exports being boosted by a low value in the pound. Business investment, meanwhile, actually contracted.
Rising inflation and slow growth in wages raises the worrying prospect families are spending money they don’t have, while under-pressure businesses are not investing.
The Office for National Statistics also revised estimated annual GDP growth down from two per cent to 1.8 per cent.
So despite a growing economy, there’s plenty yet for businesses to worry about as Britain prepares to leave the European Union. And in Scotland, reliant on the struggling energy and finance sectors, falling employment and slower wage growth than the rest of the UK suggests there may be more worries ahead, whether there is a second referendum on independence or not.
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