(Image: Newsquest)
How would you respond if a tax bill for your business went up by more than 600%? Over two decades of reporting on Scottish business, I have lost count of the number of calls and emails I have had from publicans, hoteliers, tourism operators, and retailers bewildered by the business rates bills landing on their doormats. The stories differ, but the complaint is often the same: a system that feels unpredictable, confusing, unfair and simply too expensive.
In the case of Gordon Drummond, owner of Cairngorm Lodges in Royal Deeside, he feared the sudden and unexpected rise in rates that followed the most recent revaluation of his property led him to fear for the future of his business. He told The Herald: “At that point in time I thought, ‘that’s us, we’re done’.”
Stories like this have persuaded The Herald that something radical needs to be done. Our Reset The Rates campaign, which launches tomorrow, will seek to address fundamental flaws in a system that is causing so much anxiety, uncertainty, and financial pressure for business owners across Scotland.
For the average consumer, business rates probably seem like a distant and irrelevant topic. It is unlikely to come up when issues such as the cost of living seem more pressing.
But the subject is crucial all the same. It is utterly fundamental to whether many businesses – from pubs and shops to hotels and restaurants – can afford to carry on.
Indeed, they are crucial to the future of Scotland’s high streets and rural economies.
Business rates, officially known as non-domestic rates, are essentially a form of property tax that is paid by business owners to help fund local services. They are calculated by multiplying a figure set by the Scottish Government known as the poundage by the rateable value of the property, minus any reliefs that are applied.
Sauchiehall Street, Glasgow (Image: Colin Mearns)
What’s the big deal about that, you might ask? The simple reason is the extent to which the bills for this tax have risen following the latest revaluation of non-domestic property, which takes place every three years and determines the rateable value on which rates bills are based. The revaluation has left many businesses across Scotland facing bill increases of several hundred percent. This matters because many firms in this position suddenly have to find thousands of pounds more each month to survive, safeguard jobs and continue to serve their communities.
And it is not just the size of rates bills that are causing concern. It’s about the method used to work them out, especially for the hospitality industry, which says the bills its businesses are charged simply do not reflect the harsh reality of the trading conditions they face. Industry leaders say it’s unfair for assessors to use estimates of turnover when calculating the rateable values of pubs but not businesses in other sectors.
“Tax the property, not the business,” is the industry mantra.
Another problem is the complex bureaucracy small and medium-sized enterprises must navigate to secure the reliefs to which they are entitled. Employers face a confusing array of schemes, often administered differently around the country, and many complain the system has an unwelcome habit of producing bills which take business owners completely by surprise.
The implications are far-reaching. This is not something that pitches large business versus small, rural against urban. The failings of the framework are felt across the board, weighing heavily on Scotland’s economic prospects. Without meaningful reform, the consequences for our high streets and rural economies could be huge.
More closures. Fewer jobs. Less investment. More empty units on Scotland’s high streets. These are the consequences if action is not taken.
Politicians have promised to deliver a radical overhaul but have only tinkered around the edges, causing an already over-complicated system to become more obtuse.
The Scottish Government has, to its credit, tried to help, for example through the small business bonus scheme and relief to the retail, hospitality and leisure sectors. But while the support has been welcomed by businesses that qualify, others remain frozen out. If the rateable value of the property occupied by the business exceeds £100,000, no relief is available.
There is a widely held view that recent tweaks which ministers have made, even with the best of intentions, are merely sticking plasters on a creaking edifice.
That’s why The Herald will call for six major reforms to the business rates system.
The reforms, which are supported by a range of senior leaders and industry bodies, range from measures to protect businesses from sudden hikes in bills to proposals aimed at making the system simpler, fairer and more predictable.
This week, we will make the case for reform. We will reflect the human cost of the current system, putting the spotlight on business owners who are struggling under the weight of surging bills.
We will highlight the lack of certainty the current system engenders. And there will be a hard-hitting article from one of Scotland’s most renowned business leaders, who writes exclusively for The Herald on how he believes the system should be changed.
We hope you find it informative and that the series helps pave the way for meaningful change to a tax that, no matter how distant it may seem, is critical to the future of Scotland’s economy.