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(Image: Newsquest)
High-profile Scottish chef Nick Nairn has slammed Scotland's business rates system as "pretty impenetrable", declaring that it unfairly penalises smaller hospitality businesses and leaves operators battling valuations they struggle to understand.
The chef, who runs Nick's at Port of Menteith with his wife Julia, questioned how rates bills are calculated and criticised what he sees as a lack of meaningful consultation with business owners.
"Where is the thinking behind it? Where is the consultation? Where is the sit-down to figure out who is able to most afford it and what is the most affordable rate?" he told The Herald.
"They just slap it out and go, that's your rates.
"Of course, they have to gather revenue, that is a given. But it should be those who are most able to afford it that pay the most. At the moment, it seems to penalise small businesses unfairly. So, we need a better system."
Mr Nairn's comments come as The Herald's Reset The Rates campaign calls for six major changes to the rates system in Scotland, including a fairer deal for the hospitality and tourism accommodation sector.
Chef Nick Nairn at his Lake of Mentieth cook school (Image: Gordon Terris)
Hospitality operators have long argued that they are among those hardest hit because of the way rates are calculated for the sector.
In most sectors, rates bills are calculated by applying the business rate, or poundage, to a property's rateable value, which is intended to reflect the annual rent it could reasonably achieve on the open market.
However, hospitality properties are also assessed on the hypothetical achievable turnover of the business, which the industry insists has the effect of inflating bills.
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- Who's backing The Herald's campaign to reform Scotland's business rates?
- Reset The Rates: The six asks of The Herald's campaign explained
Campaigners and ratings experts have long argued that turnover is not the same as profitability, particularly in a sector where margins have been squeezed by rising employment costs, energy bills and food prices.
Mr Nairn said the system could become a costly distraction for owners trying to run their businesses.
Referring to his brother's business, which operates 20 self-catering lodges on the family estate at the Lake of Menteith, Mr Nairn said: "My brother's rates went up 122% at the last revaluation. So instead of concentrating on developing his business, he spends several months dealing with the revaluation process."
Asked how the methodology should be changed, Mr Nairn said it should have a "basis in affordability and reality, rather than a figure which is plucked from the air, which at the moment it seems to be".
Chef Nick Nairn at his Lake of Mentieth cook school. (Image: Gordon Terris)
He added: "I would imagine most of my colleagues have spent a fortune on challenging the revaluations, and that just takes away from the time that should be spent looking after your business."
While describing a permanent reduction in rates as "hugely valuable", Mr Nairn stressed that the issue formed part of a broader challenge facing hospitality.
Read More:
- 'Postcode lottery' leaves Scottish firms lost in business rates maze
- Expensive, confusing, and unfair: Why Scotland's business rates need reform
"People talk about business rates in hospitality, and that's one important part of the picture, but there are other areas where the government could do a better job," he said.
"Hospitality is shrinking at an alarming rate. A lot of the hard work that's been done over the years to improve hospitality has been undone.
"The idea that a young chef's ultimate goal was to have their name above the door of the establishment, that's just gone. I think our staff look at us and ask: why would they do that? Why would you put yourself through that?
"So, I do think this is a much bigger thing about hospitality. However, in terms of the NDR [non-domestic rates], it would be valuable to hospitality to get a meaningful and permanent reduction, or at least some kind of long-term indication of how they are going to stay there. It is a pretty archaic system of valuation."
Louise MacLean of Signature Pubs said the industry is being "hammered time and time again" (Image: Signature Pubs)
Stephen Montgomery, director of the Scottish Hospitality Group, said the “fundamental problem is that the system is outdated and unfair”. He said: "The way the sector is taxed is based on a false assumption that high turnover equates to high profitability. The system is indefensible, [and it is] now being reviewed across the UK.
"The non-domestic rates system does not tax a property in the same way that retail, for example, is calculated. For licensed hospitality, non-domestic rates are, in the main, calculated on the business turnover rather than the size of the building.
"Turnover is simply not profit. A hospitality business can have significant sales while retaining only a very small margin after wages, VAT, energy, food, drink and other operating costs. The present system fails to recognise that reality. No other sector is assessed and valued on this basis."
Mr Montgomery added that the system also penalises operators for investing in their premises.
"An operator can spend substantial sums improving a tired building, creating employment and enhancing an area, only to be rewarded with a higher rateable value, meaning a larger non-domestic rates bill. It also potentially means a cliff edge in relief support," he said.
He added that the Scottish Hospitality Group had been emphasising to the current independent review that "you don't need to be a large business to have a high rateable value".
"There is also a serious lack of transparency and predictability. Businesses frequently struggle to understand how valuations have been calculated, while the appeals process can be lengthy, complex and expensive.
"Businesses must continue to pay until an appeal is heard, sometimes years later. The sharp thresholds for relief create arbitrary cliff edges where a relatively small increase in rateable value can result in a very significant additional bill and a wipe-out of any relief.
"Our message is simple: tax the property, not the business."
That view was echoed by Mario Gizzi, co-owner of Glasgow-based restaurant operator DRG Group, whose brands include Amarone, Barolo, Café Andaluz, Paesano and Sugo.
"I'm not against paying rates, just rate me the same as the furniture shop or the paper shop next door," he said.
Louise MacLean, business development director at Signature Pubs, said the company's rates bill had increased by £400,000, while one venue saw its rateable value triple after being converted from a bank into a pub.
"The same building is apparently worth three times as much for rating purposes, simply because we're now pulling pints," she said.
"How on earth is that justified? We invest, create jobs and bring buildings back to life, only to be hammered time and time again."
Beth Rehman of Perle Hotels said higher rates arrived at challenging time for hospitality sector (Image: Perle Hotels)
Beth Rehman, owner of Perle Hotels, which operates hotels in Oban, Glencoe and Skye, said business rates increases had landed at a particularly difficult time for an industry already grappling with significantly higher employment, energy, food and operating costs.
"We also need to recognise the tourism and hospitality sector as one of Scotland's most important export-earning sectors and a major employer, with the ability to provide clear career paths and opportunities for the people who work in it," she said.
"That requires businesses to have the confidence and financial capacity to invest, not just in buildings, bedrooms, restaurants and the guest experience, but in people.
"Perle Hotels has continued to meet the Real Living Wage because we believe hospitality has to provide viable, long-term careers. But pay is only part of that. If Scotland is to deliver a globally competitive tourism product, the industry must have the financial capability to invest in training, development and creating the next generation of hospitality managers and leaders.
"When margins are continually squeezed, that longer-term investment is put at risk, with businesses inevitably having to find savings, and investment in people and management development being constrained.
"It might reduce costs today, but it creates a much bigger problem for the sector's future. Both the long- and short-term view must be considered, along with the cumulative impact of additional costs and policy measures.
"If Scotland is to have a strong tourism and hospitality industry that can compete internationally, attract investment, create good careers and continue making a significant contribution to the economy, then businesses must be given the headroom to invest.
"The current conditions make that increasingly difficult."