(Image: Colin Mearns)
Jonathan MacDonald understands the need for radical change to the way business rates are calculated for hospitality as much as anyone in the industry.
Mr MacDonald has co-founded some of the most popular restaurants to have launched in Scotland in recent years, including Ox and Finch, Margo, Sebb’s and Ka Pao in Glasgow.
Yet despite a string of successful ventures, the restaurateur and entrepreneur says Scotland's business rates system makes it harder for even experienced operators to invest and grow.
In fact, he feels the regime is “stacked against us”.
“To be honest, it's one reason we've stepped back from doing more in Glasgow,” Mr MacDonald said. “There have been opportunities we'd have considered investing in, but you look at the risk and think twice.
"You can take on a property with a rateable value of £40,000 or £50,000, spend a huge amount of money improving it, and then be told the rateable value is now £150,000 because you've invested in the place. It's a real disincentive to invest.
“It's great to talk about public realm improvements, active travel infrastructure and all the rest of it, but if the trading environment for good restaurants, bars and independent hospitality businesses isn't there, what are we left with? Cycle lanes, a refurbished George Square and nothing but Starbucks. Is that really what we want?
“We should be doing much more to champion the independent sector.
“There are bar units in Finnieston with a quarter of the rateable value of Ox and Finch despite being a comparable size. There are retail units paying only 15% or 20% of the rates bill.”
Much of the frustration within the industry centres on the methodology assessors use to calculate rateable values. Under the current system, assessors estimate the turnover a hospitality venue could reasonably be expected to generate and use that figure to determine its rateable value. That value is then multiplied by the poundage rate to calculate the final rates bill.
As Mr McDonald notes, a high turnover does not automatically equate to a high profit, especially for hospitality businesses that invest heavily in fresh local ingredients and in career development for staff as they strive to give the consumer the best possible experience. He also said the current framework does not reflect how much hospitality has changed in the last five decades.
“It's written for pubs in the 1970s, when everybody had the same business model,” Mr McDonald said of the current regime. “It doesn't take into account how modern restaurants operate, where most of us are using fresh, perishable food and employing lots of staff.
The Scoop portfolio includes the Ox and Finch in Glasgow, above, as well as Margo, Sebb's and Ka Pao in the city (Image: Newsquest)
“A stock example is Ka Pao, Crabshakk and Nando’s. They’re all in the same building on Vinicombe Street in Glasgow, but Crabshakk's rates are nearly double Nando’s. They’re completely different businesses. A fast-food operator has food that's centrally produced. There’s space in the market for everything and we're not saying we should be treated specially, but you need to take account of the fact we've got 40 or 50 people on the rota, we're ordering fresh food every day, and we're cooking things from scratch.
“It's a totally different business. Then they [assessors] turn around and say your rateable value is going to be double because your turnover is higher. Of course, the turnover is higher if the average spend per person is £18 or £20 rather than £5 or £6. That doesn't mean we're running away with bags of profit. In fact, often it's the opposite.”
The Scottish Government has acknowledged some of the hospitality industry’s concerns. Ministers announced an independent review of the non-domestic rates valuation as part of its 2025-2026 programme for government, led by BJ Gill KC. The review was initially expected to report by the end of this year. However, the process has been delayed following the appointment of BJ Gill as Solicitor General. Advocate Jonathan Murphy, who has practised in valuation for rating, has been brought in to lead the independent review which is now not expected to report until next summer. It is likely to be 2029 before any of its recommendations come into effect.
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In addition, while some relief is currently offered to the hospitality sector, as well as retail and leisure, it is not available to businesses with properties valued above £100,000.
Asked how he would like to see the system reformed, Mr MacDonald said: “To me, if it's a property tax, it should be based on property. It should be based on square footage. There could be adjustments for location, frontage, basement space versus ground floor space, similar to council tax bands, but it should be a simple, understandable and measurable formula.
“The current system means someone can take on a struggling property, invest heavily, employ lots of staff, buy better products and put their heart and soul into the business, only to see the rates bill go from £6,000 a year to £80,000 within a couple of revaluations.
“Every other tax is measurable. You know what VAT (value added tax) is. You know what your corporation tax will be if you're fortunate enough to make a profit. You know what your income tax liabilities are. Business rates rely on someone turning up every few years and deciding what number to assign to you.
“Taxes should be measurable and defensible. If rates were based on square footage and a clear formula, people would know where they stand. They could build it into investment plans and financial projections. At the moment, you almost have to assume the rates bill will double if you invest and improve a property.”