(Image: Colin Mearns)
One of Scotland’s most famous entrepreneurs has criticised Scotland's business rates system as a “tax on entrepreneurship and investment” as he backed The Herald’s Reset The Rates campaign to reform it.
Sir Tom Hunter declared there is a “clear disincentive to invest” built into the current system. He cited the example of a hospitality operator who was “rewarded” with the rateable value of their restaurant soaring from £50,000 to £350,000 after investing more than £1 million to bring it “back to life”.
Bills for business rates are generally calculated by multiplying the rateable value of a business property by a figure set by the Scottish Government known as the poundage, although a range of reliefs are available.
Hospitality leaders claim the system penalises investment and say it is unfair that assessors use estimates of achievable turnover when calculating rateable values in the sector. They say that turnover does not reflect the underlying profitability of a business and call for a system that taxes the property, not the business.
The Herald is this week calling for a fairer deal for hospitality and tourism accommodation as part of its six-point Reset The Rates campaign.
Read more:
The Scottish Government has commissioned a review into the methodology used to calculate rates for the sector. However, after a change of chair from BJ Gill KC to Jonathan Murphy, the publication of its report has been pushed back from the end of this year until the summer of 2027. It means any resulting reforms are unlikely to be implemented before 2029.
Writing exclusively for The Herald today, Sir Tom said: “The current system is a tax on success, debilitates employment and investment - one operator took an underperforming hospitality business, invested in it and was rewarded with a seven-times increase in rates from £50,000 to £350,000 per annum, while another suffered an eight-times uplift having invested over £1m in bringing a restaurant back to life. This is a disincentive to invest, in particular in sites that often support the regeneration of towns and rural settlements.
“Whilst we welcome the Scottish Government recognising the outdated and unfair valuation methodology for non-domestic rates by commissioning an independent review, reviews take time and the sector needs immediate, urgent support.
“Advocate Jonathan Murphy is chairing that review so here’s my offer to him – spend the day with me touring the pubs and hospitality venues your review will impact upon. Hear their stories, the impacts they make, the jobs they offer to many, many young people – the sector is a lifeblood for those young people often not in education, employment or training (NEET) and as such makes a leveraged impact on our economy. Notably hospitality in many cases is a young person’s first job; if they don’t catch the habit of work early they may never catch it.
Sir Tom Hunter supports a move to system based on the square footage of premises (Image: Newsquest)
“When a licensed hospitality operator invests significantly to improve a premises, enhance the customer experience, increase footfall, or regenerate a site, that success is captured through the valuation methodology and translated directly into a higher rates bill. In reality, a tax on entrepreneurship and investment. This creates a clear disincentive to invest, particularly in larger premises and in locations that rely on hospitality as a driver of regeneration, employment, and social value right across our high streets.”
Sir Tom said he supports the introduction of a system based on the square footage of premises and extending the relief currently offered to the hospitality sector.
Deputy First Minister Jenny Gilruth said she has “committed to a comprehensive review of non-domestic rates”.
A Scottish Government spokesperson said: “The Scottish Government is providing a package of reliefs worth in excess of an estimated £870 million and almost all - 96% - of retail, hospitality and leisure businesses in Scotland can benefit from some form of rates relief. While it is no longer possible to directly compare tax rates between Scotland and England, at the 2026 revaluation, shops saw an increase in total rateable value of 6% in Scotland compared to 10% in England.
“Decisions will be set in the Scottish Budget in the usual manner and the Deputy First Minister has already committed to a comprehensive review of non-domestic rates.”