IN the wake of the furore over the revaluation of non-domestic rates earlier this year, and The Herald’s campaign for a rethink, the Scottish Government announced a package of relief for the firms that would be worst hit by the rises.
Hotels, pubs and restaurants were told they would have their rises capped at 12.5 per cent; some companies in the Aberdeen area, which has been hit by the downturn in oil and gas, were also offered help. It was far from a solution to the broken system of business rates, but it was better than nothing.
But could business rate relief itself be part of the problem? According to Government figures, the value of business rates relief has risen from £324m in 2007/8 to £573m in 2016/17. Using the figures, the Scottish Retail Consortium has also calculated that the value of the relief as a proportion of the tax take from business rates has risen too, up from 17 per cent to 21 per cent. The most recent announcements will only add to the increases.
In one important respect, these rises are positive. Small firms in particular have been highlighting the effect of non-domestic rates on their businesses for many years and the Government has obviously been listening and offering more relief where it was needed. The result has been more help for businesses.
However, the extra help has also meant that, over the last ten years, the bill for the relief has crept up and up and for the SRC, the rising bill is just one of the signs of how inefficiently the current system is working. Speaking about the figures, David Lonsdale, the SRC’s director, described the current system as creaking, unwieldy and expensive and said rates relief was a sticking plaster. “There is an urgent need to recast business rates ... in order to deliver a reformed system which is modern, sustainable and competitive,” he said.
It is a pretty damning analysis but Mr Lonsdale’s diagnosis of the problem is absolutely right. The Government offered more and more relief over the last years in an attempt to soften the impact of non-domestic rates before announcing the Barclay Commission to review the system. That was a welcome move, but what was much less welcome was a revaluation going ahead before the commission could report. It left many businesses facing big rises and forced the Government into its decision to offer more rate relief.
But as Mr Lonsdale says, offering more rates relief does not get to the heart of the problem, which is a system that is clunky and unfair. Barclay is due to report in the summer but if it is to make any lasting improvement, it must tackle the systemic problems, including revaluations which often do not reflect economic reality (the case of the oil and gas firms being a case in point). Revaluations should also be much more frequent.
Another problem is the appeal system, which is far too slow and requires businesses to pay up until their appeal is won or lost, which can mean the difference between a firm surviving and going under. And why are the rules by which business rates are calculated not more transparent?
Until the Government tackles these and other issues, it will have to offer relief to the worst affected businesses. In the longer term, it will have to fix a broken system.
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