Member Article

The Scottish Parliament has set out a concrete timetable for business rates to be cut in Scotland to the level of those in England by April 2007 in a bid to boost competitiveness. Finance Minister, Tom McCabe, confirmed the timetable for this equalisation in a statement to the Scottish Parliament on 6 October 2005, outlining plans to stagger its implementation. It is proposed the reduction occurs over a two-year period. The Scottish Executive is to provide £100 million from 1 April 2006 to reduce the existing gap in poundage rates by half and a further £180 million in 2007-08 to full rate poundage parity by 1 April 2007. The reform will be paid for by public sector efficiency savings. The staggered implementation is a result of the Finance Minister's view that one, large, immediate cut, which would total £200 million, would be too costly to make out of one year's budget. But while the equalisation has been welcomed across the board, the staggered approach has not gone down well with the Scottish business community or political opponents. Liz Cameron, director of Scottish Chambers of Commerce, said: "Whilst we greatly welcome the commitment to parity, there is a sense of frustration about this announcement. Ministers have missed an opportunity to remove at a stroke the present injustice from the rates system." Political opponents have challenged this decision to delay the full reduction, claiming Scottish firms have paid £838 million more than their English counterparts in the five years the Executive has been setting business rates. The Finance Minister has also pledged to consult on plans to create a specific additional reduction in business rates for companies that invest in research and development, an area in which the Scottish economy has been historically weak. Business rates are charges made by local authorities to support the provision of local services and are based on the rateable value of a property. The rateable value itself is calculated on the notional rental income obtainable for the property. The current rate poundage for non-domestic property is 46.1p in Scotland, significantly higher than the 42.2p in England. First Minister, Jack McConnell, first announced his intention to equalise the rates in September surprised business leaders and opposition MSPs as ministers had previously resisted calls for a rate reduction. Five years ago, with Mr McConnell as finance minister, the Executive opted to abandon the uniform business rate with the rest of the UK, thereby imposing a rate poundage on Scottish businesses some 10.1% higher than in England. The move was defended on the grounds that Scottish property valuations were lower and growing more slowly than in England - meaning that the actual tax take was roughly the same. By bringing Scotland’s rate poundage down to that for England, the Executive is, in effect, restoring the uniform business rate from which it withdrew in 2000. Since that time, Scottish economic growth has consistently lagged behind that of the UK with economists forecasting 1.5% to 1.8% for 2005, significantly lower than the 1.9% to 2% forecast for the UK. Andy Willox, of the Federation of Small Businesses, said of the proposals: "This will mean an extra £500 to £1000 for a typical small business, which could result in a wage increase to retain and attract staff, or allow the firm to invest in new equipment." Another statement will be made to Parliament later this year to announce the actual rates following the formal publication of inflation figures.

 

Footnotes: Kelly Harris is a public law specialist with commercial law firm Shepherd and Wedderburn. +44 (0)131 473 5382