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Business responds to Swinney decision...

Rates powers welcome but also ‘missed opportunity’

John SwinneyFinance Secretary John Swinney is to hand local authorities the power to change business rates, mirroring the Chancellor’s announcement for England and Wales.

He confirmed the plan at today’s SNP conference in a move which has received a generally positive but cautious response from from business.

While the flexibility has been welcomed, some have called it a missed opportunity for a full review of the system.

The new power for councils could allow them to attract new investment, for example, into town centres which could help struggling high streets.

There are already powers for business groups to form business improvement districts (BIDSs) where they want to levy an extra sum to help pay for additional services and projects.

However, there will be some concern that different levels of rates will create further uncertainty for businesses and more red tape as they deal with multiple levels of rates.

Competition between local authorities may also create a bidding war by encouraging firms to relocate their operations.

Mr Swinney will be able to instigate the new power without the need for legislation, allowing it to be brought into effect from the end of this month.

He will  use powers under the Community Empowerment (Scotland) Act 2015 that was passed in June. Scottish councils will be able to use the new powers to retain all the business rates they collect.

Mr Swinney said: “With these new flexibilities councils could, for example, use their local knowledge to attract new investment into town centres and help create vibrant communities where people want to live, socialise and do business.”

The move has been welcomed by local government organisation Cosla as increasing local flexibility of funding and taxation powers for councils.

Liz CameronLiz Cameron, chief executive of Scottish Chambers of Commerce, said it was “good news”

She said: “Our hope is that local authorities will make use of these new levers to help reduce the burden of business rates, which has grown substantially in recent years.

“The success of this plan will be determined by how widely utilised this power is by local councils and how many businesses in Scotland benefit as a result and we will be closely monitoring this to see how effective the new powers are.

“However, we still believe that the current system of business rates in Scotland is not serving businesses well.  For the past five years, rates are based on notional rental values at the peak of the pre-recession market back in 2008 and the revenues raised by rates in Scotland have increased by 40% since 2010.

“It is time for a fundamental review of the rating system within the context of the Scottish Parliament’s widening powers over taxation.”

Colin Borland, the Federation of Small Businesses’ head of external affairs in Scotland, said: “If used appropriately, these powers could give local economies a welcome boost and it will be interesting to see how many hard-pressed councils will be able to take advantage of them.

“We also need to be careful that we don’t boost areas which, by accidents of geography, have lots of high-value business premises and are already doing well, at the expense of areas that are struggling.

“But today’s announcement doesn’t get rid of the need to modernise a business rates system that’s no longer reflective of how we trade in 2015 Scotland.  We need to review and reform the system, making it fairer and more transparent.”

 David Martin, Head of Policy & External Affairs at the Scottish Retail Consortium said: “The current system of business rates has become a tax on jobs and growth and undermines investment in property, especially in town centre and high streets.  There is a strong and growing consensus across business and industry that the current system is out of date and no longer fit for purpose.

“The announcement today, whilst not new, is welcome acknowledgment of the need to keep costs down on retailers and other businesses.

“It is, however, a missed opportunity to arrest the cost pressures and structural deficiencies in the system which undermine existing businesses and holds back new investment.  We need a more imaginative approach to reform in Scotland, one which leads to business rates flexing with economic conditions and a more sustainable overall reduction in the tax burden for ratepayers.”

David WattDavid Watt, executive director of IoD Scotland, said: “The Deputy First Minister’s announcement today will be warmly welcomed by businesses across Scotland. Giving local authorities the power to set business rates won’t just increase accountability in local areas, but will encourage real competition between authorities to create the most business-friendly environment for entrepreneurs and established firms alike.

“Businesses north and south of the border have been clear that they want enterprise to be put at the heart of the devolution agenda, with nearly two-thirds of IoD members backing the kind of radical plan announced today.

“We hope this new deal will pave the way for councils to use these new powers to attract businesses, encourage start-ups in new industries, and regenerate high streets.”

Hugh Aitken, CBI Scotland Director, said: “The CBI has been calling for the next Scottish Government to ensure our business rates remain competitive and help deliver economic growth.

“With Scottish councils getting this responsibility by the end of the month, this announcement must be used as an opportunity for councils and local businesses to work closely together to create competitive rates which will mean more jobs and drive innovation throughout every part of Scotland.

Hugh Aitken“With such a short timeframe, the Scottish Government must ensure that local councils have the resources and most importantly the knowledge to deliver the right environment for businesses to succeed.

“More broadly, the next Holyrood Government will need to set out an overall tax roadmap to provide certainty to businesses’ long-term planning and strengthen the economy.”

Scotland’s landlord community has cautiously welcomed the announcement. The Scottish Property Federation said the proposals could be used to incentivise new business in Scotland, but that the announcement does not tackle problems that afflict the current business rates system.

David Melhuish, director of the Scottish Property Federation, said: “Used wisely, these new powers could, in theory, enable councils to reduce their rates in order to provide an incentive for new businesses and new investment. This could be a powerful tool for councils seeking to rejuvenate their town centres.

“It will be crucial for local authorities to work with landlords and investors in partnership if we are to make the most of these new flexibilities.  If we can encourage more businesses to grow then in time we can grow the tax base and reduce the rates burden for all, including the public sector ratepayers.

“What this announcement does not take into account is the fact that the business rates system as it stands is ripe for reform. Rates rising year on year with little reference to economic conditions or changes in the markets must  be tackled if we are to avoid the current situation of many ratepayers paying annual rates based on commercial property valuations set at the top of the market in early 2008.”

Brian Rogan, head of Business Rates in Scotland for CBRE, said:  “We would hope that strategic reviews of business rates in each local authority area will now be conducted by Scotland’s councils to determine what sector, or regions within their area, can and should benefit from targeted rates reliefs.

“We would encourage early engagement between each council and local business communities to determine how to utilise these powers to maximise local economic development.

“We can foresee challenges for councils as they try to determine how the proposed relief to be given to businesses is actually in the wider interest of council taxpayers across its area, as the legislation requires.

 “Fiscal interventions in real estate markets must be carefully planned to ensure that the full extent of any benefit granted is received by the intended recipient.”

Ken McCormack, senior director, head of business rates at GVA James Barr and past president of the rating surveyors association, said: “John Swinney’s announcement today that council’s will have the power to reduce business rates in certain sectors or geographical areas from the end of the month is nothing new and fails to address the fundamental problems in a rating system which is no longer fit for purpose and requires reform.

“Under the Community Empowerment Act published in July 2015, councils were given the right to reduce the Uniform Business Rate (UBR) for the current financial year.  However, because the scheme is self-financing to Councils, not surprisingly none of Scotland’s 32 local authorities, so far, has made any reductions.

“While Section 11 of the Act allows councils greater flexibility to apply greater reliefs and remissions to certain properties, what it doesn’t do, is give councils the power to set their own business rate.  From 2020, councils in England will have exactly these powers leaving Scotland once again saddled with an out-dated rating system.

“If the Scottish Government is serious about encouraging business growth then they need to overhaul the entire rating system.  Postponing revaluation until 2017 has had a hugely detrimental effect on businesses, particularly those in the high street.  Furthermore, the continual rise in business rates, while council tax remains frozen, means that this tax rate will soon exceed 50%, making it the highest form of tax in the UK.”

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