New report highlights disparity among Scottish business rates

Scotland’s business rates system has come under fire following a new research report from Holyrood. The investigation, published by the Scottish Parliament Information Centre (SPICe), concluded that NDR (non-domestic rates) were significantly higher in the hospitality industries than in any other sectors of the business economy between 2011 and 2014. The findings come ahead of a review of the business rates system due to be published by the Scottish Government later this week.

Earlier this year, a number of companies including Sainsbury’s warned of high street closures after they were told that British-wide rates could force businesses to hike prices as much as 400%. A report earlier this year found that pubs have already faced a rise of 8.75% in rates over the last seven years. NDR is taken from businesses based on their rateable value (calculated from size and location, for example) – there is no connection between a business’ profitability and how much it pays.

Sector Variations

As a result, the report finds that in Scotland the construction industry only paid around 1.4% of its operating surplus to NDR, while the hospitality sectors paid 11.6%, in 2014. Shops, which account for the same share of GVA (total contribution to the economy) as manufacturing, but pay rates of 30.8%, in comparison to 11.1%.

“There is a significant variation of rates as a share of operating surplus across different sectors”, the report claims. “Non-domestic rates (NDR) as a share of operating surplus is significantly higher in the accommodation and food services sector than any other sector of the economy, particularly construction and manufacturing.”

The Central Belt and south-east were found to be the highest-paying areas, likely due to rental prices (a combination of location and demand, etc.) being higher here than other parts of Scotland. NDR payments were lowest in areas where construction and manufacturing industries are more prevalent, such as Aberdeenshire and Aberdeen City. This is due to their oil and gas industries having higher GVA in comparison to other sectors.

The report is the latest in a long-running dispute over whether NDR is an appropriate system of taxation. Outside of the warnings issued by the hospitality sector, The Federation of Small Businesses has complained in a written submission to the Local Government and Communities Committee. They said: “Many businesses feel a property value-based tax, rather than one based on sales or profit, is unfair and arbitrary … A tax based on property, without a link to sales or profit, is always likely to be a larger overhead for smaller firms and start-ups, relative to large firms.”

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