Business rate cap brings some relief but worries continue
Some of the issues raised in recent opposition are addressed but discussion continues
The Scottish Government’s proposed cap of 12.5% on business rate hikes for the hospitality industry and Aberdeen has led to questions about the fairness of the taxation system. This was highlighted by the hospitality industry and multiple businesses throughout Aberdeen City and the surrounding area.
Criticism of the business rate tax – an annual levy which tenants of non-domestic properties pay instead of council tax – from organisations like the Scottish Property Federation centres on the view that the current system is unfair. Critics believe that the rates, which are calculated in a valuation based on rent values and economic conditions from previous years, do not take into account changes to the economic situation between the valuation date and the date of rate change. The current system is designed to avoid these issues by multiplying the rateable value (the aforementioned valuation) by a figure called the poundage which is updated annually. However, in recent months critics across Scotland have suggested that this does not go far enough.
Stewart Spence, the owner of Aberdeen’s 5-star Marcliffe Hotel had called for a boycott on new rates, which he felt could cripple his business, according to a BBC report. Spence had previously claimed that the proposed increase would equate to an extra £1,000 a week in rates. He told the BBC: “I am going to continue to pay my old rates – £253,000 a year. My new rates are £315,000 a year.” Aberdeen and its surrounding area have been struck hard by the downturn of the oil industry in 2016, with hundreds of workers across the oil and gas sector losing jobs as the price of crude oil plunged.
Some in the hospitality industry had opposed the changes to business rates as they felt the alteration to the rates were unfairly high. Spence was one of the most vocal of these critics and had told the BBC he had received support from other industry professionals. According to research cited by The Telegraph, the rate changes would have resulted in the industry facing an average rate increase of 37%.
The cap follows the SNP administration revealing several planned changes to business rates, namely reducing the poundage rate by 3.7% to 46.6 pence to the pound and raising the minimum taxable business rates from £10,000 to £15,000.
The threshold for the large business supplement – which is an additional 2.6 pence tariff to the pound for qualifying companies – will also be changed from £35,000 to £51,000. The changes mean that “70% [of businesses across Scotland] will pay either no or less rates than they do currently”, according to Finance Secretary Derek Mackay, in a statement to BBC Scotland.
He added that the total relief package would increase to £600 million pounds, and acknowledged there were potential faults in the system. “It has become clear that there are some sectors and regions where the increase in rateable values is out of kilter with the wider picture of the revaluation,” he said.
Business rates are normally changed every five years, but both the Scottish and UK reassessments were delayed from 2015 to 2017 by the Holyrood and Westminster Governments in 2012, to spare smaller businesses rate hikes. Several groups, including the Scottish Property Federation, opposed the delays in rate change as they felt that small businesses would continue to pay disproportionate taxes which were based on the property boom of 2008, where rents hit their peak. The Chief Executive of the British Property Federation, Liz Peace, said to Retail Week that “the postponement embeds injustices in the current system” and did little to spread the strain that the UK economy was facing.
The calculated rent value of a property in question on a particular date and other values based around a preassigned date determines the rateable value. The chosen date is normally two years prior to the change in overall business rates, which in this case is March 2015.