With over 23,000 shops in Scotland selling all manner of goods, the issue of business rates affects a huge number of businesses, and regardless of the outcome of the independence referendum, reform of the system is urgently needed.
by David Martin
Of all Scotland’s business sectors, retail has a unique place in every community, delivering products and services to – literally – everyone. Scotland has over 23,000 shops, 12% of all business outlets. This is above the comparable UK figure, suggesting Scottish retail has an even more significant role in society than elsewhere in the UK. In remote areas, the shop is often an essential lifeline to the local population. Retailers don’t operate in a business ‘bubble’. In so many aspects, they are closely connected to the communities in which they operate – not least through the jobs they provide. Retail is Scotland’s largest private sector employer, providing 255,000 jobs.
More than just sales
Retailers deliver a multitude of other communal services – a central meeting-place, somewhere for local groups and politicians to engage with people as they shop, an outlet for local products, cash points, notice boards and newspapers, information on nutrition, recycling facilities, etcetera. Above and beyond all this, however, retailers are passionate about their wider social obligations, and about doing even more through their community programmes. This includes support to charities, schools, clubs and other groups by fundraising and financial support, through staff volunteering, through health, sport, environmental and educational projects. Retailers do this because supporting and sustaining the future of the communities in which they trade is not only the right thing to do, it makes perfect business sense. The ability of retailers to continue to do this, however, is determined by the regulatory and tax environment within which they operate.
Business Rates
One of the most significant of these costs is Business Rates, a tax that only ever rises regardless of economic conditions, that punishes property occupiers for keeping shops open and investing, and which discourages online and more traditional retailers from taking on physical space in ways that their customers demand. It is our view that the business rates system is no longer fit-for-purpose. It is particularly damaging for retail, as a property intensive sector, that is both far more exposed and sensitive to increases in this tax. While the UK Government has taken positive steps to reduce the burden of corporation tax on businesses, business rates have been increasing. For every £1 in corporation tax retailers pay £3.05 in business rates, up from £2.48 in 2005-06. The impact of the business rates system can be witnessed by the one in 10 shops sitting empty on high streets across Scotland. Reform would have economic benefits, including a boost to jobs and increased tax revenues from other sources, as well as social and community benefits as town centre properties are brought back into use. The SRC is exploring options for reform and wants to work closely with the Scottish Government to achieve this change. Of course, we welcome the fact that the Scottish Government has listened to the retail sector and committed to cap the 2014-15 uplift in business rates at 2% and has finally guaranteed an end to the iniquitous Large Retailer Levy in 2015. Both of these steps go a long way in ensuring a supportive business environment. However, both of these measures, whilst welcome, are but a sticking plaster covering up a more fundamental and serious problem with the tax system.
Fundamental reform
If we are serious about investment, creating jobs and saving our high streets then government must act on fundamentally reforming business rates. Doing nothing means the country will miss out on investment, career opportunities and innovation. It will mean the continued decline of Scottish high streets. Doing nothing is not an option.
