Businesses forced to wait for 2017 business rates changes

In times of uncertainty the business community looks to the government of the day to provide a strong lead and to set out a course for the nation. For Scottish businesses looking to Holyrood for stability, most would appreciate the Government doing something rather than nothing.

Business rateable values are to be re-assessed next year and the new rates changes come into force on April 1, 2017. This will be based on rental values as at April 1 2015, known in England as the ‘antecedent valuation date’ and in Scotland as the ‘tone date’. The previous revaluation was 2010, with a tone date of 2008, making this the first revaluation in seven years.

While no figures have yet been released, it is likely that some of the hardest hit will be those whose rates are calculated on the so-called Contractors Principle of Valuation, which is based upon building costs rather than rental value of the property. This will impact the public sector far more than the private sector and with the ‘double whammy’ of cuts combined with rates increases we can expect to see significant belt-tightening from many councils and public sector organisations.

It would be good also to address a long-held misunderstanding of business rates in anticipation of the changes. Rates are not paid to the local authorities in exchange for the provision of services and amenities. They are a tax, plain and simple, and go straight to the Scottish Government.

For most business, rates are calculated on rental value of the property, and the past seven years have seen a turbulent market for rental values, particularly with for the retail sector.

Some shopping centres such as Princes Street in Edinburgh are likely to see minimal changes to rateable values, whereas other locations, such as Glasgow’s Sauchiehall Street, have seen falls of 30-40% in rental levels, or areas of Clydebank or Dundee which have seen falls of 50%.

In the tertiary market, namely smaller shops, there has been less change. Most surveyors will admit, however, that this may be due to the market distortion resulting from the Small Business Bonus Scheme, which has seen properties with a rateable value of less than £10,000 pay no business rates at all, a factor which has saved small businesses over £1 billion since April 1 2010.

Until the new figures are released by the Scottish Government, we will not know whether the effect of long-term, external developments in, for example, online shopping, will be as pronounced as, say, that of scrapping the Industrial Vacant Relief, which saw tens, possibly hundreds of empty industrial premises being bulldozed to avoid paying rates on unproductive assets, and has reduced the industrial properties available for new business to occupy.

Former RBS Chairman, Ken Barclay, will complete his review of business rates by summer of 2017. It remains to be seen, however, what impact this will have, as the Scottish Government has already declared that any changes he recommends must be, at a minimum, cost neutral.

While the government enthusiastically embraces any and all political solutions to the current straightened circumstances, it must soon acknowledge that it comes down to money, and each successive tax on the productive sectors of the Scottish economy is not just squeezing blood from a stone, but creating yet more stones.

Bob Mowat is a consultant with 25 years experience of working at DM Hall Chartered Surveyors.

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