Scots business rate review calls for extension to new sectors

22 Aug 17

Liability for business rates should be extended to private schools, universities and local authority arms-length operations, an independent review of non-domestic local taxation in Scotland has recommended.

The review, set up earlier this year by ministers under former RBS chair Kenneth Barclay, followed powerful protests from some hard-pressed sectors of the Scottish economy like the hospitality industries over the potential impact of rates revaluation.

Told to seek solutions that were fiscally neutral, retained relief for the smallest firms, and encouraged sustainable economic growth, the review has opted to extend the reach of the tax so as to ease the burden on existing payers. But it is also likely to face criticism for failing to address the implications of an increasingly digital economy for a tax based on business property values.

Barclay also recommends cutting the supplementary charge imposed on larger properties so as to create a level playing field with the regime south of the border, creating incentives to keep businesses in town centres and to invest in expansion, cracking down on the designation of holiday homes to escape domestic council tax, and increasing the frequency of business rate revaluations.

A central logic of the report is that where public and private sector activities compete, their fiscal status should be the same. This represents a challenge to a range of enterprises that have previously been able to shelter from business rates behind charitable status, an entitlement that has long been especially contentious in the case of Scotland’s private schools.

But the reforms could also impact heavily on universities, already feeling the pinch from the Scottish Government’s rejection of tuition fees and the potential loss of overseas earnings following Brexit.  Barclay says universities should pay business rates on activities that compete with private businesses, such as catering and accommodation.

A similar logic would apply to arms-length operations (ALEOs), which deliver services on behalf of local authorities. These include sports and leisure centres, theatres, art galleries, museums and libraries, many of which are already struggling for viability in a climate of economic austerity.

  • Keith Aitken
    Keith Aitken

    covers Scottish affairs for Public Finance from Edinburgh. He was formerly economics editor and chief leader writer on The Scotsman and now has a busy freelance career as a writer, broadcaster and event chair.

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