Hansard

I thank the committee for welcoming us here today.Committee members should have received a copy of the presentation format that we would like to walk everyone through. It contains some colourful pictures of particular properties, which we will refer to halfway through the presentation. Furthermore, the committee should have received a copy of our submission, to which we might also refer.This afternoon, we want to achieve three basic aims. First, we want to assess how the Executive's proposals measure up to the committee's good recommendations, which were listed in its report of 24 June 2000. Secondly, we want to prove that targeting rates relief on premises discriminates against particular small businesses, and is therefore ineffective. Finally, we will propose a much better alternative that more closely reflects the committee's recommendations.In our presentation, we take a little licence by dividing verbatim extracts from the committee's report into five core points. First of all, the committee grappled with the problem of measuring smallness, which we think is a fundamental issue. The committee report said:"The Committee is strongly of the view that, if at all possible, a rates relief scheme should apply to genuinely small businesses, and not to medium or large businesses occupying small premises".Given the undisputed disproportionate burden that small businesses face, that was wise advice; however, the proposals target premises not businesses.Furthermore, we endorse both the report's conclusion that"The Committee recognises that any scheme which simply used a RV threshold as the basis of eligibility would not differentiate between those categories of businesses"and the recommendation"that consideration should be given to the use of some other means—for example national insurance contributions (as suggested by the Forum of Private Business in Scotland) or business turnover".We agree with that because rateable value is a poor measure of determining the size of any business.The second core principle that the committee considered was that relief should be tapered"to avoid small changes in RVs producing large increases in rates bills."Once again, that is wise advice, and a solid principle, but it will be ignored if the proposals go ahead in their current form.The third principle that you advocated was that any new relief scheme should not bring about unnecessary appeals. We believe that given the current stipulated threshold and the bands that are below it, there will be an increase in appeals.The fourth principle that you proposed—which, with respect to the committee, is the one with which we disagree—is that there should be a threshold to determine an upper limit. We feel that that is too difficult. Your research was laudable. I quote from your report:"The Committee would wish to see whether or not there was any natural break-point in the new RVs which differentiated between, on one hand, small businesses and, on the other hand, medium … businesses."You are absolutely right to address that issue, but using rateable values as the criterion to do so is a lost cause, and we will demonstrate why.Rateable value is a poor proxy for identifying the size of a business. The Executive's proposals admit that. Why? Because it has had to shoehorn in additional eligibility criteria—for example, an employment threshold and a turnover threshold. Why? Because the rateable value does not differentiate in the way that you want it to. We all want a suitable taper, one that does not have a break point that distinguishes between small and medium businesses, and one from which all businesses that can reasonably be described as small benefit. We put it to you that there is such a taper, and we will advocate it later.The fifth principle that you refer to—which is jolly important, and most people recognise it—is that the scheme should be self-financing. The Executive's proposals endorse that.Page 4 of our submission examines the heart of the Executive's four proposals, and we will address three of them. First, it is proposed that relief should be determined by the size of the property, not the size of the business, which is contrary to your recommendation. The second proposal is that there should be no relief over a rateable value of £8,000. The third is that there should be additional eligibility criteria on employment and turnover. We will not address the proposal that the scheme should be self-financing, apart from saying that if the proposals are untouched, small businesses will pay extra for their rates unnecessarily.I will take each of the above proposals in turn. First, I will address the flaws of a property-based relief scheme. It is a fact that large firms occupy small premises and small firms occupy large premises. For the moment, we will accept that, under the proposals, we are talking about properties with a rateable value of more than £10,000. You may remember Mike Flecknoe, the director of properties for Boots, who gave excellent evidence to the committee in November 1999. He said that 10 per cent of Boots's properties have a rateable value of less than £5,000 and would benefit from small business rates relief.We also know that many small businesses occupy larger premises. The nursery that one of my children goes to has a rateable value of more than £10,000. What do we do? Do we say, "Your premises are too big. We really need these children to be walking about, not running about in these premises, so you do not deserve relief"? With four employees? I do not think so. Garages, furniture shops, cycle shops and restaurants, any business that needs a bit of space within which to trade would be excluded from the scheme. It is also said that 70 per cent of small firms will benefit from the rates relief scheme. That is not so. Although 70 per cent of properties may have a rateable value of less than £10,000, that does not mean that they will benefit from the scheme.There are great differences between business sectors. If we consider hotels—and we should, because business rates relief has been delivered as a result of foot-and-mouth disease—there are few hotels in Scotland with a rateable value of less than £12,000. In fact, not 70 per cent but 7 per cent of hotels will benefit, because most of them are well above the threshold. We can throw into that situation town-centre businesses, pubs, inns and any business that needs decent floor space in which to trade.The third flaw that we wish you to consider is that the relief will end up not in the pockets of tenanted businesses, but in the pockets of landlords, because 53 per cent of all Scottish commercial premises are rented. That figure, which is shown on the second last page of our submission, was taken from evidence that was provided to the Executive by the assessors. The Executive's consultation document ignores the proven relationship between rent and rates, as shown in the report "The Relationship between Rates and Rents" in 1995, which found that as rates come down, rents increase to fill the gap. In case there was any doubt about that, we wrote to the Minister for Finance and Local Government on this issue three times, and we met him two months ago. We said that if there is doubt that the relief will end up in landlords' pockets, why not commission research?A former member of your committee, Donald Gorrie, wrote to the Minister for Finance and Local Government. On the final page of our submission is the minister's reply to Donald Gorrie on 19 December, in which he said:"We do not have any firm evidence of the effects of rates relief on small businesses. We should remember that any such relief would in fact target small properties, not small businesses. The amount of rent that a landlord can charge for such a property depends on market conditions. Where demand is strong, it would seem likely that the total accommodation costs for small businesses would not change very much in response to a relief, and that landlords would be the primary beneficiaries."You only have to look at the way in which property has developed over the past 10 years, and the way in which businesses are tending towards leasing, not owning, their premises, to know that half of those businesses that should be getting relief will not get it. The relief will go into landlords' pockets.The fourth major flaw is that there will be unnecessary rates appeals. Every revaluation, even without thresholds, produces appeals. When we produce a rates relief scheme with thresholds of the sort that are proposed, at both the upper limit and within the bands, you can bet your bottom dollar that there will be a substantial number of appeals, because there will be a substantial incentive to appeal against your business rate. Why? Because there is money to be saved at each break point. Last Friday and Saturday morning, I went to 20 businesses in Stirling with a rateable value of between £10,000 and £15,000 and asked them, given the relief scheme, whether they would appeal against their business rates. Of course, every one of them said yes.The fifth major flaw is that we want a dynamic Parliament, and we want a dynamic measure that helps small businesses. Using rateable value information is flawed, because it dates with every day that passes. We have to wait five years before we get current information. Businesses' circumstances change day by day, week by week and month by month. We need a scheme that reflects what is going on in business now, not what happened five years ago.I will hand over to Bill Anderson to address page 6 of our submission, but in order that he can explain the main points that we want to get across, I will provide some background information. Page 6 addresses the second main aspect of the Executive's proposals, which is that there will be no relief for businesses that have a rateable value of more than £8,000. We would like you to review page 6 and the photographs that we have provided.