Hansard

As I was just about to explain–and as has been long rehearsed over the years—business rates comprise two factors: poundage, which at that point increased in Scotland, and rateable value. Arguably, because rateable values in Scotland were lower, despite the higher poundage the product of poundage and rateable value was the same in Scotland as in England. When, in 2005, Tom McCabe reduced the poundage rate to the same as the rate in England—at a cost of £100 million in 2006, £180 million in April 2007 and £200 million thereafter—Scottish businesses gained a competitive advantage over their English counterparts because they enjoyed the same poundage rate but lower rateable values. For the first time, businesses in Scotland had a competitive advantage, which was welcomed by members of all parties at the time.

However, Scottish Labour always intended to do more. Our 2007 manifesto pledged to double the small business rates relief. At the request of the Federation of Small Businesses, we agreed that such measures would be targeted at smaller businesses.

In addition to those schemes, a rural rates relief scheme has operated since 1997. The scheme allows for between 50 and 100 per cent rates relief for village shops, post offices, filling stations, pubs and small food stores in villages that have populations of fewer than 3,000. The discretionary component of relief between 50 per cent and 100 per cent is 75 per cent funded by central Government, with the remaining 25 per cent coming from local authority council tax. For farm diversification projects, rates relief of up to 50 per cent for five years has been available since April 2003. Until this year, those reliefs were additional to any entitlement to the small business rate relief scheme. Therefore, rural businesses with lower rates of relief were slightly better off—albeit not by much—under the previous scheme than they are under the small business bonus scheme.

Having recapped that history, I say that we on the Labour benches have no ideological opposition to assisting small businesses and we certainly have no anti-business agenda. However, we are yet to be convinced that the small business bonus scheme is the most effective way of supporting local economic regeneration. I suspect that the scheme may be too blunt an instrument. Moreover, I argue that the effects of the scheme cannot possibly be quantified after only two months. For a Government that prides itself on an outcomes-based approach, at this stage the policy is concerned only with an input. There is no "historic concordat" here, so the outcomes appear to have been left to take care of themselves.

The cost of implementing the small business bonus scheme was to have been £265 million over the three years of the spending review period—according to page 12 of "Scottish Budget Spending Review 2007"—but the acceleration to full implementation over two years rather than three years, which was forced on the Government by the Conservatives, will cost an extra £50 million on top of that. Such costs will be partially offset by the increase in the rates poundage from 44.1p to 45.8p, which the executive note to the Non-Domestic Rate (Scotland) Order 2008 confirms will bring in an additional £75 million. Moreover, businesses with rateable values of above £29,000 will be surcharged an additional 0.4p in the pound, so the rates bill for such businesses will increase by around 4 per cent this year.

We do not dispute the popularity of the new scheme among small businesses, but we question whether spending a further £315 million purely on rates relief is the most effective way of stimulating either local economies or the national economy. Our contention is that funding could be better targeted to achieve longer-term growth. During the debate, some of my colleagues will expand on our alternatives. For example, for training, small businesses can find it difficult to release staff because of the cost of bringing in replacements. However, good-quality training—whether of the workforce or of an individual businessperson—can make all the difference in whether a business thrives and grows.

Given the widespread acceptance of the need to tackle climate change—many Cabinet members have referred to the importance of that task, and it is a central part of the Government's economic strategy—funding could be targeted to encourage investment in energy efficiency. That would not only deliver annual savings to individual businesses, but would contribute to the Scottish Government's target of reducing carbon emissions by 80 per cent by 2050.

Of course, the Government might argue that each business is free to spend any savings that it makes from rates reduction on training and energy efficiency. However, given that the Government's economic strategy includes aspirations to make Scotland greener, and that it identifies learning, skills and wellbeing among the five strategic objectives, would it not be more logical to incentivise measures such as workforce training and energy efficiency?

The strategy states that

"vibrant, connected communities and businesses with good access to markets and services are key elements of a successful and dynamic economy."

Who could disagree with that? However, what does the Government see as being its role in the creation of dynamic town centres where small businesses can flourish? Do ministers simply hope that small businesses will use some of the rates relief to fund business improvement districts, which were never intended to be a substitute for central or local government funding? In the present climate, Government needs to play a more interventionist role in town centre regeneration.

I can provide a current local example. Recently the property development company Centros Miller withdrew from a regeneration project in Dumfries town centre. Last week, my Westminster colleague Russell Brown met representatives of the company and was told that projects of that type would continue in cities where a return on investment was still expected, but in the current climate would not, without Government financial intervention, be implemented in smaller towns. Labour recognises that town centre regeneration is less attractive to the private sector than regeneration of cities and so requires Government incentives. That was behind our manifesto commitment to a town centre turnaround fund. It is disappointing that the Conservatives, who had a similar policy in their manifesto for last year's elections, were not able to support Labour on the issue during the budget process.

We will support the Liberal Democrat amendment. If the Government is so sure that business rates relief will deliver new opportunities, employment and new ventures throughout Scotland, it should not be frightened to commission research into whether that has happened. I am less inclined to support the Conservative amendment, although I understand fully why the Conservatives want to take credit for the business rate reductions. As I said, full implementation of the scheme in 2009 will cost another £50 million. In my view, that money would have been better invested in town centre regeneration.

Assistance for small businesses by means of rates relief is a valid and appropriate mechanism for providing Government support, but we would have preferred an approach that would incentivise activity that contributes directly to economic growth and tackling climate change.

I move amendment S3M-2102.1, to leave out from "welcomes" to end and insert:

"notes the introduction of the Small Business Bonus Scheme (SBBS) on 1 April 2008; recognises that business rates relief schemes play a part in government support for small business; notes also the schemes initiated by previous administrations but believes that the allocation of a further £315 million, over the period of this spending review, to the implementation of the SBBS does not by itself represent the most effective way of stimulating local economic development or national economic growth, and further believes that government funding targeted on energy efficiency, training and town centre regeneration would benefit both small businesses and their local communities."