As I visit members of the Scottish Retail Consortium, an issue that consistently comes to the fore is business rates.
For retailers large and small, a critical factor in planning for the future is the cost of property. Expenditure on property, including business rates, is the second largest outgoing for retailers after labour.
Business rates generate £2.4 billion in tax revenues each year in Scotland and this is set to swell by a further £400 million a year by 2015/16. Retail, which is a property intensive industry, contributes more than one-quarter of these revenues.
The Scottish Government's decision to cap this year's increase in business rates to 2% and its firm commitment not to renew the £95m large retailer levy suggest a welcome recognition of the challenge business rates pose to the sector. The large retailer levy in particular has been a blot on the devolved Government's claims to have the most competitive business rates regime in the UK.
The 240 retailers paying the levy have faced a business rates bill 28% higher than for equivalent stores south of the Border. These two decisions are encouraging steps and will, it is to be hoped, set in motion a longer-term overhaul of the rates system.
This will be crucial to increasing retailers' confidence about investing in property and creating more jobs and reviving high streets.
It is increasingly understood that retail can contribute more to the country's economy if the tax system is competitive and if businesses are allowed to push forward and succeed. Retail is already Scotland's largest private sector employer, providing over 230,000 jobs.
A healthy, growing retail sector is good for communities and people looking for work. However, when I speak to firms they tell me the confidence to invest is being held back by the prospect of shelling out even more for business rates, and that the additional apprenticeships, jobs and careers that retail could provide in the future are, as a result, less likely to be seized. However, while our corporation tax rates are looking more competitive compared to other countries in the world, our commercial property taxes have somehow been allowed to end up becoming the highest in Europe.
Business rates have become a tax that punishes property occupiers for keeping shops open and which discourages online and more traditional retailers from using physical space in ways their customers demand.
The question is: with such a compelling case for change, what should we do? It's one thing to campaign for government to amend the rates system but the Scottish Retail Consortium and our members believe it's time to take this to the next level and offer up some practical solutions to reform business rates.
We are in the middle of a rigorous and in-depth analysis of the system and will be coming up with fresh proposals for reform. This will allow Scottish ministers, and their colleagues elsewhere in the UK, to help retailers without harming the tax receipts we know government requires. We are already working constructively with the Scottish Government on this and, at a UK level, the Chancellor has promised an important discussion document on changing rates in the spring.
It's not an easy problem to solve, so we have appointed tax experts Ernst&Young to work through complex challenges with us, together with senior players from businesses right across our sector. Other parts of the business community have been invited to contribute, too.
Doing nothing on business rates could lead to the country missing out on investment, career opportunities and innovation. Doing nothing is not an option.
We fully appreciate that reform is a long road and that to get it right will take time. However, the prize of committing to a more sustainable, fit-for-purpose tax will be very great indeed. The recovery will be supported. Investment will be unlocked. Career opportunities will be created and communities will be given the vital boost they need.
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