NURSERIES are to have their business rates abolished to help extend free childcare, the Herald can reveal.

A long-awaited review of the rates system will today recommend that nurseries become eligible for 100 per cent relief from bills, saving the childcare sector around £8m a year.

Ministers are sympathetic to the idea, as it would help deliver the SNP’s manifesto promise to increase free childcare from 600 to 1140 hours a year by 2020.

The policy depends on more private and third sector provision, and many nurseries are already complaining that they are struggling with rates bills and could go bust.

Earlier this year, after the first revaluation since 2010, one nursery in Renfrewshire saw its business rates bill increase by more than £33,000 or 155 per cent.

The National Day Nurseries Association reported its members saw typical increases of 50 per cent in Aberdeen and more than 70 per cent in Edinburgh.

Holyrood is currently considering a petition for all rates to be scrapped for nurseries.

The abolition plan is one of the recommendations from a review of Scotland’s broken rates system by former RBS chair Ken Barclay.

Nicola Sturgeon appointed Mr Barclay last year with the broad remit of reforming the system to making Scotland the best place in the UK to do business.

However the exercise has grown in political importance in light of this year’s bungled revaluation, which prompted a backlash from businesses facing rises of up to 400 per cent.

Finance Secretary Derek Mackay was forced to introduce emergency reliefs for 10,000 firms, mostly pubs, clubs, hotels and businesses in the north east hit by the oil downturn.

However the temporary fix is due to run out next April.

A new report from Scottish Parliament analysts found a wide variation in the profits firms make and the bills they pay.

Business rates, which are based on property values, are “significantly higher” as a share of operating surplus in the hotel and food sectors than any other sector of the economy.

Rates are lowest, relative to profit, for construction and manufacturing.

The Barclay review had looked at whether the £2.8bn-a-year system could be replaced with “another form of tax”, not solely property, but it is understood this will not be recommended.

David Lonsdale, director of the Scottish Retail Consortium, said: “Rates reform is urgently required as the overall rates burden is too onerous, and the system itself fails to keep pace either with trading conditions or with wider structural changes in the economy.

"The approach taken on this tax thus far has been one of ‘attempting to pluck the goose with the minimum of hissing’.

“What we need to see from Barclay and more importantly from the Scottish Government is urgent action to recast business rates for the decade ahead, with a reformed system which is modern, sustainable and competitive. "

Tory MSP Dean Lockhart said: “We need a real change which will ensure we never see a repeat of the mess earlier this year.

“If the business rates framework isn’t right, companies of all sizes can face unfair increases that could send them out of business.

“And if the SNP doesn’t strike this right, it will risk yet more accusations of not running a government that understands the economy or the needs of business.”

Labour economy spokesperson Jackie Baillie said: “At a time when Scotland's economy is fragile and business confidence is shaky, businesses need support from this nationalist government - not astronomic tax bills.

“Businesses have told me they want the Barclay Review to put forward reforms to the system to make it simpler and level the playing field across different parts of the economy.”

Scottish LibDem Councillor Carolyn Caddick said: “While there has been some temporary mitigation for small businesses, the Government have not gone far enough in shielding new and upcoming businesses from dramatic rates rises.”