BUSINESS leaders in the North East are warning that hundreds of firms face financial ruin thanks to rates calculated during the boom times of 2015 being applied during the bust of 2017, leading them to call on the Scottish Government to provide urgent relief.
As the economy in Aberdeen and surrounding areas is either directly or indirectly dependant on the oil industry, the fall in the oil price from over $100 a barrel in 2014 to below $30 at the start of 2016 had a heavy impact in the region. It is estimated that around 30,000 jobs have been cut in the North East since the start of the downturn.
However, as revised business rates due to come into force in April were calculated based on 2014/15 turnover for the hospitality sector and 2015 rental values for everyone else, businesses have highlighted a large disconnect between their current economic reality and the increased rates many are being asked to pay.
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James Bream, research and policy director at Aberdeen and Grampian Chamber of Commerce (AGCC), said the new rateable values “reflect a position when times were good” but are hitting businesses “at a point when they can’t bear those extra costs”.
“From 2015/16 onwards there has been less activity [in the oil industry] and companies’ turnover has fallen but because they had built up over a 10-year period they were operating with a lot of staff and had big offices,” he said.
“Over the course of a year to two years their businesses have completely changed. They have shed staff but they’re left in offices that they have 10 to 15 year leases on.”
Oil giants such as Aker Solutions and BP, which both occupy vast premises in Aberdeen and as such pay rates of around £2 million each, have seen their rateable values increase by 12 and 13 per cent respectively. Many smaller players have seen considerably larger increases.
Oil services business Proserv, for example, has seen the rateable value on its Echt warehouse increase by 230 per cent to £269,000 while Kintore-based Precision Oil Tools’ has gone up by 62 per cent to £87,000. That means their rates bills have gone from £41,565 to £132,348 and £27,285 to £42,804 respectively.
Deirdre Michie, chief executive of industry body Oil & Gas UK, stressed that the new rates “do not take into account dramatic changes in the economic climate over the past two years, in particular the extreme pressure placed upon the oil and gas sector and its supply chain by a depressed oil price”.
It is not just the oil industry that has been affected. The knock-on effect in the local economy has been a drastic reduction in demand for goods and services, with everything from hotels and restaurants to shops and children’s nurseries being affected.
As these businesses were enjoying the benefits of a booming oil sector prior to 2015, however, many will see their rates liability shoot up in April. Although some businesses have seen their rateable values either remain static or decrease, others are facing increases of close to 300 per cent.
Boots, Next and New Look in Aberdeen’s Bon Accord Centre are among those to see no change in their rateable values, meaning the actual sums they pay will decrease due to the rate for large businesses falling from 51 pence for every pound of rateable value to 49.2 pence.
At the opposite end of the spectrum, Bar 99, a pub just off Aberdeen’s main thoroughfare, Union Street, has seen its rateable value increase by 298 per cent from £20,500 to £81,500, which translates to an increase in rates payable from £9,922 to £40,098.
Similarly, the Carmelite Hotel has seen a 159 per cent increase in rateable value to £285,000, the Apple shop in Union Square has seen a 126 per cent rise to £350,000 and accountancy firm Anderson, Anderson and Brown has seen a 39 per cent rise to £1.1m.
Adrian Watson, chief executive of Aberdeen Inspired, the business improvement district that represents 700 businesses in the city centre, noted that many firms have already had to close due to the downturn in the economy, with vacancy rates in the city centre rising from seven per cent to nine per cent in the last two years. Union Street’s vacancy rate now sits at 13 per cent.
Mr Watson said that against this backdrop a significant rise in rates could lead more businesses to fail.
“This has been the biggest issue by far for our members,” he said. “People have gone to their accountants and found that with the push on rates they’ve gone from being a moderately profitable business to one that’s not a viable concern. I’ve heard that many times.
“We’re trying to regenerate the city. We’ve all signed up to [Aberdeen City Council’s] masterplan, which is predicated on business confidence. We’ve got to put private money into this too, but that needs business support and confidence. This couldn’t have come at a worse time.”
During a visit from finance secretary Derek Mackay last month, Aberdeen Inspired together with AGCC and a range of bodies including the Institute of Directors and the Licensed Trade Association stressed that businesses in the area are facing what Mr Bream termed “exceptional circumstances”.
As such they are asking the Scottish Government to provide funding that would allow Aberdeen City Council and Aberdeenshire Council to employ the Community Empowerment Act to waive rates for the sectors and areas that are worst affected by both the downturn and the rates rises.
This would be in addition to the extra funding Mr Mackay pledged to all local authorities in his recent Budget, with the industry bodies noting that the other councils receiving that cash are not faced with the same situation as Aberdeen right now.
However, a Scottish Government spokesman said “a package of action” had already been introduced to reduce rates for some businesses, with 100,000 additional firms being covered by the small business exemption by April while a change in the way large businesses are classified means that 8,000 will no longer have to pay the large business supplement.
He added that the Government had already made significant investment in the North East economy across a number of schemes.
“The Scottish Government remains committed to supporting the economy in the North East, including the Aberdeen City Deal and the additional £254m investment announced alongside,” he said. “We are also investing £745m in the Aberdeen Western Peripheral Route.”
Despite this, Mr Watson stressed that bodies such as Aberdeen Inspired and AGCC will continue to lobby central government to provide some form of additional rates relief.
“It’s a very big challenge to the people of the North East and we really need to be heard on this,” he said.
“It’s tough up here. Local government tell us there will be cuts in the city and shire. With that context we are looking to the national government to see that Aberdeen needs a hand.”