CALLS are mounting for radical reform of Scotland’s business rates system to ignite the recovery of Scotland’s stricken high streets, as fears grow that outlets currently closed because of coronavirus will not be able to afford bills when current relief ends in the coming months.

The catastrophic fallout from the pandemic has sharpened focus on the need for policy interventions to help businesses in towns and centres recover from the dramatic drop in footfall they have endured in recent months. Non-essential retail outlets, pubs, restaurants, cafes and cinemas have been closed for much of the last year in a bid to halt the virus.

Senior business figures today issue fresh calls for business rates, which normally raise around £2.8 billion for local government finances every year, to either be radically changed or scrapped completely in favour of a new approach to raising revenue.

Reforms were recently made to the system following a review led by banking veteran Ken Barclay, which included a move to carry out property valuations more regularly to better reflect prevailing economic conditions.

However, the protracted closure of bars, restaurants and shops sparked by coronavirus has led to calls for more radical change, particularly as the struggles of the high street have come as the shift to online shopping has been “turbo-charged”.

READ MORE: Scottish National Investment Bank ‘should fund’ revival of Covid-ravaged high streets

Sir Tom Hunter, one of Scotland’s highest-profile entrepreneurs, has called for business rates to be “abolished” and replaced by a new sales tax at the point of purchase, while a major report published last week, A New Future for Scotland’s Town Centres, said amendments should be made to the system. The report also called for the introduction of a digital tax.

Paul Waterson, owner of the Golden Lion Hotel in Stirling and spokesman for the Scottish Licensed Trade Association, said the system has to change to reflect the massive shift to online activity which was having an impact on town centre footfall even before the pandemic.

Business rates, in effect a property tax, should also be changed to take account of the long-term effect Covid will have on the hospitality trade, he said, observing that it will be some time before hotels are able to recover function, conference and tourism business because of restrictions are likely to continue.

READ MORE: Paisley regeneration leader urges towns to grasp a new vision for the future

The hospitality industry has traditionally faced higher rates bills than other sectors because assessors use the turnover of bars, restaurants and hotels to calculate how much tax they pay. Industry figures have for many years argued the system is unfair, pointing out that turnover does not equate to profitability.

Mr Waterson said: “I have always said the hospitality trade will be the last saviour of the high street, but if you take Topshop, what is going to happen to all those closed shops? The rates burden has got to be balanced out to take account of online. There has got to be a total rebalance if you want to protect town centres, because if you don’t, what is the outcome? Who is going to take over those shops that have gone by the wayside?”

Brian Rogan, head of rating at property firm CBRE in Scotland, said the current system was “inflexible” as he made the case for “wholesale reform”.

He added: “An annual self-assessment model is what is needed to make the system fairer and appropriately flexible. That is what the Government should aspire to achieve as making tax systems proportionate to the taxpayers’ ability to pay is one of their key principles of taxation policy, but in the case of non-domestic rates it is a principle which is ironically missing.”

In the A New Future for Scotland’s Town Centres report, it is argued that options for a digital tax should be explored as a “matter of urgency” to reflect the massive shift to online retailing. It states the shift, which has accelerated during the pandemic, has “increased inequalities and probably added to our carbon emissions and congestion”.

READ MORE: Business rates inquiry chief: Devolving tax power was never part of the plan

Asked for his views on a digital tax, David Lonsdale of the Scottish Retail Consortium said: “Online retailing has proved a lifeline for many Scots and for many retailers throughout coronavirus, especially when stores have been compelled to close or when shoppers have been unable to visit shops due to restrictions on travelling outwith the local area or even on leaving home.

“We ought to be cautious about new digital taxes being seen as some sort of antidote to the high cost of operating in our town and city centres. The majority of the top online retailers in this country are established bricks and mortar retailers, and most firms with physical shops also trade online and have invested significantly to do so.

"So any new digital tax could place an extra burden on an already over-taxed retail sector, who are moving online to meet customers’ changing shopping habits.”

Barry McCulloch, head of policy (Scotland) of the Federation of Small Businesses, said: “The introduction of an online sales tax would not in itself rekindle the fortunes of local towns and high streets. The only way that would happen would be if the income that was raised was reinvested, but that is a big if. We would be apprehensive about the tax being passed on to consumers, or the tax levied on smaller businesses in that sector.”

Firms in the hospitality, leisure, retail and aviation sectors currently have 100 per cent relief from business rates. The relief, introduced for one year last March, was recently extended by three months by Scottish Finance Secretary Kate Forbes, who indicated a wish to extend it if funding from Westminster was forthcoming.

Business groups say the extension is not long enough, and are concerned firms will be unable to afford bills when rates fall due again if they still faced trading restrictions.