Hospitality warns of ‘severe’ impact without rates relief

The Finance Secretary will present her final tax and spending plans to MSPs on Tuesday, and has promised to focus on boosting the NHS and helping households with the cost-of-living crisis.

Labour has already confirmed it will not block the Budget, meaning the minority SNP administration is guaranteed to get it through Holyrood ahead of May’s election.

Shona Robison will set out her tax and spending plans this week (Image: PA)

The minister has said the Budget will focus “resolutely” on public priorities, including the NHS and support for households struggling with rising costs.

Extending rates relief would come at a significant cost to the Scottish Government, at a time when ministers have little room for manoeuvre in already tight public finances.

However, in a joint statement, hospitality trade bodies have warned the Scottish Government that the sector is in desperate need of help.

Business rates are a tax paid by firms on the buildings they use, such as shops, pubs and restaurants, and are the commercial equivalent of council tax.

Revaluation is the periodic updating of those values to reflect changes in the property market, while rates relief is a government discount that reduces the final bill.

That can mean revaluation leads to sharply higher costs if relief is reduced or removed.

Analysis by UKHospitality Scotland, based on the Scottish Assessors Association’s draft valuation roll, suggests the hospitality sector could face a combined business rates increase of around £69 million from 2026 if current relief arrangements are not extended.

More than 230,000 people across Scotland work in hospitality, according to industry estimates.

The Scottish Beer & Pub Association, Scottish Licensed Trade Association, Scottish Hospitality Group, Night-Time Industries Association Scotland, and UKHospitality Scotland said differences in government support meant some firms here had paid between 112% and 176% more in rates than equivalent premises south of the border.

Figures supplied by the trade bodies show that between 2023–24 and 2025–26, a hospitality business with a rateable value of £55,000 would have paid more than £55,000 extra in rates in Scotland compared to England, while a business with a rateable value of £200,000 would be more than £210,000 worse off over the same period.

Graphic showing difference between rates in Scotland and England (Image: Supplied)

They warned that the recent revaluation of non-domestic rates could compound those pressures, particularly if the current 40% relief is not extended and the £51,000 rateable value cap remains in place.

The groups said: “As representatives of Scotland’s hospitality and night-time economy, we are united in calling on the Scottish Government to deliver meaningful non-domestic rates (NDR) support in next week’s Budget. This has to be continuation and extension of the 40% for hospitality businesses and a removal of the £51k cap, alongside transitional relief for those hit by the recent revaluation.

“The Scottish Government has already rightly acknowledged that there is a fundamental issue with how the hospitality sector is rated, as evidenced by the ongoing review.

“Previous budgets have also recognised this challenge and provided targeted relief to help businesses cope, but they have been significantly less generous than those received by the same businesses in England – with some premises paying 176% more in Scotland over the last three years. The recent revaluation has compounded the problem, with many premises facing unjustifiable and disproportionate increases in their rateable values.

“These hikes come at a time when businesses are still grappling with rising costs and fragile consumer confidence. Without intervention, the impact will be severe—threatening jobs, investment, and the vibrancy of Scotland’s towns and cities.

“We urge the Scottish Government to act decisively by introducing a robust package of NDR support in the upcoming Budget, including transitional relief. This is essential to safeguard the future of Scotland’s hospitality sector while the review continues.”

It comes as the Scottish Chambers of Commerce warned that sharp business rate increases linked to the revaluation, due to take effect from April, will push otherwise viable businesses of all sizes, in every part of Scotland, “to the brink.”

Dr Liz Cameron, Director and Chief Executive of SCC, said: “We are already seeing investment decisions delayed, cashflow squeezed and employers forced to reconsider their staffing levels.

"At a time when businesses need stability and support from government, this approach risks becoming a zero-sum exercise that damages confidence and stalls economic growth. Without urgent action in next week’s budget, viable businesses will close and jobs will be lost.”

Opposition parties have seized on the issue, particularly after the UK Government signalled a u-turn over planned changes to business rates for pubs in England.

Scottish Liberal Democrat economy spokesperson Jamie Greene said ministers should pause the revaluation.

“Businesses have been knocking on my door about the huge damage this hike could cause, with many looking down the barrel of closure,” he said.

Shadow finance secretary Craig Hoy said Shona Robison must offer relief in Scotland for all affected businesses or “it’s game over and thousands of jobs will be lost”.

Meanwhile, the Chartered Institute of Taxation told The Herald on Sunday they expected any announcements on income tax in Tuesday’s budget to be “modest” at most.

Lindsay Scott, a technical officer at the CIOT, said the Scottish Government had effectively boxed itself in.

“Ministers are largely constrained by the commitment in last year’s Tax Strategy to leave rates and bands unchanged for the remainder of this parliament,” she said.

However, the CIOT said that commitment was not absolute. The Tax Strategy also promised to increase the starter and basic rate bands by at least inflation, suggesting that some modest adjustments are likely in Tuesday’s Budget.

“These changes would benefit Scottish income taxpayers across the board and could fuel further debate around the ongoing question of whether most Scottish taxpayers pay less tax than if they lived elsewhere in the UK,” Ms Scott said.

Looking ahead, the CIOT said the next Scottish Parliament will have new powers to set different rates of income tax on property income, mirroring changes announced by the UK Chancellor at the last UK Budget.

Under UK Government plans, rates on property income in England will rise by 2p across the board from April 2027. The CIOT said a key question for Scotland is whether Ms Robison chooses to announce Scottish rates now or leaves the decision to the next finance secretary.

Scottish taxpayers already pay different rates of tax on property income through the Scottish income tax system.

On wider property taxes, the CIOT said major reform is unlikely ahead of the election. While the UK Government has announced a council tax surcharge on the most expensive homes in England, long-running efforts to reform council tax in Scotland are still ongoing.

“Council tax reform is the puzzle that has eluded every administration in the devolution era,” Ms Scott said, adding that it would be “somewhat surprising” to see that work overtaken by a major announcement this week.

She said changes to Land and Buildings Transaction Tax or the Additional Dwelling Supplement could not be ruled out, but any substantive legislative reform was more likely to be left to the next parliament.

In a statement ahead of the budget, Ms Robison said: “We will deliver a Budget that focuses resolutely on the people of Scotland’s priorities – driving further improvements in the NHS and supporting people with the cost of living at a time when so many people are struggling to make ends meet.

“We will use this Budget to continue the progress we are delivering in Scotland – bringing down NHS waiting lists, supporting families, reducing child poverty and growing the economy.

“The budget measures we take forward will stand in stark contrast to those of the UK Government which are holding Scotland back.

“Our Budget will continue the trusted leadership that this government is providing in Scotland and drive progress on the issues people in Scotland care about the most.”