Business Rates
The next item of business is a Scottish National Party debate on motion S1M-1301, in the name of Kenneth Gibson, on rates relief for small businesses, and on two amendments to that motion. Because of the time lost through microphone failure, we have the option of running on for 10 minutes after 12.30 pm; however, looking at the list of speakers, I am hopeful of concluding on time.
I open by welcoming the new local government and finance team to the chamber—and Angus MacKay's mum to the gallery. I reassure the new ministers that we recognise that they might not be completely au fait with their respective briefs and promise to be gentle with them. Well, I promise to be gentle—I cannot give any guarantees about Fergus Ewing.
This issue is close to our party's heart. At the previous elections for this Parliament and Westminster, the SNP suggested costed proposals for a relief scheme for small business; in fact, we were the only party to do so in either election. We did so because we acknowledge that the rating system is inherently discriminatory to smaller businesses, and we recognise that small businesses pay a disproportionately larger part of their turnover and profit in non-domestic rates.
Indeed, a year ago today, the Local Government Committee was informed in evidence received from the Federation of Small Businesses, the Forum of Private Business, the Scottish Retail Consortium and the Confederation of British Industry that, as a percentage of turnover and operating profits, small businesses pay a significantly higher proportion than large concerns, sometimes by a factor of 10. For owner-occupier small businesses, rates form the single biggest overhead. That can act only as a brake to growth, jobs and investment to the detriment of the economy, particularly in rural and remote Scotland. For some small businesses, the level of rates can mean the difference between staying in business and going bust. Such is the concern among small businesses at the level of rates paid that 87 per cent of the members of the Forum of Private Business stated that it was the issue they most wanted Parliament to address.
Introducing small business rates relief not only will help the businesses involved to survive, expand, recruit more staff and pay taxes, but will encourage new start-ups, which will help the Scottish Executive to reach its target of creating 100,000 new businesses over the next 10 years. Although the introduction of a 1p reduction in the poundage this year is welcome, it will make no appreciable difference to the bottom line of any small business. The smallest 70 per cent of all Scottish businesses contribute only 12 per cent of the business rates collected by the Scottish Government. For that 12 per cent, the profitability and viability of many Scottish businesses are fundamentally affected. It is clear that the pain caused is not warranted by the gain made.
Instead of abolishing the uniform business rate, as the Liberal Democrats proposed in 1997, or doing nothing like the Tories and new Labour, we think that a compromise is possible that will allow us to protect the income stream that local authorities receive through non-domestic rates while alleviating the burden on the businesses that are least able to pay.
It is important to emphasise that non-domestic business rates are an effective revenue gatherer for local government and a vital support for Scotland's public services. This year, more than £1.5 billion will be collected from Scottish business and redistributed to support public services across the country. That represents the second biggest contributor to local services after government grant, dwarfing the amount of money collected through council tax.
Unlike the electorate, on which council tax is levied, the business community has no say when unfair or punitive levels of taxation are imposed on it. That is why we support the principle of uniformity, a principle that is a necessary protection against the worst excesses of Mr MacKay's colleagues in Labour's rotten boroughs. I excuse Mr Peacock from that. As a recent Labour party recruit, it would be unfair to tar him with the same brush.
The principle of uniformity must extend beyond our borders, as it is vital that Scottish businesses are not put at a competitive disadvantage. Put simply, Scottish business should not pay more than business in England. That is a clear principle of the SNP. We thought that it was shared by all parties represented in this chamber—until the coalition introduced Jack's tax, as my illustrious colleague Fergus Ewing famously termed it.
I am interested to hear that it is the SNP's position that we should have the same taxation rates as England. Has the SNP abandoned independence?
Certainly not. However, an independent Scotland would not want its businesses to be at a competitive disadvantage with those of our next-door neighbour.
For those members who are unfamiliar with it, I should explain that under Jack's tax Scotland's businesses pay more in business rates than their counterparts in England, through a poundage that is 8.8 per cent higher than that south of the border. That is a direct breach of Labour's 1997 manifesto and a new tax that it failed to mention in its 1999 manifesto. For the first time since the UBR was introduced, the poundage rate in Scotland will be higher than it is in England. Simply put, a building in Glasgow will now cost more in rates than a building of comparable asset value in Gloucester.
I do not want to dwell for too long on Jack's tax. From their woeful amendment, it seems that the Tories believe that today's debate is about that. I am sorry to disappoint them, but if they had read the motion, they would know that this debate is about small business rates relief. Sadly, their amendment shows their utter contempt for the small business sector.
I want to concentrate on the motion that is before us. I think that there will be consensus on the motion. In fact, I know that there is consensus on it. I am lucky enough to serve on this Parliament's Local Government Committee, which reached a consensus on this very issue. Even Keith Harding, who is now smiling, agreed, so it will be interesting to see whether he, the Liberal Democrats and Labour members maintain their position or turn turtle on this issue, the whips having won again.
For the benefit of the chamber, I will outline conclusion 1 of the Local Government Committee's report on non-domestic rates, published on 23 June this year. It states:
"The Committee is satisfied that small businesses face a disproportionate rates burden and considers that a permanent small business rates relief scheme, which is more generous than the present 1p poundage reduction, should be introduced with effect from 1 April 2001 at the latest."
It continues:
"this points to the need for a multi-banded or tapered scheme with the level of relief reducing to a small level close to the upper limit of eligibility."
The report goes on to say:
"The Committee considers that the relief scheme should be self-financed through an increase in the Scottish poundage."
To me, that says it all. As tasked by the Minister for Finance, and in co-operation with the Enterprise and Lifelong Learning Committee, we conducted a lengthy inquiry into this issue and arrived at the central conclusions to which I have referred. After listening to a variety of views and considering the evidence, we came to believe that a more generous, permanent scheme was required. More eagle-eyed members will have noticed that the SNP motion this morning calls for precisely that.
Today we seek simply to build on the cross-party consensus that the Local Government Committee has already established. That is why I am somewhat disappointed by the tone of the Government amendment. Our motion seeks to reinforce the decision of the Local Government Committee. It seeks to give the chamber the opportunity to endorse that decision and to give a clear signal that we want to see progress on this matter, sooner rather than later.
Two schemes have been proposed, by the FSB and the FPB. I understand that the minister has been given the details of those. If so, he will note that both schemes are self-financing and involve a shift in the rates burden from small to larger businesses. Under the FSB scheme, for example, small businesses are effectively designated as those having a rateable value of less than £10,000—a threshold figure that the Executive accepted last year when deciding which businesses qualified for penny poundage reduction. The FSB scheme would be tapered and would mean relief of at least 50 per cent for businesses with a rateable value of less than £5,000, at a cost to larger businesses of an additional poundage of 1.9p, a figure not dissimilar to that which the Department of the Environment, Transport and the Regions is considering down south under its proposed scheme.
Eleven months ago, the former Minister for Finance stood before this chamber and promised that he would deliberate on the case that had been made by the small business organisations. He said:
"Over the next 12 months, Henry McLeish"—
whatever happened to him?—
"and his team will examine the case for small business rate relief and consider the best way forward."
He also said:
"In the next 12 months, we must examine in an open and transparent way how we can afford that, rather than rushing into a decision this afternoon.
I hope that that decision is welcomed by small businesses—it certainly should be."—[Official Report, 8 December 1999; Vol 3, c 1262, 1273.]
I can tell Angus MacKay that the 12 months is nearly up. The Executive has had 11 months to cogitate, analyse and examine the schemes put forward by small business organisations and five months to examine the Local Government Committee's report. The SNP thinks that the Executive has had long enough to produce a scheme. Our motion today is designed to bring that to a head. Vote for our motion today and the Executive will still have time to produce a scheme in its review. If the Executive votes for this motion, it will identify itself with its own back benchers, who supported this form of words as a committee recommendation. Vote for this motion and signal to small business that it will be able to plan for a relief scheme in the next financial year, not at some distant point in the future.
It is incumbent on the Government to tell us whether it favours either of the schemes put forward by the small business organisations, whether it has a scheme of its own or whether it is simply saying to small businesses that they have had their whack when it comes to help from this Government. We deserve an answer; I look forward to the minister's response.
Today, the Executive has already taken on board one SNP policy in relation to drugs courts. This is an excellent opportunity to adopt another.
I move,
That the Parliament resolves that a permanent small business rates relief scheme, which is more generous than the present 1p poundage reduction, should be introduced with effect from 1 April 2001.
I begin by thanking Kenny Gibson for his kind words in his opening comments, followed up by the ritual SNP apology for being about to punch me in the face. On this occasion it was about colleagues on the Local Government Committee; yesterday it was about my appointment as Minister for Finance and Local Government. It was done in a friendly spirit, so I take it in that way.
I should correct the record. As well as my mother I also have a cousin, a niece and a member of staff in the gallery today. It will be nice to have that noted.
The responsibility for non-domestic rates passed to the Scottish Executive as part of the devolution settlement, which occurred only months before the statutory five-yearly non-domestic rates revaluation was due on 1 April 2000. In other circumstances, that could have been a serious cause for concern in Scotland's business community. However, reviewing the work of the Executive from the outset demonstrates that it actively sought to establish good and effective working relations with representative business organisations, to get the key messages of the non-domestic rates revaluation over to their members.
The underlying principles of that approach were openness, minimum disruption for business, stability, certainty and a harmonised treatment of valuation and rating practice north and south of the border. Most important, there was no increase in real terms in the overall tax burden as a result of revaluation.
Business was—
Will Angus MacKay give way?
Not this early. I will give way in a minute.
Business was consulted early on our proposals. In December 1999, some three months before the revaluation took effect, my predecessor, Jack McConnell, was able to make several announcements. The first was that the intended Scottish rate poundage for 2000-01 was 45.8p. The second was that, overall, Scottish businesses would not pay more in real terms as a result of the 2000 revaluation. The third was that there would be a 1p reduction in the rate for small businesses, and the final announcement was that a distinctive Scottish scheme of transitional relief would be established to assist businesses facing an increase in their rates bills. Those sound and sensible initiatives were widely welcomed by Scotland's business community, which was consulted and involved at every stage of the process.
The minister says that the business community welcomed the decisions taken. Donald Turner of the Scottish Council for Development and Industry, a body that is known for its political impartiality, described the departure of a common poundage and the imposition of a poundage 10.1 per cent higher in Scotland than in England as
"a retrograde step that will harm the Scottish corporate sector and undermine the benefits received from the harmonisation of cross-border business rates in the 1995 revaluation."
Was Mr Turner wrong?
I am delighted to re-engage with Fergus Ewing. I feared that in moving away from the justice brief I might miss those exchanges—[Interruption.] I will pass over the comment that I just heard.
Mr Ewing, quite reasonably, has quoted a view from the business community. The business community has expressed several views about different aspects of the rating review and the requirement to move to a new system—
Which of them support Jack's tax?
If Mr Ewing bears with me, I will continue to make my point. Several representative organisations have suggested that we should move to a new structure. The problem is that those organisations and individuals are not always in agreement with one another—I shall address that point later in my speech. It is therefore not appropriate to paint a broad picture from one selective quote. The point that I was trying to make is that the approach that was taken by the Executive, which was open and allowed business an opportunity to express its views before the Executive reached any conclusions, has been welcomed by the business community.
I am not going to give way. Mr Ewing has already caused me to say more than I wanted to, given the short amount of time that I have.
The revaluation has gone smoothly. It is perhaps too early to give definitive feedback on the specific results of the revaluation; however, I can say that the number of appeals against new rateable values is down on the previous revaluation. That can be regarded as an indication of success in achieving the aims of openness, transparency, stability and partnership with the business community.
I confirm that the present 1p reduction in the poundage rate for small businesses will continue as we review the case for further assistance for small businesses.
Given that the deadline for appeals was 30 September and that there was a certain restriction on winners and losers, what kind of impact will the transitional relief for this year have on businesses from 1 April? Does the minister not think that a lot of businesses that do not realise that the deadline for appeals was 30 September will suddenly find themselves caught out?
Kenny Gibson raises an important point concerning the way in which businesses will proceed when the transitional relief ends. We will have to address that and have been doing so in the review that Mr Gibson mentioned in his opening speech.
I intend to do two things in my new role. First, I shall immediately engage in a dialogue with the new Minister for Enterprise and Lifelong Learning, not only to consider the specific issue of rates and rating relief, but to examine the broader issues around the cost base for small business, to determine what kind of broader package it might be possible to develop.
Secondly, I shall make a further announcement, by Christmas, about what stage we have reached in the review on which Mr Gibson addressed some specific questions, about what the next stage will be and about what conclusions we have drawn. I hope that that gives some comfort about our bringing that review to an end. Kenny Gibson talked about a 12-month period, but we will make an announcement before Christmas.
From early in the life of this Parliament, the Executive has been conscious of the concerns that have been raised by small businesses over their rates liability in comparison with that of larger businesses. As I have said, the transitional relief scheme ensured that no businesses faced large increases in rates bills following the revaluation. The position of small businesses was recognised specifically in the design of that scheme, and the real increase in rates bills of businesses with a rateable value of £10,000 or less was limited to 5 per cent. The increase in rates bills for larger businesses was limited to 7.5 per cent for this year.
The Local Government Committee conducted an inquiry into the balance of the burden of business rates between small and large businesses. The committee took evidence from a wide range of business organisations, the Scottish Assessors Association and officials from the Scottish Executive. In its conclusions, the committee clearly supported the view that small businesses face a disproportionate rates burden, and it outlined the general principles that it believed should apply to a rates relief scheme without attempting to follow that through with detailed and specific proposals. I intend to have full regard to that report before making the announcement in December.
As part of the 2000 revaluation, the Executive is taking steps to address the concerns of small businesses. The Scottish Valuation and Rating Council, which comprises business representatives and others who are active in rating and valuation, was charged with undertaking a review of the 2000 revaluation as well as with considering more widely non-domestic rating practices and procedures. Among the specific areas that the SVRC was asked to look into was rates relief for small businesses. I shall take a keen interest in the SVRC's proposals, especially those that relate to support for small businesses.
In addition to the work that will be undertaken by the SVRC, the issue of wider assistance to small businesses was placed on the agenda of the small business consultative group. The establishment of that group was announced in January by the then Minister for Enterprise and Lifelong Learning, Henry McLeish. The group was formed to provide a forum for collective discussion between the small business community and the Executive, with a view to improving the performance of small businesses in Scotland. That group brings together, for the first time, the main small business representative bodies in Scotland, and aims to ensure that the needs of small businesses are properly addressed by the Scottish Executive. We are fully committed to creating a business environment in which the growth of small businesses is supported and encouraged.
The vast majority of firms in Scotland have fewer than 50 employees, and account for 45 per cent of non-public sector Scottish employment. We know that our success in generating the wealth to combat social injustice and deliver social inclusion will depend on our ability to create an environment in which innovation and entrepreneurial skills are nurtured and rewarded. In the short period of time that I have had to study the Executive's record in this area so far, I have been impressed and encouraged by the constructive spirit of consultation and partnership working that has been a central feature of the Executive's approach. I intend to continue with that approach.
The Executive has already shown that it is particularly alert to the problems that face small businesses. I assure members that I will openly examine the case for assistance to small businesses. I further assure them that the Executive will continue to work for the good of the small business community and for the future of the whole Scottish economy.
I move amendment S1M-1301.1, to leave out from "resolves" to end and insert:
"commends the Executive for delivering a 1p reduction in the poundage applied to small businesses with a rateable value of less than £10,000; notes that the revaluation of business rates has been delivered with the minimum turbulence for Scottish business and was conducted on a clear partnership basis with full participation from business rate payers and local authorities at every stage in the process, and welcomes the Executive's current consideration of the case for small business rate relief."
I welcome Mr MacKay and his colleagues to the front bench for this debate. I relish the prospect of exchange with Mr MacKay, but the prospect of the wrath of his mother is another matter altogether.
I declare an interest relating to this debate. I am a partner in a business in Glasgow that pays business rates.
Today's motion, in the name of Kenneth Gibson, seems, at first glance, to exhibit certain hallmarks of economic sense, which came as a slight surprise to me. However, I have to say that it is a matter of some disquiet for me that, when I meet members of the business community, although they acknowledge the individual and personal charms of certain SNP members, they declare a more or less unanimous apprehension about the tax implications of an independent Scotland. Any debate on business must acknowledge those concerns about taxation, which is what business rates essentially are.
Mr Gibson's motion offers an accurate diagnosis of the plight of small business and enterprise. It advocates a reduction of the burdens placed on business and it identifies the fact that the present Administration is failing the Scottish economy. Unfortunately, a closer analysis of the motion reveals that it is somewhat disingenuous, as it would create, almost paradoxically, more problems than it would solve. I accept that Mr Gibson's diagnosis may be right, but his prescription is flawed.
Of course the Conservatives support the idea of lowering the burdens on small businesses and we also support reductions in the national rate poundage. However, that cannot be financed at a cost to other business and enterprise, as those other businesses may not be wealthier or healthier ones.
Will Miss Goldie give way?
I shall give way in a moment.
Conversely, premises that would attract a rates discount under any rebate scheme based on rateable value may in turn contain a perfectly lucrative and healthy business. That is why the Conservatives' amendment—
Will Miss Goldie give way?
I shall give way in a moment. The Conservative group has lodged its amendment because we genuinely believe that what is needed for the health of business as a whole is a uniform business rate, which has disappeared under the Labour Government, and a reinstatement of a level playing field for Scotland.
I give way to Mr Paterson.
Miss Goldie said that businesses require a level playing field. However, I recall that, for almost 18 years under the Tories, businesses in Scotland could be paying up to three times more in rates than businesses in England were paying. Does Miss Goldie not think that that was a severe disadvantage to business in Scotland?
I am surprised at Mr Paterson's analysis. Having been in business, as he has been, I was frequently told by commercial clients that they could obtain premises at far less cost in the populated industrial areas of England than they could in Glasgow or Edinburgh. That is why, when faced with the strictures that emanated principally from Labour-controlled local authorities to squeeze out more taxation for their spending by applying pressure to the business community, I was relieved—as someone who was in business and was suffering from that process—when the Conservative Government introduced a uniform business rate system.
Will the member take an intervention?
I would like to proceed further, as I do not have a lot of time.
We are a party that supports enterprise for all. We want all sectors of industry to benefit from a reduction in costs. We want business to prosper. That is precisely why we introduced the uniform business rate and why we continue to seek parity across the board. We oppose Labour's removal of the uniform business rate and continue to support its reintroduction. It is completely unacceptable financial discrimination against Scotland to have one business rate poundage for England, at 41.6p, and a higher one for Scotland, at 45.8p. The Conservatives want Scotland to be promoted, not priced out.
I share the view of the Scottish Council for Development and Industry, to which Mr Ewing referred, which said in December that the removal of the UBR would make Scotland a less attractive location for large businesses in the UK. The Scottish Executive's cack-handed, blundering handling of the issue reflects an Administration that has, at best, no natural understanding of business and, at worst, an instinctive antipathy towards it.
Will the member take an intervention?
I am running out of time.
With a Conservative Administration, this debate would not be taking place.
What is wrong with the motion? In theory, it is fine, but in reality it is distorted. The only sector that would pay for business cuts is business itself, which would prove disastrous for our already fragile economy. The measure would stifle growth and would place a disincentive on firms brave enough to develop. Businesses need to be treated fairly and entrepreneurs and wealth creators should be rewarded instead of punished. That is the view of business, minister, and not just my personal assessment. Douglas Millar of Glasgow Chamber of Commerce said yesterday that he wanted to see
"a level playing field for all businesses instead of a system of business rates relief which stifles growth and enterprise."
Support for small business can come only in the form of support for all business. Relief and emancipation can be delivered only in a wider context, although to be fair, it is to the SNP's credit that it is joining us in voicing concerns on behalf of business and industry, however deficient I consider the remedy that the SNP offers to be. We need a reduction in rates. The only coherent remedy is to let businesses grow, rather than to prevent, stifle and punish their development. The reinstatement of the uniform business rate would offer such a remedy.
The Scottish Conservatives urge the Parliament to support our amendment, which proposes the reintroduction of the uniform business rate and seeks to take strenuous steps to lower the level of business rates.
I move amendment S1M-1301.2, to leave out from "permanent" to end and insert:
"uniform business rate be re-instated and that efforts be made to reduce the level of uniform business rate, thereby diminishing the financial burden on all business and stimulating business activity in Scotland."
I, too, congratulate Angus MacKay on his promotion and welcome him to his new post. I look forward to working with him in the near future. I indicate the Liberal Democrats' support for the Executive's amendment and welcome the Executive's commitment to examine a small business rate relief scheme, which is an important issue. I welcome the minister's comments on that subject.
The Scottish Liberal Democrats believe that, if we are to encourage more business start-ups—let us not forget that Scotland lags well behind many other countries in that respect—it is essential that we address this problem. Reducing the impact of rates on small business, especially on new businesses and those that are about to start up, will be a positive step that should encourage more people to start their own business. That must be good for Scotland. Such a reduction should also help to encourage the enterprise culture, which unfortunately is so sadly lacking in Scotland. It would be especially good for small businesses in rural areas, which tend to be on the small side—it is unusual to find big business operating in rural Scotland. Any steps to relieve the rate burden on small businesses would have a disproportionate effect on rural Scotland, and should be welcomed.
The Local Government Committee examined the proposals, to which Kenny Gibson rightly drew attention, of the Federation of Small Businesses. It called for a 50 per cent cut for businesses with a rateable value under £5,000 and a 25 per cent cut for businesses with a rateable value between that figure and £7,500. While it was sympathetic to the aims of the FSB, the Local Government Committee had reservations about the wide jumps in the taxation bands.
Is Mr Lyon aware that the FSB has revamped that scheme and now has tapering bands instead of bands that create the falling-off-a-cliff difficulties that the committee identified?
Mr Gibson anticipates the next part of my speech.
Great minds think alike.
I would not say that, necessarily.
The Local Government Committee also drew attention to the need to take account of the turnover of businesses and said that that should be examined with a view to incorporating it in the calculation. Since then, as Kenny Gibson said, the Department of the Environment, Transport and the Regions has published a green paper in England and Wales that includes a small business rate relief scheme. As Kenny Gibson pointed out, the FSB has made some proposals that deal with some of the criticisms that were made by the committee and suggests having a taper, as a result of which businesses with a valuation between £5,000 and £10,000 would have differing levels of discount within the tax band.
The Scottish Executive should consider the proposals seriously. I am aware from my conversations with the FSB that Executive officials are engaged in discussions with the FSB. The FSB's arguments deserve our support. We should consider closely the detail of the arguments, but the principle is good. I hope that we can meet ministers shortly to discuss the details.
George Lyon's excellent speech would appear to be in favour of Kenneth Gibson's motion. Will George Lyon confirm that the Liberal Democrats will back the motion?
I said that I will back the Executive amendment, which contains a clear statement that the Executive is seriously considering introducing some sort of rate relief scheme.
I want to raise one issue with the minister. The rise in rateable value caused great concern last year. In Oban, which is in my constituency, the rateable value has doubled, from £19 per sq m to £38 per sq m. The transitional relief scheme has modified the swingeing increase that would have resulted from that, but there is widespread concern among businesses in the town as, once the transitional relief starts to unwind, they will be faced with a substantial rise in their rates burden. There appears to be no explanation as to why the situation has come about, especially given that the rateable value in most other towns in my constituency is around £19 per sq m.
The calculation for the rateable value is linked closely to the rental values in the town, yet there is no evidence that the rental value has doubled in the past three or four years. I would question, therefore, whether the calculation is right. I know that the business community can lodge appeals, but I would like the minister to clarify whether ministers can intervene when there seems to have been an injustice. I believe that the situation in Oban represents a severe injustice.
Fergus Ewing and Kenneth Gibson talked about what they called Jack's tax. The SNP claims that it wants there to be a uniform rate across the UK. As we know, rateable values in England and Wales increased by 24 per cent last year, as opposed to 13 per cent in Scotland. By my calculations, if the rateable value is three and it is multiplied by the poundage in Scotland, which is eight, the figure of 24 will be arrived at. If the rateable value in England is four and is multiplied by the poundage in England, which is six, the figure is also 24. The key issue is how much is paid. That is lost on the SNP, which seems confused.
If we are to improve the number of business start-ups in Scotland, we have to consider introducing a small business rate relief scheme. I support the Executive's amendment and I hope that it will make some concrete proposals.
Six members have asked to speak. If I allow an overrun to compensate for the microphone failure, all can be accommodated—provided that speeches are kept to about four minutes.
Small businesses are the linchpin of the Scottish economy—98.8 per cent of all businesses in Scotland employ fewer than 50 people and small businesses employ 47.6 per cent of the total Scottish work force. It is very important that we give all the support we can to our small-business community.
A couple of weeks ago, I attended a useful meeting with the Dundee branch of the Federation of Small Businesses, at which I spoke to everybody in the room about the issues that affect them. The same problems and barriers were mentioned time and time again, such as the problems of accessing finance for start-up and growth, local bureaucracy, and the maze of advice agencies. Of course, the main issue that was raised was the burden of business rates.
Anyone who had any doubts about the arguments in favour of retaining the uniform business rate should have attended that meeting: everybody in the room said that it would be a disaster to move away from the uniform business rate. It would be particularly disastrous in a city such as Dundee, where because of the lack of Executive funding for local government, the cash-strapped council would be extremely tempted to raise the level of the business rate in the city to make good the shortfall in funding. Of course, that would drive small businesses beyond the city boundaries. There was unanimous support for the retention of a uniform business rate scheme, albeit with the introduction of a system of relief for small businesses.
Small businesses pay a disproportionate level of rates in relation to their profit and turnover—they pay 10 times as much as larger firms. Business rates are a tax burden on the occupancy of property and have nothing to do with the income that is generated by the business. The burden is made worse by the fact that revaluation sometimes results in rates increasing above the rate of inflation. We need to lessen that burden to enable our small business community to thrive. Too few Scottish businesses start up and too few survive. The current annual rate of business start-up is below that of 1995, so there is no room for complacency and it is crucial that we remove some of the barriers.
For a long time, the SNP has proposed a banded system for business rates. I am happy that the Local Government Committee has undertaken a review of business rates and come out in favour of a tapered small business rate relief scheme. I look forward to seeing the detail when the scheme is presented to Parliament.
Will Shona Robison comment on the implications of introducing a tapered or a threshold scheme? Will she acknowledge the difficulties that the Scottish Executive may have with such schemes? I think the Local Government Committee accepted everything Shona Robison has said, but the issue is the implications of implementing any scheme.
The details of any scheme will have to be debated. It is of note that two of the key proposals were self-funding schemes, so schemes would not necessarily have to be a burden on the Parliament. This debate is about the principle. It is also about hearing what the Scottish Executive thinks about proposals and what its priorities are. It is about which scheme the Executive favours, rather than my personal preference.
As well as addressing business rates, we need a package of measures for small businesses. Access to finance remains a problem.
It is frustrating that the Parliament cannot tackle all the underlying problems that affect small businesses—they, unfortunately, remain the responsibility of the Westminster Parliament—such as high interest rates, the strength of sterling and the hikes in fuel tax. All those issues were raised at the meeting that I attended in Dundee. That is why we argue that this Parliament requires more powers, genuinely to tackle the problems faced by the small business community.
We can tackle the unfair burden of business rates on small businesses. I hope that, after 11 months of dilly-dallying, we will hear some answers this morning.
I am grateful to Kenny Gibson for giving us an SNP policy to discuss. All too often, we have had to confront a degree of vagueness or the orientation towards independence. We actually have something quite concrete to talk about. However, I point out that the SNP's proposal is, yet again, not costed. There is no financial limit.
I ask Kenny how the SNP's commitment relates to the £90 million which, in its 1999 manifesto, the SNP said it would use to reduce the burden of business rates on small firms. How much of that £90 million is he talking about? Can he put a figure on it?
I also want to ask Kenny about the notion of a permanent relief scheme. The Executive is attempting to even out the rise in business rates and to reduce uncertainty. Proposing a move from that to a permanent rates relief scheme leads inevitably to a discussion about what should happen in 2005 when, presumably, some revaluation would be required. I would like to hear a response on that.
Kenny referred to the arguments that were advanced on behalf of the Federation of Small Businesses. The federation made a presentation to the Local Government Committee and subsequently presented a revised version. Which of those submissions is Kenny supporting? Does he support the idea that the burden of the relief scheme should come from the Scottish block? Does he support the idea that it should fall on larger businesses? Which version is Kenny Gibson proposing?
Des McNulty is wandering all over the place. He clearly did not listen to what the minister or I said. We made it fairly clear: that all the schemes we are considering would be self-financing.
That is very interesting. Self-financing at whose expense? There is a burden of expectation with regard to the Federation of Small Businesses' review scheme that bigger businesses would have to pay more to compensate for the rates relief given to smaller business.
Andrew Wilson indicated agreement.
Spot on.
Does the SNP support that idea? Does it instead support the argument that local government ratepayers should pay more?
No.
No.
Okay—that is clear.
How does that relate to the points that Mr Gibson made about small business growth strategy? Annabel Goldie referred to this: if there is a general relief for small businesses, how does that address the issue of small business growth? There are considerable arguments—[Interruption.] Sorry? I will give way to Andrew Wilson.
This has been one of Des McNulty's more ignominious contributions. If businesses pay less in rates, they have more money to reinvest in their businesses and there will be more growth. It is basic stuff.
That is not the view of the Confederation of British Industry, nor of many other people involved.
The views of the CBI were not accepted by the Local Government Committee and I am sure that Des McNulty's colleagues on that committee will support my comments on that subject. Does Des not accept what was even admitted by the CBI: that small businesses pay up to 10 times more than larger businesses as a proportion of their turnover? By relieving some of that burden on smaller businesses we will not only help them grow—and possibly recruit more staff—but, in some instances, help them survive.
I accept, as most people do, on the basis of available research, that small businesses pay a considerably higher proportion of their turnover in rates. That is an issue that is being looked at and I hope that ways to deal with it will be found. The real issue is whether bigger businesses should pay more in compensation—
Yes.
—and whether we need to look at discriminating between different kinds of businesses in the way we support growth. Or is the SNP arguing that there should be a general relief for small businesses? If so, what is the economic logic to that?
I often feel that Des McNulty's sole purpose in life is to act as a warning to others.
I draw the chamber's attention to my interests as appear in the register. I want to talk about some of my experiences in business and, on the iniquitous burden of business rates, to highlight the folly for the Scottish economy of moving away from the UBR and to caution against any move to reintroduce local authority control of business rates.
The background to the issue is so well documented that it seems strange that that is not obvious to the Executive. The revaluation in 1995 produced the anomaly that England's property rates rose by 5 per cent while Scotland's rose by 32 per cent. A uniform business rate was set and Scotland paid. It is unfair that Scotland, having accepted the principle of the UBR at the previous revaluation and having paid more rates than would otherwise have been paid, should now find that UBR is abolished and pay a higher poundage than does the rest of the UK.
In 2000, Scotland's revaluation was to the tune of 13 per cent. As George Lyon said, in England it was 24 per cent. To maintain the tax rate, the UBR was set at 45.8p in Scotland as against 41.6p in England. A similar exercise on large industrial properties now means that Scottish businesses will pay 10 per cent more than they would if they were located in England. When such a levy is imposed, why should a business decide to locate in Stirling rather than Swindon or Clackmannanshire rather than Cheshire?
One of the challenges that the Parliament must face is to keep its attention focused not just on the disbursement of moneys—something that we seem to be good at—but on the source of that revenue. Non-domestic rates in Scotland raise a staggering £1.8 billion—almost 29 per cent of the spending on education in Scotland. Last year, the company of which I was a director paid £650,000 in rates. Our profit was half that sum. Our rateable value was around £130,000 on each of 10 properties, so with a work force of 470 people that amounted to a head tax of £1,382 per person.
A manufacturing plant I visited recently in Mid Scotland and Fife pays £1,500,000 in business rates. It employs 1,400 people, so that is a payroll tax in all but name of £1,071 per person. A further irritating point for that business is that when it has appealed the valuation it has usually taken five years. It usually wins the appeal but it has had to pay that high level of rates for the five years. On the basis of 2 million workers in Scotland, that hidden, business rate tax amounts to an average of £960 per worker.
The Conservative philosophy is simple and uncomplicated—like most of our policies. If it is the genuine desire of the Executive to produce the investment to allow companies to expand and take on more staff, the burden of cost must be reduced; costs of compliance, costs of regulation and hidden business taxes must be slashed. Douglas Miller of Glasgow chamber of commerce said:
"The present arrangement on forcing companies to consider investing South of the Border and further burdens will only serve to precipitate this. Confidence in Scottish Business will only return when some kind of parity is reached with the rest of the UK."
The third area I want to touch on is the proposal to return to a system of local authority control. The Department of the Environment, Transport and the Regions is proposing a supplementary rate on business. Will the Deputy Minister for Finance and Local Government give a categorical assurance that that will not be an added burden on business in Scotland?
In Scotland, we have a tendency to think small. We have heard this morning about the schemes offered by the FSB, the FPB and the CBI. I do not have time to go into them, but those schemes only scratch the surface of the problem. It is a long-held principle that there should be no taxation without representation. The general principle that my party holds dear is that the economy would grow faster if savings were made to allow all burdens on business to be reduced, not if we forced large enterprises to subsidise and finance cuts for smaller businesses.
I am grateful for the opportunity to participate in this debate and would like to speak on a specific issue on which I corresponded with Jack McConnell when he was Minister for Finance—automated teller machines.
It is unacceptable that many rural and poorer areas in my constituency and throughout Scotland are disadvantaged compared with the more affluent areas of the country. How are they disadvantaged? Either because banks and building societies have closed their branches or because they have never had the luxury of having banking facilities close at hand. With modern technology, we can provide a limited range of banking services and, through the new ATMs, we can provide business to commerce e-commerce to every community. ATMs offer cash withdrawal, account checking and other limited facilities 24 hours a day, but internet ordering through ATMs, and e-points in post offices and in small shops and garages in deprived areas provide the security of a personal interaction with a shopkeeper and cash exchange for communities without banking or readily available credit facilities.
ATMs in banks and building societies are rated as part of the building, but ATMs in other locations—of the sort that I have described—are rated separately, as separate lands and heritage. The locations are then banded into categories of net annual value, based on the number of transactions each year. That is not a socially inclusive policy. A site with 25,000 transactions is categorised as a poor location and is rated with a net annual value of £2,500; a site with fewer transactions is categorised as a very poor location, but is still rated with a value of £1,500. Small supermarkets that are located in what are termed secondary and tertiary sites—such as those operated by Sands, a business in my community—are faced with bills that, in some communities, make the use of ATMs uneconomic, even when they can be used for e-commerce.
The scale of the challenge grows as the number of transactions increases—such sites may be rated with net annual values of up to £25,000.
I appreciate that Dr Simpson has a constituency interest, but surely this Parliament has the responsibility of addressing the core of today's motion on business rates. We should not use our time on an issue that could be pursued elsewhere.
I want to be helpful to you, Dr Simpson, and I am being patient, but I have to tell you that you are on the margin.
Those small businesses have a rateable value that is already high. An additional burden in small and rural communities creates a major problem. Not only is that not socially inclusive, the rating system will affect the extension into e-commerce, which is vital. In the development of socially inclusive policies in rural areas and deprived communities, it is important that the rating policy be reviewed. I hope that the Executive will consider that.
In my constituency, iATM of San Francisco has just announced that its world headquarters for the design of software for ATMs and their extension into e-commerce will be in Alloa. Those jobs will be put in jeopardy by the present system. I hope that the Minister for Finance and Local Government and the Minister for Enterprise and Lifelong Learning will consider that.
This is a key debate in terms of kick-starting the engines of growth in our economy. The new Minister for Enterprise and Lifelong Learning has not troubled herself to be here, but yesterday, in her first statement as the new minister, she lauded Scotland's two quarters of recession followed by a limping 0.5 per cent growth in gross domestic product during the past quarter. She said that that was another indication that the Scottish economy is performing robustly.
If recession followed by meagre improvement—barely one fifth of the long-term trend rate—is a robust performance, I would hate to see what the Executive would regard as relative decline. Relative decline is what the Executive is presiding over. Labour may be happy to preside over decline by dismissing it and making Orwellian statements to the contrary, but the fact is that Scotland has a continuing problem with economic growth, driven by the fact that our small business sector is at a serious disadvantage.
Today's debate is about not just the plumbers, electricians and village businesses, but the new businesses struggling to establish themselves through new ideas and innovations. It is about the unfair burden being targeted on small businesses—the engines of growth in the economy—by the state. In Scotland, across the political divide, we have long been exercised about the problems of business start-up and growth. A major reason has to be the state burden that is imposed disproportionately on small businesses as they start up.
We feel for Angus MacKay in that he has inherited a situation from a man whom he was not keen to promote previously. As a result of Labour's position, Scottish business has the highest tax in the United Kingdom, which puts it at a massive competitive disadvantage. George Lyon made the point that it is not the growth rates that matter, but how much tax businesses pay. I can tell him that the average business rate that is paid in Scotland is £1,000 more than the average business rate that is paid in the rest of the UK. That puts Scottish businesses at a competitive disadvantage, which has been imposed on them by the Labour party.
I welcome Mr Wilson's comments, which strike at the heart of a difficult problem for business. However, is not his argument a reason for supporting an urgent return to the uniform business rate, followed by a genuine attempt to lower the prevailing level?
The SNP is suggesting that, within the constraints of the Parliament, we should take the opportunity to re-band business rates and to remove the burden from small companies. We made a commitment in our manifesto on how we could take that further. However, today, we are seeking to be helpful within the financial constraints of the Government to take the matter forward. I was reading the 1999 Labour manifesto—as I do of a night. It said:
"Scottish business must not be asked to shoulder a rates burden that affects its ability to compete against firms in other parts of the country."
Why, then, is the rates burden in Scotland on average £1,000 higher than it is in the rest of the UK? That damages the ability of small business to compete with firms in the rest of the country. It is another example of a Labour let down—to go along with the many ways Labour has let down the electorate and businesses of Scotland.
If Des McNulty can say anything coherent, I would be delighted to hear it.
I would be interested to know whether Andrew Wilson can explain how shifting the burden of rates from smaller to larger businesses generates growth. What evidence does he have to support that view? How does that promote business start-ups?
If we shift the burden we get rid of the disproportionate burden, taking into account the turnover and profitability of small firms. That helps start-ups to survive because, as such businesses would pay lower rates, the cost of starting up would be lower. It is not rocket science; it is relatively simple.
The Liberals can be exonerated, because at least they were honest enough to include in their 1997 manifesto the promise to abolish the UBR, thus damaging the businesses of the north-east, Fife, the Borders and elsewhere in Scotland. At least the Liberals were honest enough to predict the disaster that they were going to support.
The Conservative amendment is a predictable disappointment. The party that once held the majority in Scotland does not seem to know where it stands anymore. At one time, it would have spoken up for the self-employed and the new entrepreneurs. Now, however, the Conservatives are the prisoners of the old economy lobby. That is a shame. What would the grocers of Grantham think—and what will the voters of Eastwood and Ayr think?
As for the self-congratulatory Labour amendment, it shows that Mr MacKay should think carefully as he gets his feet under the desk. In it he admits the turbulence caused by the policy and lauds a 1p cut, which is welcomed by small businesses, but which on average is worth only 96p a week. That is not going to set the heather on fire. However, Labour seems to be taking the line that that is satisfactory.
I urge members to support the motion, which is reasonable and considered, within the constraints that are placed upon the Parliament. Kenneth Gibson and Fergus Ewing have brought back a good idea from the business lobbies—we can start to remove the unfair burden on small business and lift the sights of the Scottish economy.
I am pleased to speak in the debate, because the Local Government Committee has discussed and debated business rates at great length, having been afforded the opportunity to listen to and learn from various sections of the business community. There are more than 138,000 small businesses in Scotland and they represent nearly three quarters of all businesses in Scotland. In attempting to ensure that extensive consultation takes place and to ensure maximum effectiveness, our first principle must be to get the scheme right, rather than to introduce it quickly. Therefore, I am pleased that the Executive is attempting to obtain appropriate and independent evidence before jumping feet first into such an important and consequential decision and that, in the meantime, it has set out guidelines to provide stability and predictability for businesses in the future.
The SNP outlined its key policies in its manifesto, which included
"a package of measures to promote small businesses"
and an input of £90 million to address the burden of business rates on small firms. As with everything else that it proposes, the SNP fails however, to tell us exactly how the money will manifest itself. In the arguments that SNP members are putting forward this morning, they appear to contradict themselves by agreeing with the business community that any changes must be self-financing. Evidently, the SNP's economic policies have not improved under a new leader, or possibly the back of Andrew Wilson's envelope has finally been filled up.
During its consideration of the issue, the Local Government Committee received representations, as Kenny Gibson said, from a wide range of bodies. None had a solution, but all offered suggestions that are worthy of consideration. Kenny Gibson is correct in his assertion that the Local Government Committee was unanimous in its view that, although a transitional relief scheme was introduced to phase in increases in rates bills that arose from the revaluation, small businesses face a disproportionate rates burden. The committee also felt that a small business rates relief scheme that is more generous than the current system's 1p poundage reduction should be made with effect from 1 April 2001. There is no disagreement on that. However, the committee also said that we must assess the issue in the light of a number of other considerations.
There have been suggestions about the methodology that should be used to identify genuinely small business, which would permit them to qualify for rates relief.
I understand what Michael McMahon says, but why did the Executive say that it would come back to Parliament within 12 months, if it has no intention of doing so? Is not it about time that the Executive came back to Parliament with a proper scheme?
I am going to ask a similar question, so we are not in disagreement.
One method, which was proposed by the Forum of Private Business in Scotland, would make use of national insurance contributions and would take into consideration the size of the business rather than the size of the property. Another method would relate to business turnover, rather than to property tax, as occurs in the current system. It has also been suggested that the relief proposals would interact with other relief schemes, such as the relief scheme for village shops.
After careful deliberation, the Local Government Committee came to a number of conclusions. First, it is essential that the relief scheme should avoid small changes in rateable values that produce large increases in rates bills. Also, an objective should be to reduce the incentive for businesses to appeal against their rateable value simply because they hope to obtain benefits from the relief scheme, while encouraging them to grow without the risk of step increases in their bills. That points to the need for a tapered multi-banded scheme. The scheme should also be self-financing, possibly through an increase in the Scottish poundage system, so that only genuinely small businesses would benefit from the scheme. Those points should be considered while considering regional variations.
The committee recommended that the issue of a relief scheme be kept under review. I say to Kenny Gibson that that is the point that I was trying to make. The Local Government Committee would welcome further suggestions on the Executive's thinking on the matter. The Executive should liaise with the groups that I mentioned and it should contemplate statistical evidence from local government assessors, the Scottish Assessors Association and the Local Government Committee so that an informed and effective judgment can be made. That is what the small business community seeks—it is in all our interests that it should get it. I do not believe that the positions of the Local Government Committee and Angus MacKay's amendment are incompatible. I will have no difficulty in supporting the Executive.
As I said in the first debate this morning, it is constructive that the SNP has lodged a motion that tackles a serious issue. I am pleased that Michael McMahon has had the opportunity to set out the Local Government Committee's position. That committee has paid great attention to the issue.
I will start at the top and work down. It is essential that the Executive scrutinises local government funding properly. The Local Government Committee was discouraged because Jack McConnell set his face against that, but was encouraged when Angus MacKay appeared before it, because he seemed to hold the door open a wee bit. When the committee has finished its inquiry and the changes have bedded down, a proper inquiry could be conducted. Many vital issues are involved, so it is important for the Executive to undertake a properly funded examination.
The Local Government Committee is studying local government finance as well as it can. The role that local businesses play in local government finance is important. As Michael McMahon said, an early change on rates, if possible, is important. We need not wait for more elaborate examinations to be conducted before we help small businesses. The two organisations that represent most small businesses have strong ideas on the issue. One has produced a revised idea for a tapered scheme that would be based purely on rateable values. The other is keen that another measure is used, such as national insurance contributions or another way of measuring the size of the business rather than the size of the building it occupies. Both those schemes can be scrutinised carefully and a good scheme can be proposed.
I cannot understand Des McNulty and Annabel Goldie—they do not seem to comprehend that if small businesses pay less in rates, more small businesses will start up. They might, in due course, grow into bigger businesses. That is elementary and I do not know how anyone can take a different view.
The Confederation of British Industry gave a remarkably unimpressive performance before the Local Government Committee. [Members: "Hear, hear."] It did not seem to care a toss about small businesses and was clearly speaking for bigger businesses. If we had a personal taxation system in which poorer people paid a higher percentage of their income in tax than richer people did, there would be an outcry, but that is precisely what happens with businesses. We are not asking big business to subsidise small business, but at the moment, small business subsidises big business. That is totally unjust and damned stupid if we want the economy to develop.
The Local Government Committee and—I think—the Liberal Democrats think that there should be a self-funding scheme. That would mean that bigger businesses pay a wee bit more. There might have to be some arrangement for what we might call the middle-sized businesses—that sort of thing can be worked out. There would be a small percentage increase for big businesses.
There is an issue about urban and rural shops and other small businesses, which we must tackle. On the bus on the way here, I passed about five shops in one block on a main road that were either for sale or for rent because they had not been doing well. The motion is welcome and I urge the Executive to grasp the issue along the lines that have been suggested by the Local Government Committee.
As a member of the Local Government Committee, which devoted considerable time and effort to discussing non-domestic rates, I welcome the opportunity to contribute to the debate.
The committee's report was finalised some months ago. As far as I am aware, today's Executive amendment is the first indication that it is considering the case for small business rates relief—better late than never.
From the considerable evidence that was taken by the Local Government Committee, it was concluded that it appeared that small businesses faced a "disproportionate rates burden". The committee's report said that
"if at all possible, a rates relief scheme should apply only to genuinely small businesses, and not to medium or large businesses occupying small premises."
The committee also recognised that
"any scheme which simply used a RV threshold as the basis for eligibility would not differentiate between those categories of businesses."
We believe that that is a fundamental flaw in the present 1p poundage reduction. Despite that flaw, however, the reduction is welcomed by some businesses.
One of the main difficulties in introducing a small business rate relief scheme is in determining what constitutes a small business. On the one hand, one could have a highly profitable business that operates from one room—particularly given the rapid rise of information technology—yet, on the other hand, one could have a business that operates out of large premises, but which struggles to survive.
Alternative suggestions to the use of rateable values were made to the committee, including, as Michael McMahon said, collections that are based on national insurance contributions, business turnover and profitability. However, according to the evidence that was taken by the committee, those schemes all have flaws.
The Local Government Committee requested that the then Minister for Finance respond to its submission and to report in the autumn on the development of the Executive's thinking on this issue. Autumn is here, but if Kenny Gibson had not initiated this debate, I suspect that we would have been none the wiser. Incidentally, Conservative members welcome the SNP's support for our motion to introduce UBR throughout the United Kingdom.
We were told last October that Scottish Executive officials were considering the proposals from the Forum of Private Business—more than 12 months ago. When will we hear about the outcome of those discussions and deliberations?
The one issue that appears to unite small businesses throughout Scotland is business rates. It has been calculated that some small businesses pay 10 times more—in terms of profit and turnover—in business rates than larger businesses. I say to Donald Gorrie that that anomaly must be addressed in the interests of promoting employment and entrepreneurs.
There must not be a quick fix—certainly not by next April. There is no easy answer. The issue is complex and I urge the Scottish Executive to commission research on how a fair and equitable system can be devised and delivered.
Will Mr Harding give way?
No—I am sorry, but I have no time.
Go on.
No—we have already heard one of Mr Gibson's lectures.
Time is short, Mr Gibson.
We welcome the assurances that were given by the minister that he is considering further initiatives to assist small businesses.
The weakness of any property-based tax system is that it does not take into account ability to pay. The argument over why small businesses pay a greater percentage of their total income than larger businesses do must be addressed. That said, we would not wish for the introduction of a scheme that would increase the burden on any other sector of the business community. Labour's removal earlier this year of UBR makes Scotland a less attractive location in the UK for larger businesses.
That situation would be exacerbated by further increases.
Will Mr Harding take an intervention on that point?
The Deputy Presiding Officer suggested that I should not take an intervention.
The first and overriding priority must be to restore UBR. We could then consider a possible review and overhaul of the current system.
In conclusion, and in supporting the Conservative amendment, I urge the minister to address the matter as a priority and to advise Parliament and its committees of his thinking. When he does so, the Local Government Committee will be able to conclude its findings and assess how his proposals measure up to the principles that were outlined in the report that was submitted in February 2000.
I support Miss Goldie's amendment.
Like Angus MacKay, I welcome the fact that we have had this early opportunity to display the full depth of our understanding of business rates—I would welcome answers to that particular point on the back of a postage stamp.
On a technical point, I refer members to my declarations in the register of members' interests in case any of those interests impact on matters on which I will touch in my speech.
A range of interesting points have been made and I will try to pick up as many as I can in my response on behalf of the Executive.
I repeat the point that was made by Angus MacKay: the Executive has a clear understanding of the importance of the small business sector to the Scottish economy. We want to listen to and to work with representatives of small businesses throughout Scotland and to weave into the Executive's programme for government the needs of small businesses, however those needs might manifest themselves across our range of interests. We want to support businesses wherever we can, through rating policy—where possible—and through Scottish Enterprise, Highlands and Islands Enterprise and the local enterprise companies. Alasdair Morrison is attending the debate in order to pick up issues that arise in relation to the wider portfolio for which he now has responsibility. Equally, we must try to support small businesses at UK level through UK taxation policy and the benefits that can be brought to taxation from the booming UK economy.
Will the minister give way?
I want to make some progress before I take any interventions.
We must help small businesses to expand and we must help to establish new small businesses so that they can continue to provide a rich seam of employment throughout Scotland. As many members have said, small businesses are fundamental to how the Scottish economy works and progresses. As someone who has run a small business for years, I understand the significance of fixed business costs and overheads to the success of any small business.
From his experience, will the minister acknowledge that the cost to Scottish small businesses of paying a rates bill is, on average, £1,000 more than their competitors' bills south of the border?
I will pick up those points later in my speech.
Another factor for small business is that we must ensure not only that we influence rating and taxation policy to an appropriate extent, but that the Government co-ordinates its actions across a range of different matters such as enterprise, education and health service issues. Government must deal with all those factors because they impact on the potential success of small businesses. Such co-ordination will be very important.
Kenny Gibson rightly pointed to the high percentage of turnover in the small business sector compared to other business sectors in Scotland. We recognise that, which is why—as Angus MacKay indicated—we will review the prospects for extending relief schemes to small businesses.
Kenny Gibson also said that we in Scotland should not pay more headline rate poundage—another example of how the London-led SNP is forming its policies. It is also another example of how some people in the SNP have tried to mislead people in Scotland about what has happened following the recent revaluation, as Fergus Ewing will, no doubt, do in his speech. The valuation principles in Scotland and England are actually exactly the same—the revaluation has made no difference to that position. Although valuations of properties in Scotland have risen, they have not done so as quickly as they have in England and Wales. In Scotland, they have risen by an average of 12 per cent, but south of the border, they have risen by 24 per cent. That is why the headline poundage figure in Scotland is different from the English figure. However, when the two factors are multiplied together, we get the same yield. The purpose of the revaluation is to get exactly the same yield after revaluation as before it. Although the values will change within business sectors, the fundamental equation does not change. Fergus Ewing understands that, but has failed to tell members so.
If the minister is right, why do the CBI, the Institute of Directors, Scottish Financial Enterprise, the Forum of Private Business and the Federation of Small Businesses all agree with me, but not with him?
Minister, you have about a minute left.
I would be astonished if all those organisations agreed with Fergus Ewing. He is portrayed as the leading expert on small business matters in the Ewing family, but that is the extent of his expertise. Indeed, the SNP itself is a small business that has experience of these matters—I hope that it will be a much smaller business in a few years' time. No one would follow the SNP's advice on running small businesses if they examined how the party runs its own business.
I understand the essence of the minister's argument. However, if he accepts that the valuation of property throughout the UK will by implication be a variable factor, is not it absolutely desirable to have the rate poundage as the constant factor?
No. It has been interesting to hear that argument from certain members. I understand why the Conservatives make it—they believe in a united kingdom. However, I do not understand why the same argument should be made by the SNP, which does not—allegedly—hold that view. The inevitable consequence—
Will the minister give way?
Mr Gibson should wait a minute.
Minister, you have a minute and a half left.
I will try to sum up quickly.
To be tied to a UK-led system would mean one of two things The inevitable consequence of having a UBR throughout the United Kingdom is that Parliament and the Executive would lose their discretion over non-domestic rates. So, either we value equally across the whole UK and, by doing so, lose our discretion—I do not know why the SNP would want to do that—or we constantly tie the Scottish budget into subsidising the business rate in Scotland on the basis of economic activity in England and Wales. That cannot be a sensible argument for anybody who believes in devolved government in Scotland to make.
I cannot give way—I am running out of time and I am testing the patience of the Presiding Officer.
I could go on. George Lyon and others made points about the need to take the issue seriously. I assure Parliament that we are doing that. We want stability in the small-business sector. As Angus MacKay said, we are prepared to consider all the different schemes that have been put to us. The problem is that they are different schemes; there is no common view on these matters. We will try to make progress soon and we will make announcements before Christmas on how we propose to take the discussion forward. In the meantime, I commend the Executive's amendment to Parliament.
I call Fergus Ewing to wind up on behalf of the SNP. You must finish by 12.44 at the latest.
The first political speech that I made was in 1985, at an SNP conference in Dunoon. This might not come as a surprise, but it was on business rates. I would not say that it was a poor speech, but if anybody has it on video, I will pay handsomely to get it back.
Even if the delivery of the speech was not brilliant, the sentiment that I expressed in it was right. It was quite straightforward—that the SNP does not believe that Scotland and Scotland's businesses should be taxed more highly than businesses south of the border. It is not that we think that taxes should be identical in England and Scotland—
Will the member give way?
It is far too early, Bristow. I will see you in the Subordinate Legislation Committee.
The principle is very simple; we do not think that Scottish businesses should be penalised. I have campaigned with others on the matter since 1985, when I campaigned to end the disparity that existed under the Conservatives. Credit should go to Gil Paterson—now a member of the Scottish Parliament—who took legal action on the matter to the European Court of Human Rights, on the basis that Scotland was being discriminated against. The case did not succeed—the court found that Scotland was a region and not a nation and that it was therefore unable to take action to protect itself.
Credit should also go to business leaders such as Craig Campbell of the Scottish Council for Development and Industry, Bill Anderson—who is now of the Forum of Private Business—and Bill Mann, a leading Glasgow businessman. They have campaigned over a long period to secure fairness.
What does a level playing field mean? With respect to Mr Peacock and Mr Lyon, they have failed to appreciate that a UBR has two components. The first is the rateable value and the second is the poundage. The victory of parity and fairness was secured by two battles. The first battle was won largely in 1990, when harmonisation of rateable values in respect of most properties was achieved. The second victory was in 1995, when the higher poundages that existed in Scotland were reduced and a common poundage was introduced throughout the UK. That was a hard-fought battle. We had 16 years of Tory rule with higher business rates—a fiscal apartheid that was directed against business in Scotland—before the victory was achieved. However, it was at least achieved.
The Tories had 18 years in power; the Labour party in the Scottish Parliament has had only 18 months, but in that time it has reimposed a higher business tax in Scotland. That higher business tax stands at 10.1 per cent—I want to put the position quite clearly to Mr Peacock so that he can understand it.
Will the member give way?
Not yet. If there is a shop in Inverness that has a rateable value of £20,000 and a shop in Colchester has the same rateable value—valued according to the same principles of valuation—the shop in Inverness will pay £840 more this year. I hope that Des McNulty will accept that computation. If not, he should tell me exactly which bit of it he does not understand.
Fergus Ewing is proposing, and the motion refers to, a self-financing scheme. Is it the case that under the scheme, medium-sized and larger businesses in Scotland would pay higher taxes?
Obviously Des McNulty has not been listening—I have not moved on to the separate question of a rates relief scheme for small business.
I would like to read briefly from a letter dated 22 December 1999 by Mr Mann to The Herald. He said that Labour and Jack McConnell tried to justify the
"higher poundage for Scotland on the grounds that Scottish rental values have increased by less than south of the Border over the past five years. In doing so he ignores the experience of the previous five years when values in England increased on average by only 5% whereas in Scotland they had increased by 33%. If there had not been a UBR for the UK this would have meant a materially lower rate poundage in Scotland than in England and Wales from April 1995 to date."
That is the end of the argument. As I mentioned, the business organisations in Scotland are united around the simple argument that Scottish businesses should not be discriminated against by any tax regime. That is a simple principle, which Labour has breached.
I would like to move on to the text of the motion.
The SNP has brought forward the proposal that there should be a rates relief scheme for small business. First, how do we measure small business? There are various criteria for measurement. One, as the Forum of Private Business has identified, is employment. The Federation of Small Businesses has referred to a rates relief scheme that relies on property. The SNP is minded to support the FSB scheme, but there are still unanswered questions of detail about it. For example, what would the cost of computer programmes be for the implementation of the FSB scheme? The FPB scheme is imaginative, but it would require measures to be taken by Westminster. If the Executive was minded towards implementing the FPB scheme—which is unlikely because of the small business consultative group—that would be a test of whether action between Westminster and Holyrood would work.
If the FSB scheme were to be implemented, I can announce to the chamber that a business that has a rateable value of £9,500 would save £1,600 a year on its rates bill. Is not that a prize that is worth achieving? Are we not right to bring forward a scheme that would grant small business the opportunity for growth and expansion, which the Executive—in terms of its target of creating 100,000 new businesses—is supposed to support?
Where would that money come from?
The scheme would be self-financing. [Laughter.] It would be self-financing. That was the recommendation of the Local Government Committee. If Andy Kerr has not read its report, he should do so.
I point out that that the Conservatives—Mr Harding is not in the chamber, but he is a member of the Local Government Committee—did not demur from the conclusions of the report. Why have the Conservatives withdrawn their support today? They have not said why and I am disappointed, as we usually hear from Annabel Goldie, nor have they denied that discrimination exists as an inherent characteristic of computing rateable values in accordance with the rules of assessment. However, we know that when the Tories were in power for 18 years they pursued anti-Scottish policies for 16 of those years. The Labour party has been in power in this Parliament for 18 months and in those months it has pursued anti-Scottish policies.
I am delighted that the Labour party—bereft of ideas of its own—has stolen our policy on drugs courts. I am delighted that, bereft of ideas, it has copied our policy of having an external affairs minister. I urge it to copy our policy on business rates relief. I have no objection to the Executive being the political plagiarist of Scotland.