Meeting of the Parliament

Meeting date: Tuesday, February 21, 2017

Official Report 833KB pdf

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Business and the Economy (Support)

The next item of business is a statement by the Cabinet Secretary for Finance and the Constitution, Derek Mackay, on support for business and the economy. The cabinet secretary will take questions at the end of the statement, so there should be no interventions or interruptions. I urge members who wish to ask a question to press their request-to-speak button now. I call Derek Mackay.

14:41  

I am pleased to make a statement to Parliament today on the support that the Scottish Government is providing to business and our economy.

As everyone across the chamber is aware, in common with England and Wales, a revaluation of business rates is taking place in Scotland. It is the first revaluation since 2010 and takes account of the changes in property values during the economic recovery. It is being conducted by independent assessors appointed by local government.

In December, I announced a range of actions that the Government will take from 1 April—if the budget is passed later this week—to minimise the impact of the rates revaluation, to respond to concerns raised by business organisations and to ensure a competitive system of business rates in Scotland.

First, to reduce the impact of bills overall, I confirmed plans to reduce the poundage—the rate at which the tax is paid—by 3.7 per cent. Secondly, we looked at what more we could do through the small business bonus scheme. Over the past nine years, the small business bonus scheme has provided more than £1.2 billion of support for our small firms, keeping them going through the recession and enabling them to expand and create jobs.

We could have opted, as some have suggested, to reduce the small business bonus so that more businesses would pay rates, using the extra cash to support transitional relief for larger firms. This Government chooses not to do that. Small businesses are the lifeblood of Scotland’s economy and we are committed to helping them. Therefore, to help small business, we are extending the small business bonus scheme to provide 100 per cent rates relief to business premises with a value of up to £15,000. Last year, 80,000 premises benefited from 100 per cent relief. From 1 April, a further 20,000 business premises will benefit, bringing the total number of premises that pay nothing at all to 100,000—almost half of all rateable premises. A further 3,500 premises with a rateable value of between £15,000 and £18,000 will benefit from a 25 per cent discount on their bills. That is the best package of support for small business in the United Kingdom, and it is one that I am proud to deliver. That package of support, along with other existing reliefs, means that more than half of all premises in Scotland will pay absolutely no rates at all in the coming year.

In addition, I took a further step in the budget. I listened to concerns about the large business supplement and focused its impact on the very largest premises. I increased the threshold for payment from a rateable value of £35,000 to a rateable value of £51,000, meaning that 8,000 premises that would have been liable for the supplement—including as a result of the revaluation—will no longer have to pay that higher rate of tax.

By extending the small business bonus, reducing the poundage rate and restricting the scope of the large business supplement, we are cutting business rates by £155 million in 2017-18. Indeed, the combined impact of the measures that I have put in place will result in seven out of 10 business premises in Scotland paying no rates at all or receiving bills that are either the same or lower in the coming year.

In total, reliefs in excess of £3 billion will be available during the 2017 revaluation period, and around £660 million for next year. Seven out of 10 premises will be better or no worse off, and in most cases will pay nothing at all. That is a good deal for Scottish business.

Notwithstanding all that, I recognise that, in any revaluation, bills for some will increase. I understand that it is difficult for those who face increases. In seeking to provide as much help as possible, the challenge for Government is to find a balance that allows us to support the economy and invest in public services and employment.

Some argue that there should be transitional relief, which works by restricting the reduction in bills for many properties whose value has fallen to support those whose value has increased. Having examined such a scheme, we know that the biggest beneficiaries would be the very large utility companies. For example, a scheme that was similar to the last one that was applied in Scotland would mean that 33p in every pound transferred in a transitional scheme from smaller businesses would go to utilities. It would take money off medium-sized businesses in sectors such as retail and offices to reduce the bills of the largest and richest companies in the land. I cannot in good conscience take that route and I do not believe anyone in the chamber, if they look beyond cheap political point scoring, realistically wants that to happen.

However, I want to do more to help, and in recent weeks we have been examining how best we can do that. It has become clear that some sectors and regions will see an increase in rateable values that is out of kilter with the wider picture of the revaluation. Without action, the average rise in bills across the hotels sector would be 37 per cent, subject to reliefs. That is significantly more than the next highest sector. Hotels and pubs also point out that their rateable value is assessed by reference to turnover, which sets them apart from other sectors. Similarly, I have heard the concerns of businesses in the office sector in the Aberdeen City Council and Aberdeenshire Council areas in light of the downturn in the North Sea economy. I have also listened carefully to the renewable energy sector, where United Kingdom Government cuts to subsidies put the sector’s continued development at risk. I have listened and decided that we will act nationally to tackle the impact as follows.

I confirm today that we will now offer a new national relief that caps increases for hotels at 12.5 per cent. Because we recognise that we must maintain fairness between hotels, pubs, cafes and restaurants, the cap will also apply across those businesses. That will benefit approximately 8,500 premises and provide proportionately more support to the sector in Scotland than is available in the rest of the UK.

For office premises in the Aberdeen City Council and Aberdeenshire Council areas, we will also lift the pressure by applying a 12.5 per cent cap next year, which will benefit a further 1,000-plus premises.

For the renewables sector, we will offer a package of reliefs, which will include rolling forward current rates relief up to 100 per cent for qualifying community renewables projects and new-build schemes, lowering the eligibility threshold that is related to community profit share schemes from 1MW to 0.5MW; capping rates bill increases at 12.5 per cent for small-scale hydro schemes of up to 1MW; and offering a new 50 per cent relief for district heating schemes.

Those support schemes must operate within European Union guidelines, with the maximum support limited by the state aid de minimis regulation to approximately £170,000 per business, but that restriction will affect only the largest properties or chains.

To further support the hospitality sector, I have discussed the issues with Ken Barclay, who is conducting a review of the business rates system and who will report on his findings in July. He has confirmed that his group is aware of the issues that the hospitality trade has raised, and he is actively engaging with the sector. The Government will consider his report carefully and when we can act swiftly, we will.

I have worked with Aberdeenshire Council and Aberdeen City Council, and with others, to help them use the power that we gave councils to offer rates reliefs locally. Despite Tory opposition, Aberdeenshire Council has proposed a £3 million local rates relief scheme, and I know that Aberdeen City Council is set to debate proposals later this week. Other councils that are considering local schemes now know that the Scottish Government has provided extra local government funding at stage 1 of the Budget (Scotland) Bill, and that we have acted on key sectors that have been impacted by the revaluation.

We acknowledge that some hard cases will remain, where individual or highly localised impacts present a challenge. By acting nationally, council resources have been freed up to provide support where local or individual challenges remain. Any local authority that wishes to offer a local relief or discretionary assistance scheme will have the Government’s full support in developing its plans. I have placed information in the Scottish Parliament information centre this afternoon which sets out the changes.

The Government is ensuring that, in light of the revaluation of non-domestic premises in Scotland, we are maintaining a highly competitive rates regime. We will ensure that 100,000 small business premises—half the total number in Scotland—pay no rates at all; that about a further 3,500 premises will benefit from a 25 per cent discount; that 8,000 fewer large firms will pay the large business supplement; that no restaurant, pub, hotel or cafe will see their rates bill increase by more than 12.5 per cent on 1 April; that additional support is injected into the economy of the north-east in recognition of the impact of the oil and gas downturn; and that our renewables sector has the Government’s full backing. We will take early action on receipt of the Barclay report to ensure that the rates system is fit for purpose.

Overall, next year, seven out of 10 businesses in Scotland will pay the same as or less than they currently pay, with more than half paying nothing at all. The total package of support through rates relief is worth more than £600 million and I commend it to the chamber.

There is a lot of interest in this item. If questions and answers can be kept as succinct as possible, we will be able to make progress.

I thank the cabinet secretary for advance sight of his statement.

For weeks, the cabinet secretary has been denying that there is an issue with business rates revaluation. For weeks, he and his colleagues have refused to act, despite all the evidence facing them. At last, the cabinet secretary has been forced to come to Parliament and offer some relief to some of the many businesses that are affected.

We all have examples of businesses that are affected—I know of hotels in Perthshire that are facing increases of hundreds of thousands of pounds in their annual bills. To the extent that the statement today addresses concerns in the hospitality and renewable energy sectors and in the north-east, we welcome what is proposed. However, this is all too typical of the actions of a Government that, time and again, falls asleep at the wheel and wakes up only when it crashes the car into a wall.

Three weeks ago, the finance secretary found £185 million, £60 million of which came from the business rates pool, to buy off the Greens so that they would support his budget. Can he tell us today, first, how much the total package of measures that have been announced will cost and whether that figure is higher or lower than the £60 million that he had lying in the business rates pool? Secondly, given that he is always telling us that there is no spare cash in his budget, where have those additional sums come from? Thirdly, is the cap on increases for one year only or is it for the next five years? Lastly, is he open to providing additional help to other sectors beyond hospitality and renewable energy and to areas outwith the north-east if they can demonstrate the hardship that the revaluation is causing them?

I raised in the draft budget the early actions that this Government would take on business rates as the evidence from the revaluation was unfolding. I think that the only people who have been asleep at the wheel are the Conservative Party members, who have not just ignored the issue but are now set—they are not even aware of this—to oppose the actions that this Government will put in place to support businesses across this country. The Tories have opposed these actions.

I read a headline in relation to business rates that “MPs are revolting”. I will let members think about that. The headline referred to Tory MPs revolting against their own Government over what has happened south of the border, where there is a Tory-inspired transitional relief scheme in place. The transitional relief scheme south of the border has meant that bills that should be coming down are being held artificially high to pay for others, which is deeply unpopular south of the border.

Murdo Fraser has made his budget demands publicly. If the issue was such a big one for the Conservatives, why did they not raise it during the budget negotiations, when I was delivering for business and supporting business through revaluation? It remains the case that, while the Tories oppose, this SNP Government delivers for business by lowering the poundage, increasing the small business bonus and taking further businesses out of the large business supplement.

At local level, councils have been working proactively with me to address local and regional issues. Even there, the Tories have opposed support packages for the range of sectors that Murdo Fraser has mentioned. The hospitality sector has a justifiable case, because of the level of proposed increases through revaluation and because of the methodology used to arrive at the values, which is based on turnover. Therefore, it is fair to deliver a package to support that sector, while supporting all businesses by lowering the poundage.

The money or the resource that is estimated to—[Interruption.] I know that the Conservatives are obsessed with money. We are trying to support all businesses and they are not interested in that. The package is estimated to be around £30 million to £40 million. On non-domestic rates, as Murdo Fraser is well aware, we are addressing the forecast in the NDR pool balance, and the adjusted forecasts can be accommodated within that, so there is no impact on businesses.

The Government believes that it is absolutely right to take the actions that we are taking. We will promote the small business bonus scheme and the additional reliefs and caps to support our economy and businesses at this time, while the Tories simply oppose. They oppose measures that we have designed to deliver in good time, well in advance of the start of the financial year and as a consequence of the constructive and positive engagement that I have had as finance secretary in the Scottish Government.

I think that the cabinet secretary would want to know that Alex Salmond was the “revolting” MP.

I welcome the cabinet secretary’s statement and the complete turnaround in the Government’s view of the crippling rates increases for businesses up and down the country. I am positively dizzy with the speed of the U-turn, but I welcome it nonetheless. Businesses in my constituency and across Scotland tell us that, at a time of increasing economic turmoil, the rates rises would have led to job losses, which none of us wants to see. The proposal to cap rises at 12.5 per cent will be welcome relief to the many businesses that are affected, but foregoing revenue—according to SPICe, it is £60 million rather than the £30 million to £40 million that the cabinet secretary outlined—will cost in another part of the budget. The cabinet secretary did not fully answer Murdo Fraser’s question on that. [Interruption.] I will continue when members have quietened down, Presiding Officer. Is this package simply for one year, meaning that we will face a cliff edge next year? If, as the cabinet secretary said, it is not new money, it is clearly an underspend. Is he expecting more, or is it simply money from the back of his sofa? I suspect that it is more smoke and mirrors from the cabinet secretary.

Finally, what about the national health service, which is having to pay at least £30 million extra in business rates against a backdrop of the most breathtaking cuts? What assistance will the cabinet secretary provide for our NHS?

Jackie Baillie will be well aware that the Government is proposing an above-inflation increase to the national health service as a consequence of our draft budget, which is more than the Labour Party committed to during the Scottish Parliament elections. I have made the point about how transitional rates relief does not feel like the appropriate measure. By putting in place a cap, we are achieving the right balance, because it supports businesses without punishing others.

The member makes a fair point about trying to prevent job losses. That is why the range of actions that we have taken are appropriate. I launched our business rates policy in Paisley, and the business that I visited then will fall into the category in which it pays no rates at all as a consequence of the expansion of the small business bonus. It plans to employ new workers and apprentices, which is very welcome.

I am more than happy to cover the timescales. As Parliament knows—[Interruption.] The Tories do not want to hear the answer, because if they were in power there would be no support at all. We can see the chaos that is going on south of the border, which the Chancellor of the Exchequer is now trying to fix.

In Scotland, we have presented a very worthwhile package of measures. We take the budget from year to year—it is a one-year budget. However, the revaluation process generally lasts for five years, and we await the Ken Barclay review to inform further decisions. The cap of 12.5 per cent to which I referred in my statement applies in the current financial year, and we will consider any further issues around methodology, revaluation and other matters when we receive Ken Barclay’s report. It is right that we do that so that we are better informed and have the evidence to enable us to determine the right way forward for the next financial year and future financial years.

I have been very generous with the amount of time that I have given to the first speakers for questions and replies. We have very little time left, so I ask all subsequent members who are called to cut the preamble and just ask a question.

But will we get an answer?

Yes, we might well get an answer, if members just ask a question.

On behalf of the businesses in Aberdeenshire that I represent, I welcome the cabinet secretary’s announcement. It is yet another example of the Scottish Government stepping in to provide support for the north-east, and I thank the Government for working so closely with me and my SNP parliamentary and council colleagues on the matter over the past few weeks.

Would the cabinet secretary agree that, as he has provided assistance for offices and hotels in the north-east, Aberdeenshire Council and Aberdeen City Council should use their money to offer support to other sectors that might be affected by the revaluation?

I suggest to members that, when I tell them to cut the preamble and get to the question, they should follow my advice, please.

Gillian Martin makes a fair and helpful point in drawing attention to the fact that a number of the 32 local authorities propose to take action through local rates relief schemes. They should be encouraged in that, because councils can use their legitimate powers and funds to help to address local issues and circumstances. Three councils are intending to do, or are doing that, and I think that other councils across the political spectrum could follow them and find local solutions to what are sometimes local issues, in addition to the national package that has been outlined this afternoon. That is a helpful suggestion.

Last week, just over 10,000 businesses in Aberdeen city and shire were facing crippling business rate increases. Today’s decision, according to the finance secretary’s own figures, benefits 1,961 of those businesses. What comfort can he give to the other 8,000 businesses in North East Scotland that—even after the emergency measures—will still have to cut staff or close their doors as a result of the revaluation? Is he seriously saying that councils will have to do all the heavy lifting when he has just cut their budgets?

I make the point that the parties that engaged constructively in the negotiation process have ensured that local authorities have an extra £160 million at their disposal.

If there was a transitional rates relief scheme, many businesses, including in the north-east, that would expect their rates bill to go down would instead see it sustained at an artificially high level. We are not doing that. We are putting in place a cap to support certain sectors and the north-east in particular, which I would have thought Liam Kerr would welcome.

He asked what other measures are in place. There is the small business bonus scheme and the reduction in the business rates poundage for every business in the country. I have drawn attention to the local rates relief schemes, which can work around the other schemes to ensure that we cover other sectors, individual areas or individuals where that might be appropriate.

I say again that some councils across the political spectrum have engaged constructively in the process, which I welcome. However, it is shocking that the most noise has come from the Conservatives, who have opposed us the most in what we have been doing to help businesses.

If the budget is passed on Thursday, a large number of businesses in my constituency will pay no rates at all next year, due to the expansion of the small business bonus scheme to cover 100,000 properties across Scotland. To ensure that the full benefit of the policy is realised across the country, will the cabinet secretary agree to write to all eligible businesses to inform them of the new threshold and to encourage them to take up the small business bonus and benefit from the rates relief that they are entitled to?

Ben Macpherson is right to say that there are many businesses that should be aware of the eligibility criteria for relief. I think that it would be the right thing to do to make all businesses aware of the relief that they might be entitled to, so that they can enjoy the support package that is on offer. Indeed, some of those that have been concerned about their rateable values have been under the false impression that they would not benefit from relief, so it is a good idea to make them aware of the support that they might have.

This is the third time that the cabinet secretary has been asked this. What other areas of the budget is he raiding in order to support the measures that he has announced today? I ask him to be precise about the figures and about where the money is coming from.

I have attended the Finance and Constitution Committee and the Local Government and Communities Committee in order to try to take people through the non-domestic rates issue. However, further information can be made available.

No area is adversely affected as a consequence of the decision. Requirements are covered through the non-domestic rates, bringing the full amount into balance. I have been able to accommodate that within the forecast and profiling.

I have four brief questions. One: does the cabinet secretary agree that we need more scrutiny in general of the non-domestic rating regime? Two: will he lay a statutory instrument to that effect, and when? Three: does he agree that future reform should include returning a significant element of rate setting and relief-scheme design to local government? Four: can he confirm that there will be no change to the local government settlement as a result of the changes that have been announced today?

On the scrutiny of non-domestic rates, the Government is working in partnership with the Finance and Constitution Committee and other experts in the field to consider further the issues of budget-setting, timetabling and other matters. I welcome that, and believe that it could be considered to be part of the review that the member mentions.

On the legal technicalities, a statutory instrument would be required, and I propose to lay that sooner rather than later, so that it is in effect before the start of the new financial year.

I have covered the third point, as I have said that the budget review group will consider that issue.

On the fourth point, I am happy to confirm that there will be no negative impact on the local government settlement as a consequence of what I have said today. The numbers that have been outlined in the budget in relation to spend continue to be the case.

The cabinet secretary mentioned the Barclay review. Can he confirm that that review will take a root-and-branch look at the rates system and that, if it recommends actions that he can take quickly that would alleviate pressure on businesses, he will do that?

I have discussed the issues with Ken Barclay, and he is looking specifically at those and other issues. I confirm that the Government will act as swiftly as we can on his recommendations.

I thank the cabinet secretary for confirming that he has announced a temporary one-year sticking-plaster solution, in classic Scottish National Party style.

I welcome the new 50 per cent relief for district heating schemes. However, the cabinet secretary will be aware that the cuts will not help those who generate their own electricity, such as many local whisky producers, who make up a vital sector in the economy. Will he therefore undertake a review of business rates for those who do on-site generation?

I think that I welcome Dean Lockhart’s welcome of what I have proposed this afternoon. I said that I will outline further information on the details of the relief schemes and make it available through SPICe. If Mr Lockhart wants me to consider any other measures and schemes, I am happy to engage with him on that.

I thank the minister for an advance copy of the statement.

The last time that the Government bungled rates revaluation, we recommended a cap of 12.5 per cent. However, at that time, his Government voted against the proposal, along with the Conservatives. When I met the minister for budget talks, he said that he had no money to spend, so I will try to get an answer to the question that has already been asked: where on earth has he found this money?

Instead of muddling through, would it not be more sensible to have a moratorium on any increases until the Barclay review has concluded?

I have previously explained to Willie Rennie that the issue of non-domestic rates is most certainly complex. I can give further information on the profiling of it. I have covered how there are forecasts and the bringing of—[Laughter.]

I do not know why the Conservatives think that this is funny. A lot of businesses were keen to find out how the Government is supporting them, and I think that they will welcome a number of measures that have been outlined today.

I say to Willie Rennie that I think that capping is the right decision in the circumstances, rather than transitional relief. I have outlined how non-domestic rates financing has to work. I believe that we have the right package, and I believe that capping is appropriate as opposed to transitional relief, for the reasons that I have given. We will learn from what happens with this revaluation, and we will hear what recommendations Ken Barclay makes. I am happy to engage in a cross-party way to see how we can take the issue forward in a way that ensures that we get the balance right.

I welcome the fact that 972 businesses in Moray and Aberdeenshire will benefit from today’s announcement, adding to the 9,608 premises that will pay no more in rates in the coming year than they did in the past year.

In relation to valuation appeals, is the cabinet secretary minded to follow the example of the UK Tory Government, which is making appeals in England more difficult than they were in response to the crisis there?

No, I have no proposals to introduce a charge, as has happened in England. Obviously appeals boards will have to look at capacity issues to ensure that they can manage appeals appropriately, but that is a matter for them. Again, I have no proposals to introduce a charge for appeals, which is what the Conservatives have done.

I refer members to my entry in the register of members’ interests as a company director with retail interests in Edinburgh.

After a number of questions, we still lack clarity. Can the cabinet secretary please tell us whether it is £30 million to £40 million that is implied by these measures or whether it is the £60 million that SPICe has set out? Where is the money coming from? Is revenue spending being cut elsewhere, or is this yet another round of underspend that the cabinet secretary has found?

No, it is certainly not a spending cut. I will read the following out exactly and see whether it assists the Labour Party. As we laid out at stage 1 of the budget, we are continuing to update the profile of the Scottish Government contribution required to bring the non-domestic rates pool into balance. This process has allowed us to meet the estimated cost of the additional support package announced today. On checking, I can say, to be absolutely accurate, that the figure is £44.6 million.

I, too, thank the cabinet secretary for being the hospitality industry’s white knight and greatly helping my constituency. With regard to other sectors, does he agree that assessors should fast-track the appeals process for businesses facing increases or hardship, and will he and his colleagues in the Scottish Government also contact the UK Government to ensure that it, too, is taking steps? Yesterday, The Caterer magazine reported that roughly 2,000 hotel companies in the UK face insolvency due to Brexit, and we urgently need a cut in tourism VAT and other measures to be introduced.

Mr Lochhead is right that the assessors and appeals panels should consider their workload very carefully. I cannot direct them in that respect, but I certainly encourage them to consider their workload, handle the issue sensitively and look at what support can be given to businesses as the panels manage the appeals that they receive. This is another opportunity to remind businesses that believe that they have the wrong valuations to appeal and ensure that they have the correct ones, in what is essentially an independent process. However, I believe the Government has taken what actions it can to ensure that we have a competitive rates regime in our country.

I draw members’ attention to my entry in the register of members’ interests. Members will be aware that I am a business owner.

Why, after months of anxiety and worry in the hospitality industry, has the Scottish Government at the 11th hour admitted that it had the power to help but refused to do so? Does Derek Mackay believe that a cap of 12.5 per cent for just one year goes far enough to stop job losses in and closures of pubs, hotels and restaurants?

I again say to Rachael Hamilton that we are doing more than the Conservatives have chosen to do at a local level and more than they are choosing to do at UK level, and that they are opposing what we are trying to do to support the hospitality sector.

Rachael Hamilton fairly asks, why now? More information has emerged through the revaluation process to inform decisions. I think that looking at the evidence and engaging with businesses and local authorities to get the balance right in advance of the budget is an appropriate response. The question that must now be answered, not by the Government but by the Conservative Opposition, is whether it is going to oppose the very generous package of reliefs to support businesses at this time.

The cabinet secretary has listened to businesses, such as those in the hospitality sector in my constituency of Edinburgh Eastern that faced disproportionate rate rises, and the fact that he has acted is very welcome. Would he encourage the Tory Government in Westminster, which is currently being accused by its own back benchers of misleading businesses over the rate rise in England, to take the same constructive approach?

I watch what happens south of the border very closely and I would be happy to share information about the reliefs that we have in place. I think that we have the right package for Scotland, which supports business. We will take a closer look at the issue through the Barclay review, the findings of which we will consider in a methodical and helpful way.

I refer members to my registered interest.

An issue that was raised before this U-turn was businesses having to destroy premises rather than face punitive empty property rates of 90 per cent. Does the cabinet secretary recognise that he will destroy Scotland’s balance sheet unless he addresses that issue?

I feel that the package of reliefs that I have put forward is comprehensive, but I do not know whether it will be comprehensive enough to cover every element of Mr Burnett’s interests.

In fairness, all rates reliefs should remain under review so that we can make sure that we get the balance right. In supporting business, we must ensure that our interventions are appropriate and are informed by the evidence that we obtain through engaging with business. As I have said, Ken Barclay’s review, which will report in the summer—around July—should help to inform that debate. When we look at all the evidence in the cold light of day, we might find that there is a different way of doing certain things, but I am sure that delivering the manifesto commitments on the small business bonus and taking a range of other actions is the correct course of action in the circumstances.

I thank members and the minister for their attempts at brevity.