The following opinion column from the SRC was published in The Herald on Friday 16 December 2016

Seasonal surprises provide retail with stocking fillers rather than expensive presents

In recent years retailers have dreaded the Scottish Budget. In the last parliament firms had to deal with the ratcheting up of the business rates poundage and ad hoc levies, including the £62.4 million doubling of the Large Business Supplement, and of course the £95 million large retailer levy. For our industry Mr Swinney’s Budget speeches often felt more expensive than a shopping trip to even the most prestigious Princes Street department store.

The SRC had called ahead of the budget for economic growth to be the priority. We wanted income tax rates frozen, the Large Business Supplement increase reversed, and for employers to access some of the Apprenticeship Levy receipts. With Scotland’s economy facing real challenges we had been clear that a tax hike at this time would be less welcome than an ugly Christmas jumper.

So there was undeniable nervousness yesterday as the new Finance Secretary stood up in Parliament. Would customers face increased taxes and so less money in their pockets or would retailers have to accommodate further rates rises?

Instead Scottish Ministers appear to have listened. Whilst the devil is always in the detail, it appears no new taxes were introduced. Instead we saw a welcome decision to freeze income tax rates. Adding 1p to income tax rates would have cost Scots half a billion pounds, equivalent to two percent of retail spend. With high streets already under pressure this was good news for shoppers, shopkeepers, and the quarter of a million who work in retail. It also makes sense at a time when inflation is creeping up and council tax rises of up to £181 million are in the pipeline.

However, perhaps even more surprisingly, there was some good news for retailers. The SRC has consistently argued for an economic strategy which drives productivity and innovation. The decision to invest in digital and transport infrastructure is the correct one. The rise of technology in our industry, particularly the exponential increase in online and multi-channel shopping, requires a modern infrastructure network.

There were also hopeful noises on skills. The SRC has argued for some time that employers were at risk of losing out if they were unable to directly benefit from the Apprenticeship Levy. Whilst we are yet to hear details of the new flexible workforce fund and its size, if it resembles the flexible skills fund we argued for that would be very welcome to retailers at risk of forking out £12 million a year for this UK-imposed levy.   

Of course, another element which drives productivity is a healthy competitive environment, and tax rates play an enormous role in creating that. Matching the business rates poundage in England showed the Finance Secretary was prepared to listen to businesses feeling the pinch.

Of course, he didn’t reverse last year’s doubling of the Large Business Rates Supplement, which only raises the hurdle for attracting private sector investment. That’s hugely disappointing, more so in light of the maintenance of the headline poundage rate parity. Even after the welcome changes to the threshold, clinging on to this Scotland-only rates surcharge will ensure 21,000 commercial premises continue to pay higher business rates than comparable premises in England. Yet whilst a reversal of the tax hike would have been welcome, it is worth noting the implicit acceptance of the negative impact of high rates on businesses through the changes to the threshold. Hopefully this will be a first step towards a level playing field.

That’s important because it will take time for retail to recover from previous budgets which ratcheted up business rates. For many firms on the margin today’s changes will provide some modest relief. It’s a pity these reductions couldn’t come early enough for some of the 1,644 shops which have been forced to close in recent years.

The reality is the Finance Secretary has applied a poultice to the wounds inflicted on businesses by the fundamentally flawed rates system. The current system is too complex, doesn’t flex with the economy, and puts unnecessary strain on property-intensive businesses.

However, particularly with Christmas coming, maybe there is hope. Mr Mackay has taken some modest but welcome steps, stocking fillers rather than expensive presents. Next summer the Barclay Commission will deliver its recommendations for a more modern business rates system. The Finance Secretary will then have the opportunity to demonstrate if he is really serious about taking the necessary steps to grow the economy.

By David Lonsdale, Director, Scottish Retail Consortium