Shops, pubs, and leisure businesses are among those who have paid the full business rates property tax in Scotland while a few miles south of the Border similar firms have had 75% discounts under a scheme first introduced during Covid and now set to be permanently funded.
Scotland is given the discount money under the Barnett Formula, a percentage share of UK budget, but this is not directly passed on.
(Image: Newsquest) Holyrood said its wider tax policy is “the most generous of its kind in the UK”.
In the first part of our series, we look at one of the biggest issues facing high street firms across south west Scotland.
The Scottish Retail Consortium, the Federation of Small Businesses and trade group UKHospitality said England offers a more attractive up-front option, and may also tempt more firms to move south.
A medium-sized business in Carlisle, for example, will get up to £110,000 in business rates relief this year and next, and after that a permanent recalibration has been promised by Westminster.
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The same business in Dumfries has no prospect of a similar solution, which was designed to ease operating expenses and higher costs of running a business post-pandemic around energy, staffing and supply chain resources.
David Lonsdale, SRC chief executive, said a level tax playing field is needed to keep businesses in the region and to attract investment.
He said: “There are enormous benefits for businesses from the direct proximity of Dumfries and Galloway to the border with England, not least the amazing access to the market due to the road infrastructure and reputation for being a beautiful hotspot for visitors.
“However, one benefit is the ability to decide where is the best place to run your business. With two different tax and regulatory jurisdictions concurrent with each other, businesses can pretty easily compare and contrast the rules to determine the best environment to run a business.”
Dumfries, left does not receive the same discount as Carlisle. (Image: Getty Images) Mr Lonsdale continued: “Unfortunately from a Scottish perspective that comparison isn’t always favourable. Some 210 commercial premises in Dumfries and Galloway pay a higher business rate than the equivalent operation in England as a consequence of the Scottish Government’s higher property rate. Forty of those premises are shops.
“That doesn’t sound like much. But these are the medium-sized and larger stores which often act as an anchor on a high street or attract shoppers to a rural town. The same is true for smaller stores. For the last four years small shops in England have benefited from retail, hospitality, and leisure sectors’ rates relief. However, this hasn’t been replicated in Dumfries and Galloway or across Scotland. Instead, the Barnett consequential revenues which flow to Holyrood have been used for other things.”
He said: “If you are a retailer staring at weak revenues and rising costs it’s a pretty easy assessment to make just on business rates. When you look at the impact of other government policies, on income tax and minimum unit pricing to name just two, it becomes simpler still.
“It’s seven years since Edinburgh Woollen Mill’s headquarters decanted south from Langholm to Carlisle. Yet sadly that controversial decision looks prescient with the benefit of hindsight. If we want to encourage businesses to invest in Dumfries and Galloway rather than Cumbria we need to level the tax playing field.”
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Hisashi Kuboyama, the Federation of Small Businesses’ West of Scotland development manager, said that the challenges for anyone running a shop, restaurant or gym “are exactly the same whether you are doing that north or south of the Border”.
He said: “If you are making a profit, then in most cases it is being squeezed hard, both by the rising costs of operating a business and your customers having to count the pennies themselves.
“Our latest FSB research shows that nine out of ten small Scottish businesses are continuing to see their costs go up. That is everything from the cost of hiring staff to the price of raw materials and rising fuel and energy bills.
“The hospitality trade is among the worst affected sectors, partly because it relies heavily on having staff in place and on customers’ discretionary spending.
“Most small businesses are being forced to put their prices up, despite fears it may drive customers away, because it is the only way many of them can see to make a profit.”
Mr Kuboyama also said: “In these circumstances, it is disappointing the Scottish Government has chosen not to pass on the full rates relief enjoyed by retail, hospitality and leisure businesses in England. Scottish businesses understandably expected to receive the same level of support when the Barnett consequentials ensured the necessary funding flowed north of the Border.
“In some cases, the higher rates bill could make the difference between staying in the black and going into the red.
“We await with interest what measures the various political parties will include in their manifestos for next year’s Holyrood elections to support local high streets and rural businesses.
“We note that the Scottish Government has promised a review into the rates valuation methodology for the hospitality sector and look forward to taking part in that.”
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Leon Thompson, executive director of UKHospitality Scotland, said that “for several years, Scottish hospitality businesses have been put at a competitive disadvantage to their neighbours in England and Wales due to the Scottish Government’s insistence on not introducing equivalent business rates relief schemes”.
He said: “It means that operating a hospitality business in Scotland has been notably more expensive than the rest of Britain.
“While we’re pleased there are relief schemes for the smallest businesses, it remains the case that the majority of the sector, responsible for supporting tens of thousands of jobs, does not benefit. Given the Scottish Government was allocated Barnett consequentials to implement relief schemes and chose not to, this has been very frustrating.
“Alongside significant increases to employer NICs and other employment costs, it’s resulted in operators making difficult decisions to pause investment, freeze recruitment, reduce hours available for staff and, in the worst case scenario, cut jobs.”
Mr Thompson added: “I’m confident the Scottish Government recognises the challenges facing hospitality, but it’s now urgent that it acts and reforms the broken business rates system. UKHospitality Scotland has consistently advocated for the Scottish Government to reduce the poundage rate for our businesses. This is the quickest way to support hospitality businesses, jobs and investment.
“In the absence of reform then it will be essential that a relief package is put in place to support hospitality at the Scottish Budget in November.”
Colin Wilkinson, managing director of the Scottish Licensed Trade Association, said: “Ahead of the Holyrood election in 2026, we asked (survey) respondents what is the biggest single thing that they would like all parties to include in their manifestos, and rates reform, to bring Scotland at least into alignment with the rest of the UK, was the biggest issue.”
The Scottish Government said its small business discount scheme for all firms in property with a rateable value of under £20,000 covers 100,000 of the 355,000 small and medium-sized enterprises in Scotland.
Ivan McKee, Minister for Public Finance, told The Herald: “The Scottish Government is working closely with businesses to drive economic growth and prosperity in our towns, cities and communities. Our competitive non-domestic rates regime in 2025-26 includes a freeze to the basic property rate, delivering the lowest such rate in the UK for the seventh year in a row, and maintaining the lowest property tax rate in the UK for over 95% of non-domestic properties in Scotland.
“The Budget also provides a package of reliefs worth an estimated £733 million this year, including the small business bonus scheme which continues to be the most generous of its kind in the UK. We estimate that around half of the properties in the retail, hospitality and leisure sectors will continue to be eligible for 100% Small Business Bonus Scheme relief in 2025-26.
“However, we are doing all of this without the full economic powers needed to fully address the issues facing Scotland’s economy. We need decisive action from the UK Government, including a reversal of its damaging decision to increase employers’ national insurance contributions which is severely hampering business confidence, investment, growth and jobs.”
