A review of the ‘Barclay Review of Business Rates in Scotland’

Buchanan St with Business rates superimposed 

George Black, Visiting Professor, IPPI

George Black
Visiting Professor, International Public Policy Institute

1 November 2017

A missed opportunity?

The Cabinet Secretary for Finance has said that the proposals from the Barclay Review of Business Rates would make Scotland the most competitive place in the UK for business. However, it is likely that the current unhappiness with the business rates system will continue as the issue of “ability to pay” remains unresolved. Furthermore, within a few years, the headline rates of tax look set to be higher than those in England.

Although there were thirty individual recommendations the spotlight fell on four in particular.

Business Growth Accelerator

Firstly, in order to boost business growth it was proposed that there be a twelve month delay before rates are increased when an existing property is expanded or improved and also before rates apply to a new build property. It was claimed that current arrangements provided a disincentive and barrier to investment. It was broadly estimated that this measure would cost around £45 million per year and should be implemented in 2018/19.

Large Business Supplement

Secondly, it was proposed that the Large Business Supplement should be reduced so that it is in line with the rate set in England and re-named the Large Property Supplement. The argument for this change was in the context of the Scottish Government policy to ensure that Scotland is the best place to do business in the UK. It was broadly estimated that this measure would cost around £62 million and should be introduced in 2020/21, and sooner if it becomes affordable to do so. (It was also recommended that an evaluation be carried out of the Small Business Scheme.)

Relief for Day Nurseries

Thirdly, it was proposed that a new relief for day nurseries be introduced to support childcare provision. It was argued that one of the most important ways to supporting economic growth was ensuring that the workforce was supported by convenient, affordable and accessible childcare. It was estimated that the relief would cost around £7 million per year and should be implemented in April 2018.

Reform of Charity Relief

Fourthly, it was proposed that charity relief be reformed/restricted for a number of recipients, mainly Council ALEOs (arms-length external organisations), independent (i.e. private) schools, and Universities. In the case of ALEOs it was argued that if councils were still providing such services directly, they would be subject to pay business rates. In the case of independent schools it was argued that, as charities, they benefit from reduced or zero business rates bills whereas council-run schools do not qualify and generally pay business rates. As regards universities, it was argued that they should continue to be able to claim charity relief on their core functions but not on any commercial property activities.

Comparison with England

The review also examined the business rates system in Scotland compared to the system in England. It found that ratepayers supported there being a broadly similar tax structure with England and concluded that the easiest way for ratepayers to assess the competitiveness of the business rates system in Scotland and England is to look at the headline rates of tax.

In the UK Government Budget of March 2016, the Chancellor announced that from 2020, changes in the tax rate used to determine business rates bills in England will be linked to CPI Inflation rather than to RPI inflation. The review found that the cost to the Scottish Government of adopting the same policy would be around £30 million to £40 million in 2020/21.

Due to the large costs involved, and the revenue neutral remit of the review, this was not included as a recommendation. Instead, the review urged the Scottish Government to consider moving to this measure as soon as finances permit.

If no action is taken by the Scottish Government the headline rates of tax in Scotland will become increasingly higher compared to England.

Ability to Pay

Much of the unhappiness with business rates is that it takes no account of ability to pay. As such the review gave consideration to a tax based on turnover/sales or profit. It considered using turnover/sales or profit as a straight replacement for property values but concluded that not taxing land or property at all would be a mistake. It also considered whether there was merit in a tax that combined property values and a measure of ability to pay. However, the review found that while a combined tax could have some merits for some sectors, it could not be applied to the tax base as a whole, for example public and third sector ratepayers do not deliver profit or turnover.

The review concluded that it was not clear whether revenue neutrality could easily be achieved by switching to a new system and there was a risk that there would be significant shocks to individual liabilities.


The overall impression of the review is that it is a missed opportunity and does not go far enough. There is also an underlying feeling that too much emphasis was given to the requirement for the proposals to be revenue neutral.