Business rates review faces efficiency versus accountability trade-off challenge

Proposals to redesign Scotland’s system of business rates can strengthen local democratic accountability, or increase the system’s efficiency, but it will be hard to achieve both at once, according to tax professionals.

The Chartered Institute of Taxation (CIOT) said it would be important for the Scottish Government to consider how a redesigned system of business rates aligns with the principles of proportionality, certainty, efficiency and convenience.  It said that a “reasonable balance” between the four could be struck, but that the Scottish Government needs to be clear on its policy objectives for rate reform.

The comments were included in the CIOT’s response to the call for evidence by the Barclay Review of Business Rates in Scotland, which closed today (Friday 7 October).

In its submission, the Institute set out a range of possible alternatives to the current system that could support the principles of proportionality and certainty.  These include proposals for reform and redesign based on property values, alternative tax bases – such as profit, turnover, staff numbers or service use – or a hybrid mix taking into account ability to pay and supported by a clear timetable for revaluation.

It added that any proposals for reform considered by the Barclay review group should adopt a holistic approach that takes into account the overall tax burden faced by businesses.

The CIOT said that one way of meeting the Adam Smith principle of efficiency would be to centralise the administration of business rates through a standard, national tax billing and collection system such as Revenue Scotland.

The CIOT said that while this option had the potential to weaken the role of local government, alternative options for redesigning and decentralising business rates could empower councils to promote local growth and investment plans.  However, it cautioned that this could come at the expense of increased complexity and administrative burdens and retention of revenues by local councils could create risks for councils with lower tax bases resulting in higher, more regressive bills.

Any option for reform, it said, must be complemented with a clear communications strategy for ratepayers and the general public to help them understand what these changes will mean for them and as a basis for open, constructive debate on the way forward for Scotland’s devolved taxes.

Commenting on the submission, Moira Kelly, Chair of the CIOT Scottish Technical Committee, said:

“The government has committed itself to a review of the business rates system in Scotland and we are pleased to have been able to make our views known.  Our objective is to see a fairer, more efficient tax system for all, where people and businesses understand how much tax they should pay, what they are paying it for and are able to plan ahead with confidence and certainty.

“Our submission makes clear that there are a wide variety of issues for Ken Barclay and his review team to consider as they work towards their aim of reporting to Scottish Ministers next year.

“We think it is appropriate for the review group to consider how their proposal may impact on the Scottish Government’s overall aim of creating a devolved tax system that aligns with Adam Smith’s principles of proportionality, certainty, efficiency and convenience.

“But they must also take the time to consider the impact that their recommendations may have on the overall tax burden faced by businesses as well as the roles and responsibilities of those agencies currently involved in setting and administering the present system.

“Whatever the final outcome, the Scottish Government has a duty to ensure that taxpayers are able to clearly and concisely understand the impact that these changes will have on them and to commit to helping them navigate the inevitable period of transition that will follow.”

The Barclay Review of Business Rates in Scotland was established by the Scottish Government to look at options that enhance and reform the business rates system in Scotland.  It is scheduled to report in 2017.

Notes to editors:

A link to the submission can be found here –

The Chartered Institute of Taxation (CIOT)

The CIOT is the leading professional body in the United Kingdom concerned solely with taxation. The CIOT is an educational charity, promoting education and study of the administration and practice of taxation. One of our key aims is to work for a better, more efficient, tax system for all affected by it – taxpayers, their advisers and the authorities. The CIOT’s work covers all aspects of taxation, including direct and indirect taxes and duties. Through our Low Incomes Tax Reform Group (LITRG), the CIOT has a particular focus on improving the tax system, including tax credits and benefits, for the unrepresented taxpayer.

The CIOT draws on our members’ experience in private practice, commerce and industry, government and academia to improve tax administration and propose and explain how tax policy objectives can most effectively be achieved. We also link to, and draw on, similar leading professional tax bodies in other countries. The CIOT’s comments and recommendations on tax issues are made in line with our charitable objectives: we are politically neutral in our work.

The CIOT’s 17,600 members have the practising title of ‘Chartered Tax Adviser’ and the designatory letters ‘CTA’, to represent the leading tax qualification.

Contact: Chris Young, Scotland External Relations and Branch Support Officer, 07900241584