From October 31, Scotland’s 32 local authorities will be able to cut business rates in an attempt to boost economic activity. Particular areas may be zoned for lower rates (eg Edinburgh’s Waterfront) or certain business sectors (eg renewables).
The announcement from Finance Secretary John Swinney follows a rise in Scottish unemployment and a slowdown in economic output. Mr Swinney said the Scottish Government was committed to giving communities “real control over their own futures”. But clearly the hope is that local decision making can yield better economic results in particular areas.
On paper this is a positive move. Councils will be able to incentivise businesses in certain locations and industries, which can ensure that economic growth is maximised and spread across the local authority.
But in the Lothians, where councils are smaller and geographically close, there is a danger that councils could use the tool to lure business away from neighbouring authorities. Midlothian, East Lothian or West Lothian could all offer lower rates in the hope of attracting certain types of business from Edinburgh into their authority. In some cases, firms might only have to move a few miles to save this money.
This could spark a “race to the bottom” where authorities might feel they have to react and compete against each other. Businesses, doubtless, would welcome this. But this wouldn’t necessarily help our cash-strapped councils.
Indeed, one view is that few councils will take up this new power offered to them by the Scottish Government because the payback will come in the medium term. Why lower rates and reduce income in the present, if the potential payback won’t arrive in increased revenue for five years?
The new power from the SNP government is a positive one. But circumstances could mean that it remains on the shelf for some time to come.