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Scotland's Business Rates Relief: A Temporary Fix?

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  Published in Business and Finance on Wednesday, January 14th 2026 at 12:15 GMT by The Irish News

Edinburgh, January 14th, 2026 - The ongoing debate surrounding business rates in Scotland continues to intensify, with the recently extended Retail, Hospitality and Leisure (RHL) relief package facing scrutiny as a short-term solution to deeply rooted systemic issues. While providing temporary respite for struggling businesses, policymakers and opposition figures are increasingly questioning its long-term effectiveness and impact on local government funding.

The current RHL relief scheme, now extended through the end of 2024, was implemented to alleviate the financial pressures facing retail, hospitality, and leisure sectors still grappling with the lingering effects of the pandemic, compounded by persistent inflation and ongoing supply chain disruptions. Business leaders successfully lobbied for the extension, highlighting the continued vulnerability of these vital sectors within the Scottish economy. However, the relief's critics contend that it's merely a "sticking plaster," masking a need for more profound reforms.

A Short-Term Solution with Long-Term Consequences

According to sources within the Scottish government, the sentiment shared by ministers is one of acknowledgement - the relief is necessary, but inadequate. A key concern lies in its inability to address the fundamental problems inherent in the current business rates system. The system, as it stands, is perceived by many as unfair and unsustainable, disproportionately impacting businesses while simultaneously placing strain on local government budgets.

The crux of the issue is that business rates, a tax levied on commercial properties, represent a significant income stream for local authorities. When business rates relief is applied, the government pledges to compensate councils for the lost revenue. However, this compensation isn't always sufficient to cover the full shortfall, leading to concerns about reduced funding for essential frontline public services such as education, healthcare, and social care. The complex interplay between national government policy and local authority finance remains a significant point of tension.

Calls for a Fundamental Review

The criticisms extend beyond the perceived inadequacy of the relief package itself. Opposition parties are vocally demanding a comprehensive review of the entire business rates system. Their arguments often center around the perceived lack of targeting within the current scheme, suggesting it disproportionately benefits larger businesses while smaller, more vulnerable enterprises receive insufficient support. Furthermore, there's a growing movement advocating for alternative models altogether.

One frequently proposed alternative gaining traction is a land value tax (LVT). An LVT taxes the unimproved value of land, rather than buildings or business activity. Proponents argue that it is a more efficient and equitable system, incentivizing productive use of land, discouraging land speculation, and potentially reducing the burden on businesses and individuals.

The Wider Context: Economic Challenges and Future Outlook

The debate surrounding business rates relief is occurring within a broader context of economic uncertainty. While inflation has begun to moderate from its peak in recent years, the risk of renewed inflationary pressures remains a significant concern. Furthermore, geopolitical instability and continued disruptions to global supply chains continue to impact business costs and consumer confidence. The Scottish economy, like many others, faces a complex and evolving landscape.

Moving Forward: Towards a Sustainable Business Rates System?

The extension of the RHL relief scheme offers a temporary reprieve, but the underlying issues persist. The Scottish government now faces the challenge of balancing the immediate needs of struggling businesses with the long-term sustainability of the business rates system and the financial health of local authorities. A meaningful and comprehensive review - exploring alternative models like land value tax and focusing on fairness and efficiency - is increasingly viewed as essential for creating a business environment that fosters growth, innovation, and resilience in the face of ongoing economic challenges. The call for a 'fundamental review' is not simply opposition rhetoric; it reflects a widespread recognition that the current approach is not sustainable.