Levelling the playing field: what Scotland can learn from Europe on non-domestic rates

Continuing Burness Paull’s support of the Scottish Retail Consortium, last week we hosted the SRC’s latest Retail Economics Briefing, delivered by Dr Kris Hamer, Insights Director of the British Retail Consortium. 

Overall, consumer sentiment around the economy remains in negative territory.

As we head into Q4, the latest BRC-Opinium Consumer Sentiment Monitor (a survey of 2,000 UK adults) shows the consumer saving to spending ratio as being at the highest level since 2010 (excluding the Covid period) (albeit expectations for spending in Q4 have risen as consumers prepare for the festive season, with more consumers planning to shop over the Black Friday / Cyber Monday period compared with findings from last year). 

Amongst “bricks and mortar” retailers, non-domestic rates remain one of the most significant challenges to contend with – a burden which is particularly painful for retailers to bear alongside footfall reductions which inevitably accompany periods of low consumer confidence. 

An outdated system under pressure

SRC research shows that in 2025 alone, costs of operating retail premises in Scotland increased by almost £200m as a result of increases in business rates and employers’ national insurance contributions.  

The shortcomings of the current non-domestic rates system are well publicised – a framework which is opaque and slow to adapt, a valuation roll that only few can claim to understand, relief schemes (at least those that have not been withdrawn) that create cliff-edges, and periodic revaluations that are felt unevenly across sectors. Case in point: despite retail making up 5% of the UK economy, retailers pay approximately 20% of non-domestic rates.

So, what is the solution? Well, several European neighbours offer alternatives that are more modern and proportionate from which the UK and Scottish governments might take inspiration. 

Lessons from Sweden and Germany

In Sweden, for instance, the system is far simpler. Rather than a complicated “poundage” system, an annual retail estate tax is paid by the owner or tenant on commercial property at 1% of the “property tax assessment value” (generally 75% of the fair market value of the property, as calculated by the Swedish Tax Agency). The rate drops to 0.5% for industrial premises. 

In Sweden property tax admittedly plays a smaller role in the overall tax mix, with more revenue raised from other sources than in the UK (namely income and consumption taxes), but the Swedish example indicates that there are other approaches to follow. 

In Germany the burden is split differently: an annual property tax (“grundsteuer”), plus a locally set “trade tax” (“gewerbesteuer”) on business profits. The result is a mix of land-value and income-based approaches, with rates that can be adjusted on a local basis – a far more balanced and tailored approach.

Building a fairer framework

We cannot escape the fact that government budgeting relies heavily on non-domestic rates receipts, so scrapping the current system and replacing it with an entirely turnover-based system is a non-starter, but the current system is undoubtedly too blunt an instrument to continue in its present form.

Reform that cuts red tape and aligns taxation with both asset value and local economic realities would lower the cost of doing business, and give Scotland’s high streets and industrial occupiers a fairer, more business-friendly framework to plan around. 

If you would like to discuss anything raised in this article, please get in touch with Paul Coyle or your usual Burness Paull contact.

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