Is the CPPR using ‘double speak’ to justify business rate figure?

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By a Newsnet reporter
 
On Sunday Newsnet Scotland ran a story that revealed the Centre for Public Policy and Regions (CPPR) had distanced itself from the headline figure of an £849 million rates increase for Scottish businesses.
 
Our article and accompanying headline was based on an unambiguous answer we received from the CPPR’s director Professor Richard Harris to a question we posed.

By a Newsnet reporter
 
On Sunday Newsnet Scotland ran a story that revealed the Centre for Public Policy and Regions (CPPR) had distanced itself from the headline figure of an £849 million rates increase for Scottish businesses.
 
Our article and accompanying headline was based on an unambiguous answer we received from the CPPR’s director Professor Richard Harris to a question we posed.

Here is what we were told by Prof. Harris when we asked how the £849m figure, that was being attributed to the CPPR, had been calculated:

Prof Harris attached a PDF of the report to the email and wrote:
“This was the information presented to the press on 22 September (see Table 1).  It has not been possible for us to put this up on the website because of the Glasgow weekend (but we will do so as soon as we can). As you can see, CPPR did not produce any such figure of £849m. We shall be issuing a letter to the Herald in reply to Mr Swinney’s letter that fully responds to his points.”

“CPPR did not produce any such figure of £849m”, the phrasing itself suggests the professor is not at all happy to be associated with it.  Indeed it is telling that not only does he distance the CPPR from this total but he makes no justification for it, if he felt it was accurate then one would have expected him to say so.

The attached PDF document showed clearly three separate figures for each of the three years – the final figure was £493 million, in line with the figure presented by John Swinney.

Case closed we thought and we published an article on Sunday explaining that the CPPR had denied producing the £849 figure.  The ‘double accounting’ adopted by whoever came up with the figure would surely be condemned by the CPPR in the promised letter to the Herald we expected to be published on Monday.

As promised, the CPPR has today issued a letter to the Herald newspaper again denying the figure was in their report; they write:

“The cumulative figure of an £849 million increase in business rates reported in the press was not in our report.  Rather, our report shows clearly that the Non-Domestic Rates (NDR) figure in 2014-15 is £493m higher.”

The rates figure at the end of the three year term is £493m higher.  Higher than what?  Well higher than the starting point, which the CPPR has taken as year 2011-12.

Clear then?  Well not quite, for the academics then go on to say this:

“However, it is also accurate to claim that under the Draft Budget Scotland’s non-domestic rate payers will pay £849m more in rates between 2011-12 and 2014-15.”

Here’s the puzzling part in this ‘clarification’.  Why deny you are responsible for a total that is clearly a result of adding three figures from your report, if you consider the total to be accurate?

But is the CPPR as removed from the figure as they suggest?

When asked on Newsnight Scotland about the increase in revenue, one of the co-authors of the CPPR report Prof. John McLaren described it as “a 22% cash increase over the three years”.  Note, not a 9.4% increase after year three (£493m) but the cash total of all three year percentage increases – the cash total is £849m.

Clearly on Thursday Prof. McLaren had no problem being associated with the three year cumulative total, he himself implicitly cited it on TV after all.  By Saturday however the CPPR appeared less than keen to take ‘credit’ for this total.  It’s very clear now that the CPPR are uncomfortable being associated with the figure of £849 million, a total that is reached by using figures from their own report.

Why the discomfort? Could it be down to the totalling method?

Here’s an example using a wage increase.
Starting year wage – £15000
Wage, one year later – £16000
Wage, two years later – £17000
Wage, three years later – £18000

Using the ‘double accounting’ method then this equates to a £6000 pay rise.  Try telling that to the employee who sees a rise of half that.

But enough of the £849 million total.  What about the claim that it means an increase in business rates for Scottish businesses?

Here again is what the CPPR letter says:

“However, it is also accurate to claim that under the Draft Budget Scotland’s non-domestic rate payers will pay £849m more in rates between 2011-12 and 2014-15.”

Note the wording here, “Scotland’s non-domestic rate payers will pay £849m more in rates”.  But in the same Newsnight Scotland interview Professor McLaren acknowledged that the ‘health levy’ would contribute to the increase in revenue.  Indeed he pointed out that this levy contributed around 10% of the year three total.

This levy is not paid by all non-domestic rate payers; it is paid by large retailers who sell tobacco and alcohol and it was far from a secret in the budget.

But that’s only part of the possible make-up of the increased revenue.  John Swinney has already explained that this increase is part based on an expected turnaround in the economy.  If we have more businesses paying rates then revenue is greater – in other words an increase in revenue does not mean an increase in rates.

So we ask: Is the CPPR suggesting that this £849 million will be met solely through increased domestic-rate payments to all of Scotland’s businesses who pay them?  It’s a valid question because that is precisely the way that the CPPR report is being interpreted by the Scottish media.

In fact the CPPR’s own report actually acknowledges that an increase in economic activity can lead to an increase in revenue.  In the report they say:

“This alteration in the balance of funding suggests that:
i) future funds are less certain as they rely on NDR, whose final level is dependent on sustained economic activity.”

Funds are indeed uncertain, but again that is not the point.  The point is that the CPPR are accepting that NDR revenue can increase as a result of increased economic activity; it can also go down if we experience a slump.  Therefore to suggest that any increase in revenue is only achievable by increasing business rates is disingenuous.

The ‘rate increase’ claim is being used by SNP opponents and media commentators in order to undermine the case for Corporation tax to be devolved from Westminster by suggesting hypocrisy on the part of the Scottish government.  One of the people making this mischievous claim was Prof. McLaren himself.

Finally we come to another explanation for the increase in revenue – inflation.  Mr Swinney has explained that the rates in Scotland will be pegged at the same level as in England but that inflationary changes in the Retail Price Index (RPI) will mean revenue will increase as inflation causes the poundage rate to increase.

Businesses pay a sum based on their rateable value multiplied by the poundage.  The rateable value of business properties is not expected to be recalculated in Scotland until 2015, something that isn’t a secret.

The CPPR has responded to Mr Swinney’s inflationary explanation by saying:

“Mr Swinney also states: “Inflationary increases are not new and have always been a factor in the business rates process.” We note that NDR income for Scotland remained unchanged over the period 2005-06 to 2008-09, for example, and so actually fell in real terms. It is not always the case that inflation is built in to NDR.”

Without knowing the figures behind this claim by the CPPR, for example how many businesses were contributing over each of these fiscal years, we cannot determine its accuracy.

However that isn’t the point.  The point is that inflationary movement in the Retail Price Index can lead to an increase in revenue.  The CPPR either agree or disagree with this explanation – but they haven’t said.

The bulk of the increase in revenue from non-domestic rates has been explained by John Swinney as an expected rise in the poundage rate coupled with an anticipated increase in economic activity.  The remainder is made up by adding the revenue from the health levy and changes to the empty property rate.

All along, the main thrust of the media reports has been that the CPPR had exposed a hidden tax bill that meant businesses in Scotland will experience a non-domestic rate increase in order to raise an extra £849 million.

An examination of the facts reveals this is not a clear cut conclusion.  The Scottish government may well be wrong in their forecasts of increased economic activity and inflation may well not rise in line with their poundage estimates, however to ignore these two variables in coming to a conclusion on how the £493 million will be generated in year three verges on the dishonest.

To have sent this report out to the press on Thursday 22nd September indicates that the CPPR wanted maximum coverage for the report and they succeeded.  The result of the media coverage has been a full scale attack on the Scottish government and their desire for Corporation tax to be devolved.

The CPPR didn’t place the document on their website for others to examine their calculations and gave as a reason the ‘Glasgow Weekend’.  This has allowed the Scottish main stream media to have a four day free run at the SNP.  A carefully and curiously worded letter to the Herald newspaper has done little to clarify the CPPR’s stance on aspects of these media reports.

It is perhaps worth mentioning that at least two of the co-authors of the CPPR report were advisors to two former Labour First Ministers – Donald Dewar and Jack McConnell.

Newsnet Scotland did not produce this fact, but it is accurate nonetheless.