SCOTLAND’s biggest council is to start naming and shaming businesses that do not pay their taxes in an attempt to recoup much-needed cash in the face of budget cuts.
As it reels from more than a decade of austerity, Glasgow has announced new efforts to expose those who avoid paying non-domestic rates.
The local authority this week announced an inflation-busting 4.64 per cent rise in council tax for households and another round of cuts to services.
Councils across Scotland insist they have suffered disproportionately from the fiscal squeeze imposed after the 2008 financial crash.
Collectively - along with council tax and a grant from the Scottish Government, Scottish councils generate some £2.6 billion in non-domestic rates.
However, they failed to collect approximately two per cent of what they are owed, estimated at between £40m and £50m a year.
Frequently, this is because businesses go bust while owing money. Sometimes, insiders stress, it is because firms shut down with debts only to “phoenix” – rise from the ashes – with a different name.
Glasgow council’s treasurer Allan Gow, of the ruling SNP administration, said: “We always try and work constructively with businesses that encounter problems with rates – but it is an open secret that a minority of firms exploit legal loopholes to walk away from tens and even hundreds of thousands of pounds worth of debt, over and over again.
“That’s not fair on the majority of responsible businesses who do contribute, or on customers who rely on frontline public services.
“While the law can’t always help us stop these firms from gaming the system; we can give communities and consumers the information we have and let them make up their own minds about that kind of behaviour.”
Officially Glasgow adopted a new corporate debt policy last year which sets out efforts to help households that run in to difficult with council tax.
But it also outlines a new get-tough approach to non-domestic rates avoiders.
New legislation is coming down the pipeline to close some loopholes, but city insiders believe public humiliation - naming and shaming - will prove a deterrent.
They are likely to begin putting avoiders in the public domain early in the new financial year. This sanction, the local authority says, will only apply to those who have avoided the tax even after repeated requests and legal recovery action.
West Dunbartonshire started naming and shaming last year and the council made it clear its messaging was aimed at consumers of businesses.
Councillor Ian Dickson said: “By publicising the companies which don’t pay we will also be helping residents make informed decisions about the businesses they engage with.”
Bigger councillors are looking on. Edinburgh - which failed to collected around £3m last year - has no plans to follow suit. Neither does South Lanarkshire, though it is understood it has not ruled out such as crackdown.
Traditionally UK authorities at various levels have been reluctant to out those who avoid taxes unless they are found guilty of criminal evasion.
Former Chancellor George Osborne condemned tax-dodging individuals and corporations. And authorities have also sought to name and shame firms which do not pay the minimum age. So there is some precedent for the new tactic.
Business leaders have few sympathies for avoiders. After all, those who pay less tax have a competitive advantage over those who pay more.
Colin Borland, of the Federation of Small Business, however, warned that any naming had to be fair and accurate.
He said: “There is no problem with the principle here. However, nothing about the non-domestic rates system is simple.
“So I would want local authorities to be very sure that the people they are highlighting as cowboys are the guilty parties.”
Some business advocates are concerned about wider tougher measures on firms under new laws going through parliament.
Earlier this month The Herald cited business voices who regarded proposed fines for firms which fail to respond to information requests from rates assessors were described as “draconian’’.
Insiders say firms can put off big bills by ignoring information requests or appealing decisions - even though they know their complaints will not be upheld.
Last summer England’s Local Government Association (LGA) calculated the annual loss to non-domestic rates avoidance as £250m.
Non-domestic rates are paid by occupiers, not owners. The LGA said the most common way the tax was evaded was by a single business premise having multiple short-term occupiers.
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