Overview
The Bill aims to update the ‘non-domestic rates’ system in Scotland. Non-domestic rates is a tax on non-residential buildings or properties. Local councils use the money to help pay for local services.
The amount paid depends on the ‘rateable value’ of the property. This is a value based on its size, location and other things.
The proposed changes to the systems supporting this tax include:
- how this tax is collected and enforced
- how information about changes to properties is collected and shared and the introduction of fines for not replying to requests for information
- how the property valuation system works, including:
- properties being re-valued every 3 years instead of every 5 years
- those paying the tax can challenge the rateable value of a property after it has been assessed before having to appeal
- changes to the administration of the ‘valuation roll’ (register of value of all non-domestic properties in Scotland) including being able to send emails about changes made
Changes to discounts
Some types of organisations get discounts for this tax, for example charities. This Bill proposes removing this discount from private schools, except specialist music schools.
It proposes guidance for councils on administering the discounts for not-for-profit recreational clubs.
Stronger tax avoidance measures
This Bill proposes stronger measures for councils to:
- decide if a property is residential or commercial
- recover unpaid rates
It also gives Scottish Government ministers powers to make anti-tax avoidance regulations.
You can find out more in the Explanatory Notes document that explains the Bill.
Why the Bill was created
This Bill is trying to implement recommendations from the Barclay Review. Published in 2017, it was the first review of this tax system for years. The review suggested 30 recommendations and some of these have already been made.
There have been recent changes to the non-domestic rates systems in England and Wales. To maintain a competitive business environment, the Scottish Government believes the system here also needs to change.
This system would be more reactive to economic changes.
You can find out more in the Policy Memorandum document that explains the Bill.
The Non-Domestic Rates (Scotland) Bill became an Act on 11 March 2020
Becomes an Act
The Non-Domestic Rates (Scotland) Bill passed by a vote of 78 for, 32 against and 6 abstentions. The Bill became an Act on 11 March 2020.
Introduced
The Scottish Government sends the Bill and related documents to the Parliament.
Related information from the Scottish Government on the Bill
Why the Bill is being proposed (Policy Memorandum)
Explanation of the Bill (Explanatory Notes)
How much the Bill is likely to cost (Financial Memorandum)
Opinions on whether the Parliament has the power to make the law (Statements on Legislative Competence)
Information on the powers the Bill gives the Scottish Government and others (Delegated Powers Memorandum)
Stage 1 - General principles
Committees examine the Bill. Then MSPs vote on whether it should continue to Stage 2.
Committees involved in this Bill
Who examined the Bill
Each Bill is examined by a 'lead committee'. This is the committee that has the subject of the Bill in its remit.
It looks at everything to do with the Bill.
Other committees may look at certain parts of the Bill if it covers subjects they deal with.
Who spoke to the lead committee about the Bill

First meeting transcript
The Convener
Under item 2, the committee will hold its first evidence session on the Non-Domestic Rates (Scotland) Bill at stage 1. I welcome Eileen Rowand, director of finance at Fife Council; Jonathan Sharma, policy manager at the Convention of Scottish Local Authorities; Kevin Fraser, treasurer of the Institute of Revenues Rating and Valuation Scotland; and Morag Johnston, director of financial business services at Glasgow City Council and representative of the Society of Local Authority Chief Executives Scotland.
We will move straight to questions from members.
Alex Rowley (Mid Scotland and Fife) (Lab)
Does the bill, along with the early measures that the Scottish Government has implemented, sufficiently address the Barclay review’s findings and recommendations?
Jonathan Sharma (Convention of Scottish Local Authorities)
COSLA very much welcomes the bill. It covers a number of the Barclay review recommendations, as we understood them. We have worked very closely with the Scottish Government, and local government offices have been involved in that work, too. We have worked on an implementation advisory group, so we have a good understanding of how the Barclay review recommendations are being managed.
We understand why some recommendations have not been progressed and where the Scottish Government is coming from. I can mention issues relating to charity relief as the conversation develops. In the main, the provisions in the bill are what we expected to see following the Barclay review recommendations.
Morag Johnston (Society of Local Authority Chief Executives)
I echo those points. The bill picks up a number of the Barclay review recommendations. Its provisions will enable local authorities to bill and collect taxes more quickly, which we want to do. The move to three-yearly revaluations will also help.
Alex Rowley
Scottish councils are generally happy that the bill’s proposals will implement the Barclay review recommendations.
Jonathan Sharma
Yes. In our discussions with the Government, we have said that certain things need to happen. If there are to be three-yearly revaluations, it is key that the assessors are fully supported. We welcome the fact that the Scottish Government has provided funding for 2019-20 to ensure that assessors can start their preparation. It is essential that such funding continues into the next period, to ensure that assessors are able to undertake their activities effectively.
There must be reform of the appeals system. A significant amount of work has been undertaken on that, and local government representatives and assessors have been involved in discussions with the Scottish Government and other stakeholders about what the new appeals system should look like. That reform has to happen, because the three-yearly revaluation cannot proceed unless there is a convincing enough appeal system that will reduce the number of, in particular, speculative appeals.
Although we support the bill’s provisions, the essential thing is what is delivered on the ground.
Andy Wightman (Lothian) (Green)
I will talk about the broad scope of non-domestic rates. This is the first non-domestic rates bill that the Parliament has dealt with in the devolution era. In 2012, the Government was committed to conducting what it described as
“a thorough and comprehensive review of the whole business rates system.”
However, the Barclay review was limited to looking at the impact on business, and asked just one question.
The bill is an opportunity to change the law on non-domestic rates. Are there other things that you might wish to use the bill to do on, for example, who sets the rates and on the design of relief schemes? NDR was a local tax until the 1990s, after which it was centralised. Are there other things that you want that go beyond what the Government has introduced to Parliament?
Jonathan Sharma
I guess that it is best for me to answer that question. COSLA wants greater local fiscal empowerment, which is a key driver for us at the moment. We welcome the commitments that were made by the Scottish Government in the Budget (Scotland) (No 3) Bill, which were supported by the Greens following the stage 2 amendments.
We are strongly committed to working on a cross-party basis to look at a potential replacement for council tax and develop a fiscal framework that would encompass the whole local funding arrangement. We believe that non-domestic rates should be considered as part of that; it should not sit outside it. At the moment, it is a national tax—there is no escaping that.
We welcome the proposal to devolve empty property relief, and we are speaking to Government and local government officers about what that would look like. We need decisions from COSLA’s leadership on the options and its perception of the risks for local government.
It is important to stress that, although we might aspire to returning non-domestic rates to local government, a huge amount of thinking is required before we can even consider whether that would be possible. That includes a whole range of issues such as how local government financing would work and how the return of non-domestic rates would bring back accountability and proper local democracy to those who pay them.
There is a long road to travel to get anywhere near that happening. Nonetheless, there are aspects of the bill, along with potential devolution of empty property relief, that would start to bring in more local fiscal control of the rates system, and that is welcome.
Andy Wightman
I am aware that you have all been heavily involved in the Government’s follow-up to the Barclay review, and I saw that there were 27 responses from local authorities to various Barclay recommendations. However, now that the bill is before Parliament, there is an opportunity to do more, if we wish to.
I move on to the two Barclay recommendations that were rejected by the Scottish Government. Recommendation 28 is that all non-domestic properties should be on the valuation roll. That would mean that agricultural land, which is currently exempt, would be on the roll. We could give that land 100 per cent relief if we wanted to—if we did that, at least the cost would be transparent. Recommendation 29, which was also rejected, is that large-scale commercial processing—mainly food processing—taking place on agricultural land should pay the same rates as commercial food processing on a food park.
Do you have any views on the recommendations that were rejected? Are you content with that?
Eileen Rowand (Convention of Scottish Local Authorities)
We understand that it was the scale of the work required to get such properties on the valuation roll and then whether they would be exempted that led to those recommendations being rejected. We have had discussions with the Government about that and we understand the rationale for its decision.
Andy Wightman
You understand where the Government is coming from, but do you agree with its recommendations?
Eileen Rowand
The working group reached a position where it supported that.
The Convener
Will you clarify that point for me? Did the group support that recommendation 29 should be agreed to or that it should be left out because of the complexities of implementing it?
Eileen Rowand
We supported that it should be left out because of the complexities and the practicalities of implementing it.
Kenneth Gibson (Cunninghame North) (SNP)
We have already learned that such a measure would not raise any money, so what would be the point of it?
Andy Wightman
If no one else has anything to add, I will move on to recommendation 22, on the small business bonus scheme loophole for self-catering properties. Section 5 of the bill makes provision to define what a dwelling is, which is a precursor to implementing recommendation 22, which is to close a loophole whereby people with holiday homes can claim that they are self-catering properties for let and put them on the non-domestic rate roll then claim under the small business bonus scheme and pay nothing. The policy proposal is that such properties have to be intended to be let for 140 days and actually let for 70 days to qualify to be on the non-domestic rate roll.
The bill does not implement the policy recommendation—it only makes enabling provisions to allow the regulations. I noticed that there was quite a split of opinion in the responses in the report, “Analysis of responses to Barclay Implementation: A consultation on non-domestic rates reform”. IRRV Scotland said that properties
“must meet the multiple of 70 days total over the three or five years”
or over one year, and Scottish Borders Council asked what would happen if the requirement to let for 70 days was not met. Has anyone got any views on how the proposal might work in practice?
Kevin Fraser (Institute of Revenues Rating and Valuation Scotland)
It would be difficult to make it work in practice. We would like appropriate rates relief to be given to proper holiday lets. Sometimes, second homes are put into the ratings system purely for financial gain, and we want that situation to be addressed. The problem with the 70-day rule is that, when first written, the proposals referred to “a year” but did not specify whether that was a calendar or a rolling year. Therefore, there could be difficulties if the 70-day period crosses a financial year. It can be extremely difficult if things frequently move in and out of the rates roll and the valuation list, or if things change quite drastically.
We recognise that some properties are usually let out or occupied regularly, but that that might not be possible in some years—perhaps because someone is ill or there are structural issues and it is difficult to access the property. There may be situations in which occupation may not be possible in one particular year but the rules have been met in general. We want there to be something that addresses that.
Andy Wightman
Do you believe that we can do it?
Kevin Fraser
It will be quite difficult to judge where the decision-making power lies between the local authority and the assessors. However, it is achievable.
Andy Wightman
The assessors make decisions on what is admitted to the roll, but the separate question is whether councils should have discretion in how they apply the relief. I suppose that that is really a question for the councils.
Kevin Fraser
Yes. It would be useful for them to have that discretion.
Alex Rowley
What are the potential policy impacts of the changes to guidance for local councils on granting discretionary relief for recreational clubs? Do you have any concerns?
10:00Kevin Fraser
We would still want to support local and community-based sports clubs and anything of that ilk. There is an issue if wider sports clubs or organisations go beyond the local authority’s boundaries. There is recognition that there are two streams of sports clubs: there are local clubs, which we would want to support; and there are national clubs, which can afford to pay their way through membership income or other income. Perhaps we need to consider that approach.
Alex Rowley
So, a local bowling or football club—
Kevin Fraser
I would still want to see them being supported. However, there is an argument that larger-scale golf clubs, for example, should be able to pay their way.
Graham Simpson (Central Scotland) (Con)
I will jump back to something that Jonathan Sharma said about his desire to see non-domestic rates fully devolved to local government. He seemed to be saying that that might be too big a job. Surely, now is the opportunity to act. We have the bill in front of us, so why has that work not been going on?
Jonathan Sharma
As I said, we welcome the commitments that the Scottish Government made at stage 1 of the Budget (Scotland) (No 3) Bill to look at developing a fiscal framework. We think that non-domestic rates should be part of that, along with a potential replacement for the council tax. We want to couch this in terms of local taxation and local government funding, so that we can start to ask the questions. There are a lot of questions to ask about non-domestic rates and returning them to local control—if we were simply to do that tomorrow, that could create substantial disruption to local authorities, businesses and communities.
We believe that there is a path to follow. So far, we have not had that discussion with Government, but we hope that those questions will be part of it.
Graham Simpson
Do you not think that there is a role for the bill in tackling the issue?
Jonathan Sharma
There is no role for the bill to tackle it. Further devolution will be a longer-term discussion that will go into the next spending review and even beyond that.
Graham Simpson
Given that we have legislation in front of us, if you do not deal with the issue now, do you not think that there is a danger of it getting kicked into the long grass?
Jonathan Sharma
Given the commitments that it has made to us, I do not think that the Government has accepted that this is the end of the road for what could be done on local fiscal empowerment. I do not want to say whether the Government thinks that it has done enough on rates, but when it comes to local fiscal empowerment, it is committed and willing to sit down with us and the political parties to see what that looks like. That should help to shape how we look at a wider, more far-reaching transfer of powers on non-domestic rates.
Kenneth Gibson
I will follow up on that point. Do you see the domestic rates issue as being a two-stage process, whereby the Non-Domestic Rates (Scotland) Bill will be put to bed during this session of Parliament and we will have a further piece of legislation that looks at local fiscal empowerment in the next session?
Jonathan Sharma
I cannot spell out the shape of that. We are still in the early stages of discussion. We know that ministers are speaking to other political parties about the issue; they might not be speaking specifically about non-domestic rates, but they are talking about the fiscal framework and local fiscal empowerment.
Kenneth Gibson
The argument that is always made against giving local authorities the power to set rates locally is to do with where people spend their money. For example, people in North Lanarkshire spend their money in Glasgow, which obviously gives Glasgow a real advantage in rates income relative to North Lanarkshire. There are plenty of other examples from around Scotland of our cities benefiting in that way.
However, does that not just mean that the Scottish Government would have to readjust the grant settlement for local authorities to take account of the money that is lost by some and gained by others? Does COSLA take the view that, if that happened, we would just start with a clean sheet and move forward from there? In such a reorganisation, Glasgow City Council’s grant would be reduced, North Lanarkshire Council’s grant would be increased and that would be the page from which we would start. Is that how you envisage the process working?
Jonathan Sharma
As I have mentioned, those are the issues that we would have to discuss properly if any step were taken to consider a return of rates to local control. We have not had that discussion. I do not think that the bill is the place to have such discussions, but we welcome the opportunity to flag up the issue to the committee.
The Convener
We are veering away from the subject matter.
Kenneth Gibson
Yes, we will leave that for another day.
The Convener
I am sure that we will have that discussion on another day.
Kenneth Gibson
I think that it was important that we got that issue out of the way, because it is obviously the elephant in the room.
Graham Simpson
I want to look at the change whereby revaluations will be carried out every three years. What impact will that have on your organisations? The question is not just for Mr Sharma—we can hear from other people.
Morag Johnston
I mentioned in my introductory comments that I think that councils support that move to three-yearly revaluations. We accept that additional costs will be associated with that, which the financial memorandum to the bill sets out. At this stage, it is difficult to be certain what those additional costs will be, so we hope that conversations about that can continue with the Government and that we can keep those costs under review.
I have mentioned local authorities’ role in billing and collection, and their engagement with ratepayers when they receive their new rates bill. Although ratepayers will have received notification from the assessor at the time of the revaluation, it tends to be the local authority that ends up getting involved in the discussions at the time that the revaluation notices are issued.
The move to revaluations every three years will remove some of the issues that we experienced with the most recent revaluation. The fact that that took place after a seven-year period explains a lot of the significant movements in certain areas. I think that everybody’s view is that, if we move to three-yearly revaluations, significant variations will be limited in certain sectors, because people will not have to wait as long for the revaluation to catch up with what has happened economically.
Eileen Rowand
We welcome three-yearly revaluations. As Morag Johnston said, we hope that that will help us to get a better indication of market values and to keep that up to date.
If the assessors are to deliver on three-yearly revaluations, there will have to be a reduction in the number of appeals, because of the sheer volume of that work. We must consider the impact of what is proposed. We very much support the move to three-yearly revaluations, but we really need to take action on the appeals, and there are proposals in the bill to do that.
Kevin Fraser
You have a full house, because I, too, fully support three-yearly revaluations. I also support the move to a one-year rather than a two-year tone date, which will bring the values closer to market values at the time. As I have mentioned, I have concerns about the volume of appeals and the ability of the assessors to deliver the change.
The Convener
Andy Wightman wants to come in at this point. Is that okay, Graham?
Graham Simpson
I was going to continue on the same line of questioning, but I am happy for Andy Wightman to come in.
Andy Wightman
Section 2 of the bill will change the period between revaluations from five to three years, but it will not change the scope for ministers to change that period, as they have in the past. Do think that the bill should hardwire in the three-yearly revaluation period, or should the power to change the period still exist?
Morag Johnston
I do not know whether we have formed a view on that. There always has to be recognition that something might occur that might mean that achievement of a three-year revaluation might not be good for local authorities, assessors or even ministers. On the basis that it is useful to have flexibility, we might not want to hardwire in three-yearly revaluations.
Alex Rowley
Are you not concerned that ministers might be concerned about an upcoming election?
The Convener
You are so cynical, Alex.
Alex Rowley
Would removing the politics from it not be a better way of ensuring that what is meant to happen does happen?
Morag Johnston
I suppose that my response was based on the assumption that ministers’ use of that flexibility would be economically rather than politically driven.
The Convener
Absolutely. [Laughter.] Following Alex Rowley’s cheap political shot, we will move back to Graham Simpson.
Graham Simpson
Thank you, convener. Morag Johnston mentioned that moving to three-yearly revaluations will mean extra costs. Have there been any discussions with the Government about how to meet those extra costs?
Morag Johnston
I understand that the financial memorandum reflects primarily the costs that will be incurred by the assessors. As the cycle stands at the moment, they will have staff who are working on appeals or a revaluation. If a three-yearly cycle is brought in, the assessors will need staff who do both, so additional staffing resources will be required and the associated information technology costs will have to be met.
As I mentioned earlier, the costs for local authorities are also reflected in the bill. When we were asked to submit what the costs of the Barclay recommendations could be, it was difficult for us to make an assessment. We tried to do so—we know that there will be IT costs—but it has been difficult to assess the administration costs. We recognise that we can continue to have discussions with the Scottish Government.
Kenneth Gibson
Do you think that the financial memorandum represents a realistic assessment of the costs that the bill will impose on the assessors and local government? Do you have any issues with it?
Jonathan Sharma
I am probably best placed to answer that. The financial memorandum broadly reflects the figures that COSLA provided to the Scottish Government, which we welcome, because there have been situations in which we have submitted figures but they have been ignored.
I will add to what Morag Johnston said about the assessors’ costs. We tested those costings vigorously with the assessors, who are having to make estimates as well. The figures will never be absolutely accurate, but there is room for a bit of refinement, which the Government officers want us to do. We and the assessors will look at their costs for future years; their costs are the most significant from the point of view of administration costs, although there are costs to councils as ratepayers, which we might come on to.
With regard to the councils’ costs, in the course of preparing our response to the committee—I apologise for not being able to provide it until our leaders have signed it off—councils have said to us, “Hang on a minute—this provision will come at a bit of a cost,” so we need to look again at the figures that we provided to the Government. The Government officers know that, and they have said, “Go away and start to speak to the councils again.” We are looking to do that and we hope to bring back more refined costings that will help to inform the Government’s budget considerations.
The Convener
We will go back to Graham Simpson, although Andy Wightman might want to come back in on that point later on.
10:15Graham Simpson
If the bill is passed, the next revaluation in Scotland will be in 2022. I believe that the next revaluation in England will be in 2021. A lot of firms operate in England and Scotland, so would it be doable to bring forward the revaluation in Scotland to 2021? Would that be a good idea?
Jonathan Sharma
All I can say is that, from our meetings with the assessors through the Barclay implementation advisory group, I got the impression that they are pretty clear that even getting to 2022 will be challenging. It is more a question for the assessors, but that is what they have told us.
Eileen Rowand
I echo that view. The assessor whom I deal with would have real concerns about being able to carry out the revaluation before 2022, and they need to take into account where they are on appeals and other matters. It would be a real struggle for them to bring forward the revaluation.
Graham Simpson
There will still be outstanding appeals.
Eileen Rowand
Yes.
Graham Simpson
On a different subject, how will the proposed changes to the valuation roll and notices impact on the administration of non-domestic rates?
Kevin Fraser
Are you referring to the markers for the new and improved properties and the properties that are under repair?
Graham Simpson
Yes.
Kevin Fraser
The changes will help us greatly. We are already setting up some informal arrangements with assessors locally, whereby they will voluntarily put markers that are similar to those that are proposed on the roll. Including provisions on the markers in legislation will ensure consistency throughout all local authority areas and will help local authorities to make changes more quickly. More important, it will save people from needing to make applications for certain forms of relief, as it will be possible for those to be awarded automatically.
Graham Simpson
Mention has been made of appeals. What do you think about the proposal for a pre-appeal mechanism?
Kevin Fraser
Again, that is more a question for the assessors to answer directly, but we welcome the proposal. We welcome any appeal being dealt with at the earliest opportunity, at the lowest level possible.
Graham Simpson
Will the proposal help to reduce the number of appeals?
Kevin Fraser
It would force there to be an earlier exchange of information, which should be supported, because the lack of such an exchange is usually the cause of any disagreement about rateable values.
The Convener
What are the expected impacts of changes to how parks are entered on the valuation roll? Is there likely to be an impact on the services that are offered within park spaces?
Morag Johnston
Generally, I do not think that the proposals will necessarily impact on the services that are offered, but there is one area of concern. As you will be aware, a number of local authorities have set up charitable arm’s-length organisations, some of which are responsible for leisure services, which might take place in a park environment.
It is welcome that, very early on, the decision was made not to take forward the Barclay review recommendation regarding charitable relief for arm’s-length external organisations. However, conditions have been set and, in effect, a baseline has been created for the rates relief that is provided to charitable council-owned organisations.
Our reading of the bill is that if, in the future, a council’s ALEO was to set up within a park, it would not get charitable relief. There would, therefore, be a cost to local authorities in those circumstances. Existing services would not be affected, but there is a concern that there could be an additional cost for services delivered by an ALEO in the future, which we would need to take into account before setting up a new service.
The Convener
Do you accept or disagree with the suggestion that the change creates fairness across the piece? If something inside the park is providing pretty much the same service as something outside the park, is it fair if the one outside is paying rates while the one inside is getting relief?
Morag Johnston
If it were to be an organisation other than a local authority organisation, the way the bill is written—as we have interpreted it—means that it would be liable for rates. In that context, I think that the change is fair. My point was about the considerations for local authorities in relation to the additional costs that might fall to them because of the change.
The Convener
Okay. Does anybody else have any comments on that?
Eileen Rowand
As Morag Johnston said, the restriction on the relief that our ALEOs can receive, taken together with the changes that are proposed in the bill, means that there could be a cost pressure. We believe that those organisations are there for the community good and to deliver public services, so that is obviously causing a bit of concern.
The Convener
Is that the sort of technical issue that you are discussing with the Government or anybody else who is involved?
Jonathan Sharma
We have made it clear to the Government all along that that is a concern. We understand that if there are commercial facilities sitting in a park and others on the edge of the park, there is a question about why those outside the park should be paying rates when the ones in the park are not. However, to put this in context, the bill proposes an exemption for specialist schools—
The Convener
I am about to come on to that issue.
Jonathan Sharma
My point is that, if those schools are seen as being valuable, and our council services within the park are valuable, the fact that they are run by an ALEO is simply an organisational consideration rather than—
The Convener
Are those discussions going on just now?
Jonathan Sharma
Yes, they are.
The Convener
Okay. That is great.
Annabelle Ewing (Cowdenbeath) (SNP)
I have a brief supplementary. Taking advantage of Eileen Rowand’s presence, I have a question about Fife. The bill, as drafted, would require local authority owned parks that generate a net profit for the local authority to be entered for the first time in the valuation roll in circumstances in which there is not “free and unrestricted” access to the park, or where a local authority park consists solely of facilities that are charged for. At this time, would any park in Fife be impacted? I appreciate that I am putting you on the spot.
Eileen Rowand
We have considered the possible impact for Craigtoun country park, but we need to explore that further. There could be implications, because it is run by a body other than the council.
Annabelle Ewing
Okay. Is that the only park that springs to mind?
Eileen Rowand
Yes. I would have to come back to you with further detail.
The Convener
We will move on to the impact of changes to rates relief for independent mainstream schools. Does anyone have any comments on that? Will it impact them hugely or lightly?
Morag Johnston
For local authorities that bill for and collect rates, it will just be somebody else to bill and collect rates from. From that perspective, I do not see any particular issue. I imagine that there are broader issues concerning the fact that organisations that previously had relief from rates will now have to pay them. However, that was well discussed when Barclay first made that recommendation.
The Convener
Okay.
Graham Simpson
From COSLA’s point of view, there is the potential risk—and it is just potential—that some kids might leave the independent sector and come into the local authority sector schools. Have you done any analysis of that, or of the costs to councils?
Jonathan Sharma
We have not done any analysis, but that is interesting to hear. In our submission to the Scottish Government, we said that it is fair that the independent schools be treated the same as local authority schools. We are not aware that the changes would drive loads and loads of children out of independent schools and into local authority ones.
Eileen Rowand
I echo Jonathan Sharma’s comment. We believe that there is an issue of equity and we believe that the suggested changes are fair.
Alex Rowley
I want to broaden this out to the bill’s impact on the cost of council rates for a rate payer. Councils pay rates on their schools as they do on other buildings. Is there any concern in councils that the bill will have a negative impact on council finances?
Eileen Rowand
We have already raised the potential cost implications in relation to the parks. There has also been a lot of discussion about an increase in our administration costs. It is important for councils to look at the quantum of funding; the sums that are collected for non-domestic rates help to fund councils. If we improve our collection rates with earlier interventions, it should help us. We are looking at the financial impacts, and we are flagging the one relating to parks.
Andy Wightman
The last bit of the Barclay review’s remit was that the recommendations should be based on overall revenue neutrality; in other words, any recommendations that result in increases in rates should be balanced by decreases in rates.
It is my understanding—I might be wrong—that what drove this recommendation on schools was that councils looked down the list of reliefs and thought, “Which ones can we withdraw because we need to raise some money?”. It was not based on any fundamental appraisal of which properties that are currently charged for relief should have that status removed. For example, as I understand it, charitable relief will still be available to Shelter and Oxfam shops on the high street. That does not seem to be fair. I am trying to work out why you think that it is fair to pick out one particular sector from charitable relief—that is, schools—while not tackling universities, which are also charities.
Also, the provisions in section 10(3) of the bill are about exempting independent music schools. There is only one independent music school, but there are four mainstream centres of excellence—in Dyce, Plockton, Bearsden and the city of Edinburgh. Why is that fair? I do not understand that fairness argument, because it seems to apply to one narrow bit of the non-domestic rating system.
Morag Johnston
I will try to assist with that question. As has already been said, the focus on independent schools is seen as improving fairness because at the moment local authorities provide schools and have to pay rates for those schools. Therefore, the conclusion to charge fee-paying or independent schools was because local authority schools do not get rates relief. That is where the fairness argument has come from.
Andy Wightman
My question is whether that relief should also apply to charity shops in the high street.
10:30Morag Johnston
The challenge for local authorities is in determining whether the charity is national or local. Whether the benefits from the funds that are raised by the charity are seen locally—whether the funds stay in the local community—can be a consideration for local authorities. The issue of national charity shops has not necessarily come out through the bill process and, as far as I am aware, it has not been discussed more widely.
Andy Wightman
Do you support the relief for independent music schools, which do not have to pay full rates although mainstream, state-supported music schools do?
Morag Johnston
We need to try to understand why the independent music schools have been identified as being different from other independent schools. I draw a comparison with my point about local authority schools having to pay rates and other schools currently being partially exempt, which may explain why certain independent schools would continue to get rates relief and others would not. From the perspective of administrative processes, it would create more complexity in the system.
Andy Wightman
What would create more complexity? Are you referring to the provisions of the bill?
Morag Johnston
The fact that certain schools would no longer get relief, but a group of independent schools would still get relief would do that. We need to understand how to determine which schools fall within that group. If a new school is established, how do we know whether it is eligible for relief? My point relates to the potential challenges around non-domestic rates administration.
Kenneth Gibson
I point out that charity shops in my constituency are all run by local volunteers.
Presently, independent schools can get an 80 per cent discount on non-domestic rates. After the bill is passed, if a local authority wishes to continue to give those schools an 80 per cent discount, surely it will be allowed to do so?
Kevin Fraser
Under the Community Empowerment (Scotland) Act 2015, local authorities can grant any relief that they wish, but they have to fully fund it, therefore it is a financial matter.
Kenneth Gibson
The councils would still have the ability to grant the discount, though. The argument that was made earlier was that, if the 80 per cent discount was removed from independent schools, it might have an impact on state schools. My understanding is that charging independent schools at the full rate would result in only a 2 per cent increase in annual school fees, but local authorities would still have discretion as to whether they grant those schools the discount.
Kevin Fraser
Yes, under the 2015 act, the local authority is free to grant relief if it chooses to do so, as long as it fully funds that relief. There is an argument that that approach is an option, depending on individual financial implications.
Kenneth Gibson
Indeed. So, if a local authority felt that it was losing out financially by eliminating the discount, it could reinstate it.
Kevin Fraser
It could consider doing so.
Eileen Rowand
The local authority would have to consider the financial implications. It is fairly challenging for local authorities to get to a balanced budget position. Although the flexibility to grant the discount is there, we would have to look at our ability to do so.
Kenneth Gibson
Okay. Thank you.
Alexander Stewart (Mid Scotland and Fife) (Con)
I want to go back to Graham Simpson’s point. He talked about a potential knock-on effect on state schools in certain council areas. Not all councils would be in that position, but a number of them have a larger proportion of independent schools in their area. Depending on the non-domestic rates situation in that area, any such knock-on effect could potentially be an issue. For example, Perth and Kinross and Edinburgh have large independent school sectors, so pupils moving to state schools could have a massive impact on the community. Is that a potential problem, or has it not been looked at as part of the equation?
Kevin Fraser
Obviously, that is a potential problem, but my understanding is that there has not been sufficient analysis to know what the financial impact would be and what the likelihood of any transfers from private schools to state schools could be. There is still an argument that there is work to be done on that issue.
Alexander Stewart
In some locations, the number of pupils on school rolls already exceeds the number that should be on them, and the schools are at breaking point because they do not have enough capacity. The independent sector has capacity, which takes some pupils out of the state sector and supports it. If that was reversed, there could be consequences for both sectors.
Kevin Fraser
There could be.
To return to the point about the Community Empowerment (Scotland) Act 2015, a local authority does not have to give an 80 per cent discount; it could give a smaller discount if it chose to do so. Again, the local authority would not invite applications as such, but it would make people aware that there is scope for that and that the award does not have to be a full award to that value. The awards could be calculated case by case.
The Convener
If independent schools decided that they were not making quite enough money out of pupils and described or identified pupils as their profit, would that put at risk their charitable status? They have charitable status because they register as charities so, if they say that they cannot take in all those children because they will lose money, surely that would put at risk their charitable status.
Kenneth Gibson
That is certainly true for scholarship children.
Graham Simpson
There is an exemption for music schools. Would not it be relatively easy for other independent schools to rebadge themselves as music schools? [Laughter.]
Kevin Fraser
As long as there is a definition of what a music school is, it would be quite easy to scratch the surface and find out whether a school was being operated as such.
Graham Simpson
Do we have a definition?
Kevin Fraser
I think that there is one.
Jonathan Sharma
I want to speak slightly more broadly about the point that I made earlier.
There are provisions in the bill on which the Scottish Government has clearly taken a view: it is as simple as that. It has taken the view that it wants to protect particular institutions because it believes that they have a certain value. All that we want to say is that there is a point of principle relating to some of the services that local government provides, perhaps through arm’s-length organisations. That is where we are coming from.
We have not done the sort of analysis that has been alluded to. We are more than happy to take away the point that was raised about the potential risk of pupils coming across to state schools.
Annabelle Ewing
I will turn to collection of non-domestic rates. There are provisions in the bill that seek to put debt recovery of unpaid non-domestic rates on the same footing as recovery of council tax. Various proposals are intended to allow local authorities to take action sooner on debt recovery. Would the proposals in the bill achieve the objective that is sought in that regard, which is that councils would have the same powers in relation to non-domestic rates as they have in relation to council tax? Do you wish to see other provisions included in the bill?
Kevin Fraser
No—the provisions are as they should be. Aligning non-domestic rates with council tax will make things easier to understand from an administration’s and a customer’s point of view. The bill will do what it intends to do. As well as seeking earlier collection, it seeks earlier interaction with customers so that, if people are having difficulty paying, it will not be October before the council finds out. The bill will give us the right balance with those powers.
Annabelle Ewing
Do the other witnesses agree with that summation?
Morag Johnston
Yes.
Annabelle Ewing
In light of the relative ease with which people would be able to seek to recover non-domestic rates debts, do you foresee that that would be of significant help in reducing the administration around non-domestic rates and improving the financial pot that is available to local authorities?
Eileen Rowand
The main advantage of the proposed move to instalments is that there would be earlier engagement with businesses about payments. The earlier we can work with individuals, organisations or businesses to get them to a position in which they can pay, the better. The move to a similar approach to instalments to that for council tax is welcome. We hope that that will improve our recovery position, although we do quite well at recovering non-domestic rates.
Annabelle Ewing
If somebody gets into debt, the best time to engage—for the individual and the creditor—is when that happens, so that both sides can come up with something together. If things are left to slide, it is difficult to find a solution.
The proposed information notices will facilitate a greater flow of information to local authorities, which will support assessment, billing and reliefs. Is the bill’s approach to such notices generally welcome?
Morag Johnston
The bill says that, if information is not provided, the assessor and the local authority can raise a civil penalty, which is welcome. That provides the ability to make an additional charge if ratepayers do not engage.
However, I have a point about the penalty levels that the bill sets. The purpose is to encourage people to provide information; if they do not do so, it is probably because they do not want to. For some businesses, the penalty levels that the bill sets might not be enough to create an incentive to provide information, although they might be enough for others. If a business is due to pay thousands of pounds, the penalty levels might not be enough of an incentive.
Annabelle Ewing
For failing to give the assessor information, the penalty will be £100, and failing to comply within 21 days of a notice being issued will lead to a further £100 penalty and a daily penalty of £20, up to a maximum of £500. Your point is that that is adequate for some businesses but is perhaps not enough of an incentive to comply for larger players.
Morag Johnston
Yes. A penalty of £500 might encourage some businesses to pay their rates, but the risk is that it might not do that for others. Responses to consultations had suggested introducing a scale of charges that was linked to the rateable values of properties; I appreciate that that might cause a difficulty if a property had not been valued, but having the ability to vary the civil penalty rate might better meet the intention of encouraging businesses to pay their rates.
Annabelle Ewing
Are discussions about the issue on-going? Do you seek discretion—full stop—for assessors or additional provisions to carve out the larger player side of things?
Morag Johnston
I do not know whether my colleagues know about that, but I am not clear about whether such discussions have taken place. The bill needs to set parameters; I imagine that linking them to rateable value bandings might be doable, but I am not aware of any discussions about that.
Jonathan Sharma
We have had comments from councils about the penalty levels and about who can be asked for information. Kevin Fraser can correct me if I am wrong, but I think that one comment was about whether councils can approach solicitors for information. There is a question about which party withholds information.
We welcome the fact that the bill provides for assessors and councils to request the information by law. That should be enough to encourage compliance; otherwise, people would end up transgressing the law. In our submission to the committee, we said that we would consider how that works out in practice and whether there is a need to be clearer about aspects of it.
10:45Eileen Rowand
We have had discussions about that with the Scottish Government at the working group. It is therefore aware of concerns about the ability of the £500 penalty level to act as a deterrent.
Kevin Fraser
If the ratepayer was a limited company, it would be useful if there was the power to ask the director of the company to provide information and to hold them personally responsible for any failure to do so. If a company will not pay rates and its intention is to go through the phoenixing process later down the line, I imagine that—in a lot of cases—it will not be much bothered about an additional fine. However, the power to ask the directors for information and to hold them personally liable for the fees would go a long way to helping the position.
Annabelle Ewing
That is an interesting suggestion.
I have one last brief question. The penalty levels that have been set for failure to comply with local authority information notices appear to be slightly different. The initial penalty is £95, and I am not quite sure what the maximum penalty is. As far as you are aware, why has a slightly different level been set?
Kevin Fraser
To be honest, I do not know the answer to that. I know that there is a second level penalty of £370 for failure to comply with a first notice. However, I do not know why there are two different schemes.
Alexander Stewart
I will ask about anti-avoidance measures. Sections 5 and 12 aim to tackle or minimise tax avoidance. Are the tactics in the bill strong enough? Should they be seen as a positive devolution of power to local authorities or as an extra burden on the local authority?
Kevin Fraser
Those powers are definitely welcome, because there is certainly work to be done to tackle wide-scale rates avoidance. However, my worry is that the bill does not go far enough to tackle real problems such as the phoenixing companies that I mentioned. There is nothing in the bill that would help us to get out of that problem.
There needs to be more in the bill to help us to pierce the corporate veil, as the phrase goes. We need to find out who is behind the business and profiting from it, and to scratch under the surface of any companies that are set up in order to appear to be running. It would therefore be welcome to see more in the bill about phoenixing companies specifically.
Alexander Stewart
Is there enough resource or capacity, with workforce planning behind it, to achieve that? Alternatively, is it the case that there are not enough people to go and find that information, meaning that it would have to be in legislation to give that extra bonus?
Kevin Fraser
It would be helpful to have it in legislation because, at the moment, phoenixing companies are not breaking any law in the way that they operate. We therefore do not have much power to do anything. If the bill said that that action is wrong and should not happen, that would give us the power to address it head on and people would not be able to hide behind company rules, as they do at the moment.
Morag Johnston
On resourcing, part of the difficulty for local authorities is the way that the legislation is framed. As Kevin Fraser outlined, such companies are not breaking any laws, so it can be quite difficult. We would therefore look for the general anti-avoidance rule to put in place parameters that make it much easier for local authorities to get to a place where they can recover rates in a situation where there is a phoenix company.
Alexander Stewart
What does local government think needs to be there to make that happen?
Eileen Rowand
On the previous question, there would be increased policing costs for us, but those would be vastly outweighed by the additional non-domestic rates that we would be able to collect.
Alexander Stewart
As I said, local authorities do not have those powers at the moment. Unless they are beefed up, will it be a major issue to achieve that?
Jonathan Sharma
Yes. We would need to understand what is required. In a way, we are talking about a proposal for a new regulation and we have not had that discussion yet. We welcome the general anti-avoidance rule, because it is a placeholder to allow consideration of subordinate legislation or other measures to tackle the issue. We will be calling for that kind of discussion. We need to get the Government and the right people round the table to talk about how we can tackle it and whether we need legislation or other measures. The general anti-avoidance rule is about trying to give us scope to do that without getting caught up in primary legislation. There is more to come in that discussion.
Alexander Stewart
As you say, it gives you a stepping stone to something else, which would be much more beneficial to the organisations because it would bring in the revenue and help fund some of the gaps. It would also give back some of the burden.
Jonathan Sharma
COSLA would want to be fully engaged with the Government at an early point in any consideration of that.
The Convener
Will you describe what a phoenix company is, Mr Fraser?
Kevin Fraser
Phoenix companies are common in the public house trade, for example. A company will trade under a name or banner, that company will dissolve—its debts will have to be written off—and then a new company will open up the next day, but the sign above the pub will not change and nor will the staff. The business will not change—it is just the mechanics of doing away with debt and a company re-inventing itself.
The Convener
Thank you, that is very clear.
Kenneth Gibson
I will just add that that is why we have to make company directors individually liable, rather than the business. That is being done through the Unsolicited Marketing Communications (Company Directors) Bill that Patricia Gibson MP introduced in the House of Commons.
What is the estimated level of avoidance in Scotland?
Kevin Fraser
I do not have direct figures on that.
Kenneth Gibson
I am looking for parameters. If it is being avoided it will be hard to know exact amounts.
Kevin Fraser
There is one case that is going through at the moment where £2 million is at risk of being written off—that is for just one operation. There are not that many. I should stress that the vast majority of ratepayers are 100 per cent honest and we have no problem at all with them—they pay their dues when they are due. It is a very small minority who avoid paying, but the sums involved can be substantial.
Kenneth Gibson
Eileen Rowand talked about the fact that the new anti-avoidance measures would bring in more revenue than they would cost. To look at this another way, do you have any ballpark figures for how much additional revenue could be brought in through the new anti-avoidance measures? I realise that it is quite difficult to get hold of figures for people who are avoiding paying, but it would be good to understand how significant the new measures would be.
Eileen Rowand
We are well aware that it happens and that avoiders exist. At the moment, we do not have effective tools to tackle that, which is why we welcome the anti-avoidance rules that are being introduced. We cannot really put a figure on it. Individual authorities will have identified instances of avoidance over the past few years but, as you say, that is not the full picture.
Graham Simpson
The question around phoenix companies is interesting. Is it possible for us to get some kind of idea of the scale of the issue from the perspective of individual councils that have been unable to collect rates debts from companies because they have closed down? Do you have any examples that you can pass on to us?
Kevin Fraser
The scale is not huge. There are probably one or two that are known to carry on at any one time in each local authority area.
Morag Johnston
It can be quite difficult to identify a company as a phoenix company. Although we might see a pattern of a particular premise continually changing hands, the directors of the companies are often different. Although we may suspect what is going on, unless it is obvious that the directors are the same, it can be difficult to identify such companies.
Often, it depends on local knowledge. As Kevin Fraser identified, the name over the door might not have changed but, from our rates records, we know that there have been three or four different companies in place. That is where it can be difficult. In Glasgow, we have a rates base of about 28,000 properties. To give you some context, we are not even talking about hundreds of cases, but it happens and it is unfair for the ratepayers who pay.
Graham Simpson
Mr Fraser, it sounds like you are looking for an amendment to the bill.
Kevin Fraser
Ideally, yes. We are highlighting the fact that we need to look at the corporate veil or company liability and to deal with phoenix companies.
Kenneth Gibson
I had already taken a note of that, but I am sure that the minister will be listening.
Andy Wightman
A couple of questions ago, Jonathan Sharma mentioned a note that he had given the committee, but we have no written evidence from COSLA.
Jonathan Sharma
We expect the committee to have COSLA’s submission by the end of May. The council leaders will meet a week on Friday and I hope that the submission will be available immediately after that.
Andy Wightman
That is excellent.
Kenny Gibson raised the financial memorandum, and we have just talked about penalties. Perhaps I should know this, but do you receive the moneys from penalties or do they go to the courts administration?
Kevin Fraser
I understand that councils retain the moneys.
Andy Wightman
They come to the councils—that is fine.
The financial memorandum says that the administrative cost to local authorities, assessors and the Scottish Government will be £32 million and that the cost to ratepayers through NDR liabilities and potential penalties will be £68 million. Broadly speaking, do you accept all the figures in the financial memorandum?
Eileen Rowand
Yes.
Andy Wightman
You are broadly content.
The figures of £32 million and £68 million are dealt with in the summary table on page 21. Have there been discussions with the Government about baselining those costs? If councils are to receive £68 million over the next five years, have there been discussions about netting off the enhanced administrative costs that will arise? As a consequence of the bill, will councils be no worse off?
Jonathan Sharma
It has been made clear to us that there will be nothing forthcoming for any costs to councils as ratepayers. Councils will be expected to pay along with all other ratepayers—that is the message that we have had from the Government. We have made our point about the implications for ALEOs; some of that is captured in the financial memorandum.
Our councils provided the figures for the costs as ratepayers and the administrative costs. For the administrative costs and, in particular, the assessors’ costs, which are the biggest element, I have already stated that we welcome the funding for 2019-20 and that we expect full funding to be provided for future years. We will do a little more work on assessors’ costings and local authorities’ costings.
Andy Wightman
You are correct that the biggest single administrative cost—£29.1 million out of a total of £31.9 million—is for the assessors. Local authorities govern the assessors—the valuation joint boards are run by councils—and councils pay them. You want the Government to make sure that the costs of the £68 million of income from ratepayers are met from that £68 million and that you are left no worse off from having to pay your valuation joint boards £29.1 million to meet extra costs.
11:00Jonathan Sharma
We have to accept that there will be some costs to councils as ratepayers; there is no getting away from that. If there are ways to alleviate costs through charitable relief for ALEOs, the message that we want to get across today to the Government is, “Look—can we have greater flexibility on that?” That might bring down the costs to councils as ratepayers.
As I said, we expect all the administrative costs that have been identified to be covered through central funding.
Andy Wightman
I make it clear that I was not asking about the impact on councils as ratepayers, which is covered in the £41.9 million. I am merely asking whether you expect the £29.1 million—the biggest single administrative cost—to be covered.
Jonathan Sharma
In the discussions that we will have on refinement of the costs, we will expect the costs to be recognised—for example, in the next spending review.
Andy Wightman
Are you content with the financial memorandum’s assessment of the potential costs to ratepayers and the impact of those costs on, for example, independent schools and others that will have to pay more rates?
Eileen Rowand
It is hard for us to say that we can sign those elements off, as we have not necessarily provided the figures. We are happy to speak about the administration costs that have come through and been provided by local government, but the Scottish Government has worked on the other elements.
The Convener
On that note, I thank the panel for attending today’s evidence session on the bill. Further sessions will take place over the remainder of May and June. The committee will consider the evidence that has been heard later in the meeting.
11:02 Meeting suspended.11:04 On resuming—
22 May 2019

22 May 2019

29 May 2019

19 June 2019

26 June 2019

11 September 2019
What is secondary legislation?
Secondary legislation is sometimes called 'subordinate' or 'delegated' legislation. It can be used to:
- bring a section or sections of a law that’s already been passed, into force
- give details of how a law will be applied
- make changes to the law without a new Act having to be passed
An Act is a Bill that’s been approved by Parliament and given Royal Assent (formally approved).
Delegated Powers and Law Reform committee
This committee looks at the powers of this Bill to allow the Scottish Government or others to create 'secondary legislation' or regulations.
It met to discuss the Bill in public on:
5 November 2019:
Read the Stage 1 report by the Delegated Powers and Law Reform committee published on 26 June 2019.
Debate on the Bill
A debate for MSPs to discuss what the Bill aims to do and how it'll do it.

Stage 1 debate on the Bill transcript
The Deputy Presiding Officer (Christine Grahame)
The next item of business is a debate on motion S5M-19336, in the name of Kate Forbes, on the Non-Domestic Rates (Scotland) Bill.
15:54The Minister for Public Finance and Digital Economy (Kate Forbes)
I am pleased to open the debate on the general principles of the Non-Domestic Rates (Scotland) Bill, which was introduced to Parliament on 25 March 2019. I will set out the background to the bill and then move on to its substance, although I will keep my remarks short because I recognise that members want as much time as possible to offer their views.
The Government is committed to using the limited economic powers at our disposal to create a tax environment that supports economic opportunity. As Scotland’s second-largest tax, non-domestic rates plays a key role in balancing the need to deliver a competitive and sustainable taxation environment, while ensuring that we have sufficient resources to fund the public services that we all rely on.
The remit of the independent Barclay review was to ensure that the rates system supports business growth and long-term investment, as well as better reflecting changing marketplaces. The Barclay review made 30 recommendations. As our implementation plan outlined, we accepted the majority of the recommendations and have already made moves to implement them, including the recommendations on the business growth accelerator, which was warmly welcomed by the business community, and the fresh start relief to support town centres.
We said that we would introduce primary legislation by 2020 and the bill that we are debating today fulfils that commitment. The bill contains meaningful reforms to the rates system, with the notable inclusion of a three-year revaluation cycle. That has been welcomed by many, including the Royal Institute of Chartered Surveyors and the Scottish Retail Consortium, because it delivers justice by more closely aligning valuations with the market. The bill also gives new powers to assessors, local authorities and ministers to improve the administration of the system and to tackle tax avoidance.
A lot of hard work has been undertaken by a range of stakeholders prior to today’s debate. I pay tribute to the members of the Barclay implementation advisory group, the sub-groups that looked at billing and appeals and the working group that considered sports club relief guidance. Members of those groups have given, and continue to give, freely of their time to help ensure that these rates reforms—subject to the will of Parliament—can be implemented as efficiently and effectively as possible.
I turn to what is perhaps the most important area of the bill, which is the appeals system. Our proposed reforms to the appeals system are the most important and ambitious of the reforms that we are implementing, but they are also the most complex. If we fail to reform the appeals system effectively, we risk negating any benefit from all the other proposed rates changes.
I understand that the recent reforms to the appeals system in England have delivered a system that is bogged down in bureaucracy and red tape, resulting in possibly millions of ratepayers being unable to access a fair rates hearing. We must learn from that and make every effort to get our reforms right.
The report of the appeals sub-group, which was established to inform advice to the Scottish Ministers, was published today and offers views on the potential design of a new appeals system. I received the report this morning and a copy has been sent to the lead committee considering the bill. I look forward to reading the report and reflecting carefully on its contents.
It is fair to say that not all the provisions in the bill have been universally welcomed; I refer specifically to the removal of charitable rate relief from mainstream independent schools. I recognise that the independent school sector is a well-established part of the Scottish education system that promotes choice for parents. However, we agree with the Barclay review that the current difference in rates treatment between independent and local authority schools is unfair and must end. I stress unequivocally that that is a change to rating and not to charity law.
I am grateful to the convener and members of the Local Government and Communities Committee for their scrutiny of the bill at stage 1. I welcome the committee’s support for the general principles of the bill. This morning, I wrote to the committee to respond to the various issues that were raised in its report. I will comment briefly on some of those points.
I welcome the committee’s recognition that the bill’s provisions aim to address weaknesses in the current appeals system. I agree with the committee’s view that getting the detail of the new appeals process right will be critical in enabling the move to three-yearly revaluations. That is why I wrote to the committee on 3 September to say that, towards the end of this year, we will produce a set of illustrative draft appeal regulations, which will allow the committee and other stakeholders to see and comment on our detailed draft proposals.
The committee considers that fees should be introduced at both the proposal and appeal stage of the new appeals process. Although I have yet to reach a conclusion on the matter, I welcome the committee’s position and views. I will reflect further on the matter, and I am sure that I will also be informed by the comments of the appeals sub-group.
I will touch briefly on assessor and local authority information-gathering powers, on which the committee supports the bill’s overall direction of travel. It is important to say that the issue is not all one-way traffic. Assessors accept that they need to get better at providing information to ratepayers in the first place to help them better understand how the valuation assessment has been derived.
The committee’s report comments on the divergence of views expressed on some key issues, such as the level at which civil penalties have been set. We recognise that, and I look forward to further discussions on those important issues during the bill’s amending stages.
I will end there to give back some time to the debate.
I move,
That the Parliament agrees to the general principles of the Non-Domestic Rates (Scotland) Bill.
The Deputy Presiding Officer
Thank you—you caught me on the hop, there.
I call James Dornan to open on behalf of the Local Government and Communities Committee, as that committee’s convener.
16:01James Dornan (Glasgow Cathcart) (SNP)
I thank the Local Government and Communities Committee clerks and the staff from the Scottish Parliament information centre for all their support. I also thank the minister and the Scottish Government for their generally supportive response to our stage 1 report. Most of all, I thank the committee members—those who are presently on the committee and previous members—who worked hard to produce the report.
The committee began its scrutiny of the bill during the spring of this year. We took evidence at five meetings and our call for views generated a high volume of responses. The committee went on three visits. One visit was to an independent school and the other two were to Kilmarnock and Stirling high streets, where we met local businesses, charities and other employers to get a snapshot of local views on the rates system. The high level of informed engagement helped the committee enormously in our role of reporting to the Parliament on the general principles of the bill.
Turning to the report, I say at the outset that the committee unanimously endorsed the bill’s general principles. We took that position because of the clear support from diverse sectors—the public and private sectors and from business and the third sector—for the overall direction of travel.
I will single out two reforms for comment. The first is the proposal to speed up the revaluation cycle from five to three years and to bring the date at which revaluations are calculated—the tone date—one year closer to the date on which revaluation actually takes effect. Put simply, that means that, for those who pay rates, the amount that they pay should more closely reflect the actual current value of their property. It is hoped that that will result in fewer appeals against revaluations. Just about everyone agreed that there are far too many appeals at present and that they clog up the system, eating into the resources of councils and assessors. Appeals can take an extraordinary amount of time to resolve, which of course does not help ratepayers either.
The second reform that I want to mention relates to the appeals process. Those new provisions, too, were generally welcomed. There was a general consensus that the current system is unsustainable. However, the committee had some caveats of which the Parliament should be aware, and I will mention two. First, the switch to a three-year cycle will undoubtedly mean more work for assessors, and the profession already has a recruitment problem. That needs urgent attention, so we have asked the Scottish Government what plans it has to address the issue. Secondly, the new appeal provisions simply create a framework for a revised process but leave the details for later. The committee understands why the Scottish Government has taken that approach but, as the minister said, it means that the next steps will be crucial to ensure that we end up with an appeals system that is more efficient than the one that we have now.
I do not say this lightly—because the committee, like the Government, appreciates the importance of access to justice, especially for smaller enterprises—but, given the evidence that we received, we ask the Government to give careful consideration to introducing fees for appeals. I am delighted that the minister said that she will give the matter serious consideration. It became clear to us that the absence of fees is one of the primary factors contributing to a climate in which speculative appeals have become normalised.
The most contentious proposal is in section 12, which removes from most independent schools the right to claim mandatory charitable relief. I expect that issue to be widely discussed today, so my comments on it will be brief. The majority of responses to our call for evidence were about section 12; generally, they were from parents, teachers and, occasionally, young people with a direct connection to an independent school. They expressed their views with sincerity and strength of feeling, and set out their concerns about what they felt the change could mean for their school.
I want to mention the visit by committee members to George Watson’s college in June. I thank the college for hosting a discussion with representatives of the independent sector. As members will imagine, they put their views across to us forcefully, clearly and courteously; by the end of the meeting, the committee knew well where the independent sector stands on the issue.
However, it is important to be clear that there was a strong welcome for the proposal, including from councils. They shared Barclay’s view that the change would bring to an end an anomaly and help to level the playing field between independent and state schools. In the end, a majority of committee members were more persuaded by the latter point of view. The independent sector has been around for a long time and has always shown an ability to adapt to change. It did so last decade when the Scottish Parliament agreed reforms to charity law. Most of us believe that this is another change that the sector will adapt to.
I want to expand on the committee’s comment in its stage 1 report that the bill is “inevitably piecemeal”. That was not intended as negative commentary, but as a simple reflection on the fact that, of the 27 Barclay recommendations that the Scottish Government has largely accepted, most do not require legislative intervention. The bill is limited to those recommendations that do.
We should all take note that the bill is just one part of a wider effort to meet the Barclay goal of having a ratings system that is fairer, more efficient and more business friendly. Much of the evidence that we received was about the bigger picture beyond the parameters of the bill. The committee agrees that there is benefit in continuing the debate about how well the current rates system, including its supporting architecture of reliefs and supplements, reflects modern commercial realities.
To pick one example, we might ask whether there are aspects of the ratings system that could be re-engineered to address the problem of struggling high streets and to enable a town centre renaissance. Perhaps that is a discussion for another day, but we should keep the bigger picture in our sights over the coming months and years as we judge the effectiveness of the whole package of reforms that has emerged from the Barclay review.
Given the tightness of time today, I merely repeat that the committee welcomes the bill. I look forward to the rest of what will be a very interesting debate, particularly for the members of my committee.
The Deputy Presiding Officer
Members are all being very generous with their time. Mr Dornan had another minute, as did the minister, but there you go.
16:07Murdo Fraser (Mid Scotland and Fife) (Con)
I feel that I must reiterate some of the comments that I made this morning in the chamber about the timing of this debate, because we have been left with one hour and 20 minutes for a stage 1 debate on an important bill, which a large number of people outside the Parliament—stakeholders, businesses and those involved with independent schools—are concerned about. It is an issue that we need to address as a Parliament. The primary purpose of Parliament is to scrutinise legislation—we are here to make laws. We do many other important things, but they are not as important as that, and Parliament needs to learn a lesson about timetabling debates such as this one.
Having got that off my chest, I want to give a general welcome to the Non-Domestic Rates (Scotland) Bill. In some areas, it does not go far enough, and we have concerns about what is being proposed in other areas but, overall, its measures are welcome.
As we have heard, the bill seeks to implement the findings of the Barclay review on non-domestic rates. It does not implement all the Barclay review recommendations. For example, Barclay recommended a change in the tax treatment of arm’s-length external organisations—ALEOs—whereby local authorities provide leisure and cultural services by means of an independent vehicle, thus making a business rates saving. The Scottish Conservatives vigorously opposed the original plan to remove that tax concession and, last year, I was pleased when the Scottish Government announced that it would not proceed with the introduction of what we called the swim tax. I am proud of that particular slogan.
There is much in the bill that we welcome. We welcome the move from five-year to three-year revaluations, which is supported by the business community. All members will have had the experience of hearing the concerns of businesses about the increases in business rates through revaluations that are set five years apart. Although there is an appeal process in place, that has led to specific reliefs being introduced to deal with the changes arising from revaluations. Reliefs were introduced for the hospitality sector, for example, and for premises in Aberdeen and the north-east. A move towards a three-year revaluation schedule should reduce the demand for specific reliefs in the future.
The Barclay review’s proposals for a business accelerator, which would create an incentive for businesses to expand and remove the existing disincentive for speculative development by landlords, is also a positive step. The relief is intended to stimulate growth and investment and it is one that we very much welcome.
However, we have concerns about certain areas of the bill. The first is the fact that the date of the next revaluation is set at 2022, which leaves a five-year gap since the last one. It is at least worth exploring whether the next revaluation can be brought forward a year, to 2021, which would bring us into line with the situation south of the border. If it is technically possible, that move would be welcomed by business.
Kate Forbes
Will the member take an intervention?
Murdo Fraser
If it is brief.
The Deputy Presiding Officer
There is time for interventions, if you wish to take them.
Kate Forbes
Does Murdo Fraser accept that, in respect of the tone date, if we are to deliver all the Barclay recommendations, we must allow adequate time to implement the reforms correctly?
Murdo Fraser
I am sympathetic to that view, but I think that there is interest in the business community in exploring how achievable it would be to bring forward the date of the next revaluation.
The second area of concern is the tax treatment of independent schools. My colleague Liz Smith will say more about that later in the debate, but I will highlight three concerns that I have about the measure. First, there seems to be a degree of inconsistency in proposing the removal of a charitable relief from independent schools, which are constituted as charities and do not make profits—indeed many of them are in a precarious financial position—and, on the other hand, granting a new relief to private nurseries, which do make profits. There is a clear inconsistency, in that charities that are running a nursery as part of an independent school will have their relief removed, while other profit-making charities will have a new relief granted to them.
Secondly, the Office of the Scottish Charity Regulator has made very clear its strong opposition to what is being proposed. It stated in evidence to the committee that it has
“a long held general concern that treating any group of charities in a differentiated way for tax or other purposes, as proposed by the Barclay Review and now the Bill, introduces the potential for confusion in the minds of the public as to what it means to be a charity.”
If the Scottish Government wants to review the charitable status and tax treatment of independent schools, in my view, it should be doing so as part of a wider review of charity law, and not in the context of the bill. I know that my view is shared by OSCR.
Finally on this point, I simply cannot believe that the financial memorandum that is attached to the bill makes the assumption that there will be no additional cost to the public sector from introducing this tax grab of £7 million a year from independent schools. That money will be found only by increasing fees to parents, by cutting bursaries, or by a combination of both, which is bound to impact on the number of parents who choose to send their children to independent schools, which will put an additional burden on local authorities. That will particularly be the case in areas such as Edinburgh and Perth and Kinross, which I represent, where relatively high proportions of the pupil population are currently in the independent sector.
The last area that I will talk about is the large business supplement. The Barclay review recommended that the LBS, which is currently set at a rate that is nearly double that set south of the border, should be made competitive with the rest of the United Kingdom, to ensure that Scotland is the best place to do business. Barclay recommended that the LBS be reduced in 2020-21, or sooner if affordable.
It is disappointing that the measure is not addressed in the bill. We consistently hear from the business community that it is a major disincentive for businesses to invest in Scotland. In a parliamentary written answer that I received last week, it was revealed that there are more than 5,000 retail businesses in Scotland paying the LBS and cumulatively contributing nearly £14 million annually. It is a tax that is payable on business in Scotland and is not payable elsewhere in the UK. As David Lonsdale of the Scottish Retail Consortium stated in The Herald two days ago, it is a levy that
“sticks out like a sore thumb.”
I hope that the issue can be addressed either in the bill or separately.
We have therefore identified those three issues as problems with the bill. More generally, business rates continue to be a major source of complaint, and it remains our view that there should be a broader look at the business rates regime and business taxation. I was encouraged by the remarks of the committee convener that perhaps we need to consider whether a tax that is based purely on property values is still appropriate when so much business is conducted in cyberspace.
We welcome the bill overall. We have some reservations about it, but we will support it at stage 1 to allow it to continue through the parliamentary process, during which we will look to see how it might be improved.
16:14Sarah Boyack (Lothian) (Lab)
Non-domestic rates are a vital part of the funding that enables our local authorities to deliver the local services that people rely on. In the Local Government and Communities Committee’s evidence gathering in advance of this year’s Scottish Government budget, a key issue that was raised by witnesses was the financial cliff edge that local government faces. Therefore, ensuring that non-domestic rates are effective, that they enable funding for local services and that they are fair for our businesses and those organisations in the public sector that pay them is crucial.
Scottish Labour welcomes the broad thrust of the legislation, because it will make the system more effective and fairer in terms of its coverage. However, we believe that the legislation is a missed opportunity. It could have delivered more to incentivise culture change and address the challenges that our businesses and communities are facing.
The majority of the provisions in the bill are welcome: for example, the move to three-year valuations; the removal of charitable relief from independent schools; and measures to cut down on speculative appeals. However, the details of many of those areas will be left to Government to develop and implement after the bill has been passed, and their success will depend on consultation right across Government and with stakeholders, and on joint working with local authorities.
In some instances, the Government has given itself too much power and Scottish Labour believes that the bill should be amended at stage 2 to allow Parliament to scrutinise any further actions that are taken on business rates. Furthermore, we think that the bill represents a disappointing lack of ambition from the Government. It is limited to the scope of the Barclay review, which was itself too narrow.
I highlight that the bill should have engaged further with the current struggles that our high street is facing and evidence from the business community that aspects of the rating system deter growth. I particularly commend the representations of the Union of Shop, Distributive and Allied Workers—USDAW—to the minister. Those are worth taking on board.
Kate Forbes
Will the member take an intervention? It is a constructive one.
The Deputy Presiding Officer
Oh! Who could resist?
Kate Forbes
There are many recommendations from the Barclay review—ones that support the high street, for example—that have already been implemented because they do not need primary legislation. Is Sarah Boyack making the point that there is further work that we can do outwith the legislative process, or more that we can do that requires to be in the law?
The Deputy Presiding Officer
Ms Boyack, you will get your time back.
Sarah Boyack
We can do both, I think, and I thank the minister for her constructive intervention.
Another area is the urgent need for incentives for low-carbon investment. We urgently need to see new infrastructure for local heat and power schemes to create new opportunities for investment and to deliver new affordable low-carbon heat projects. Last month, Glasgow’s Councillor Anna Richardson made the point that
“the way district heating systems are treated in the local tax system acts as a deterrent to them being used more widely. Unfortunately, under present rules, installing district heating systems brings in significant new non-domestic rates and that adds unduly to the cost of heating homes.”
Her point is that homes that are heated by a district system are penalised in effect. How can it be right, when we need low-carbon community networks that are affordable, that there are disincentives that make them uncompetitive with the higher-carbon technologies that we are trying to move away from?
The Barclay review called for an examination of the effectiveness of the small business bonus scheme. I understand that work on that is now being carried out. It would be helpful to hear from the minister when that will be published.
There are key reforms that Scottish Labour supports. I have already mentioned moving property revaluations from five to three years; increasing the relief available to properties that have undergone improvement or expansion; reforming the appeals system to try to cut down on speculative appeals and enable earlier resolution; and removing charitable relief from most independent schools.
We also welcome sections 23 to 27, which give the Scottish ministers the power to introduce general anti-avoidance provisions for non-domestic rates. As the committee has noted, tax avoidance corrodes public confidence in the tax system and the shared sense that everyone plays by the same rules, especially when it is carried out openly and blatantly. We need to see clarification from the Scottish Government on whether it has considered the amendment of reliefs or the small business bonus scheme to ensure that we have an approach that prevents repeat offenders from acting, and we need to see what conclusions were reached.
We also want to see implementation of the change to the revaluation cycle from five to three years. That is a business-friendly change that, if implemented effectively, could also lead to a reduction in the number of speculative appeals against revaluation. A critical issue that has emerged is that the benefits of that proposal will be realised only if the Government has a plan to address problems of recruitment and retention in the assessor profession. That came through loud and clear in the evidence that the committee received.
We are also supportive of reforming the appeals process. The current system is unsustainable and leads to lengthy and resource-sapping backlogs that are not in the interests of ratepayers or administrators. We need more action to ensure that we have the staff to deliver the changes that are required.
The committee accepted that there is no good reason in principle why businesses in most public parks should continue to enjoy automatic exemption from the business rates regime. However, there are uncertainties about the scope of section 4 and how it will be implemented, and more clarity needs to be provided when we reach stage 2.
We agree with the committee that the ending of mainstream independent schools’ eligibility to claim charitable relief is to be supported. We believe that it is crucial that there is a level playing field for the state and independent sectors. The proposal will also generate more revenue for councils. We also support the intentions behind section 5, which seeks to close the loophole that enables some second home owners to avoid council tax and rates, and section 12, which seeks to address the problem whereby an empty property is purportedly being used for a particular purpose simply to allow relief to be claimed. There is much in the bill that we support, but more detail needs to be provided when we come to stage 2.
I want to end by commenting on the discretionary powers that are aimed at granting relief to sports clubs. It is good to see acknowledgement of the positive role of sports clubs in our communities, but there needs to be parliamentary scrutiny of the guidance that the Scottish Government intends to produce.
Given the range of issues on which further clarity is required, it is crucial that stage 2 is handled in a constructive way and that ministers can answer a lot of our questions. If that is not the case, there will be a great deal of uncertainty for business. There is much that we can support in the bill, but there are changes that need to be made and opportunities that can be taken.
The Deputy Presiding Officer
You must end there.
Sarah Boyack
I thank the witnesses who gave evidence to us and those who supported the committee’s evidence-gathering work.
The Deputy Presiding Officer
I call Andy Wightman to open for the Green Party.
16:21Andy Wightman (Lothian) (Green)
Thank you, Presiding Officer. Do I have five minutes or six?
The Deputy Presiding Officer
You have five minutes and a wee bit extra, but do not overplay your hand.
Andy Wightman
I will not. Thank you, Presiding Officer.
I note that this is the first time that the Scottish Parliament has considered primary legislation on non-domestic rates. Indeed, there has been no reform in more than a quarter of a century, since the Local Government Finance Act 1992. That is very telling. It demonstrates how little interest there has been in Parliament in local tax and how much power the 1992 act gave to the Secretary of State for Scotland—that power now lies with the Scottish ministers—in relation to detailed design of the non-domestic rating regime, including the rates themselves, the reliefs and other details, all of which are pushed through Parliament in secondary legislation. For a tax that, as the minister pointed out, is the second-highest-yielding tax under devolved powers, that is a remarkable state of affairs.
Therefore, the fact that we have a bill is welcome, but it is not welcome that it is so narrowly focused on a series of technical measures and that it leaves a vast number of questions unanswered. It is worth briefly reflecting on why that is. In September 2013, Derek Mackay—who was in the chamber a few moments ago—the then Minister for Local Government and Planning, published a response to a consultation document in which he said that the Scottish Government would
“conduct a thorough and comprehensive review of the whole business rates system”
by 2017, which would deliver
“a fairer, simpler and more efficient business rates system.”
That review never took place. Instead, we had the Barclay review, which asked only one question:
“How would you redesign the business rates system to better support business and incentivise investment?”
That is why OSCR, for example, never paid much attention to the review. It was only after the review had been completed that organisations such as OSCR suddenly realised that the findings had some relevance to them. The review was instructed on the basis that its recommendations would be revenue neutral. In practice, that meant that any proposals that were made to reduce liabilities in any way had to be balanced by measures that would make up for the lost yield. It is no coincidence that many of the measures that are in the bill to make up for the lost yield were plucked from thin air—the Government simply looked at a list of reliefs to find out where it could get the money to pay for the review’s recommendations.
The Barclay review was not the comprehensive review that was promised in 2013; that review has still to take place. It is in that context that Green members approach the bill. I will outline our key objections and proposed reforms before concluding with a more fundamental objection. At stage 2, Green members will lodge amendments, on all of which I undertook a consultation in the summer recess. I will say a few things about some of them.
First, members will be aware that non-domestic rates are a local tax, and yet, in 1992, Mrs Thatcher’s Government removed councils’ powers to set the rate. Since then, the rate has been set by negative instrument with next to no parliamentary scrutiny. We will lodge amendments to return the rates to the level of government to which they belong—local government. There will be issues of timescales and all sorts to debate in relation to that.
Secondly, it is bizarre that we have an incomplete tax base. Barclay recommendation 28 is that all property should be on the valuation roll and those currently exempt could then be granted reliefs, which would increase the transparency of, for example, the unjustifiable tax breaks afforded to agricultural holdings.
That recommendation was made as far back as 1976 by the Layfield committee, the Mirrlees review drew Government’s attention to the issue in 2011 and the land reform review group made a very clear recommendation on that topic in 2014.
In the past two years, more than 13,000 new entries have been added to the valuation roll, to cover shootings and deer forests. The vast majority of those will be registered agricultural holdings. We are well on the way to a complete roll, and we should commit to completing the task.
Thirdly, the non-domestic rate is a flat-rate tax—it has one rate of 49p or thereabouts—that is applicable to all properties, regardless of their value. We propose that there be a progressive rate, with a tax-free allowance, just like we have for income tax.
Other changes that we will be seeking include either removing the exemption that is granted in the bill for specialist music schools that are in the private sector, or retaining it but also applying it to the four specialist music schools that are in the public sector, such as the City of Edinburgh music school.
We also want the localisation of reliefs, and the provision of backstop powers to force owners to pay, rather than forcing occupiers to pay where the owners cannot be found. We also want there to be reforms to stop multibillionaires such as Sheik Mohammed bin Rashid Al Maktoum, the ruler of Dubai, being eligible for the so-called small business bonus scheme, and to ensure that all ratepayers pay something, which would eliminate what Barclay calls the “rates deserts”.
We have one major concern: the removal of the NDR tax base from the control of its historic owners—local government—is, in our view, a violation of international law. That breaches article 9 of the Council of Europe’s European Charter of Local Self-Government, which provides legal protections for the autonomy of the tax base of the local state. This situation cannot be allowed to persist. However, because it does—at the moment, anyway—we cannot support the bill; neither will we stand in its way, so the Greens will abstain on the motion this evening.
The Deputy Presiding Officer
I call Liam McArthur to open for the Liberal Democrats. You also have a generous five minutes, Mr McArthur—that is so that I am fair to everyone, as I always am.
16:27Liam McArthur (Orkney Islands) (LD)
As you always are, Presiding Officer—thank you very much, indeed.
I, too, thank James Dornan and his colleagues on the Local Government and Communities Committee for their work to date; I also thank those who contributed to the consultation.
I find myself in agreement with Andy Wightman’s analysis and many of his concerns. The bill includes a set of fairly modest proposals stemming from the Barclay review. That, too, was hobbled in terms of its breadth and its scope. We have been left with a bits-and-pieces bill.
I understand that we are dealing with a policy area that is uncomfortable territory for this and previous Governments. I remember well the business rates revaluation in 2010, which left many businesses, particularly in the hospitality sector, facing massive increases of up to, I think, 1,000 per cent in some cases, with no transition. At the time, ministers seemed largely unconcerned, and they were not concerned enough to delay the revaluation until 2016. In the bill, however, we see the imperative for having regular revaluations.
After 2010, we had the business rates incentivisation scheme, which got off to a fairly inglorious start. The Government and the Convention of Scottish Local Authorities were still arguing in 2014 about what the baseline for 2012 should be and about what the outcomes, performance and payments for any year should be.
Eventually, ministers had to fiddle the figures, short-changing Aberdeen to the tune of millions of pounds. Then they cancelled the scheme anyway. The risk in trying to fake localism is that more of a mess is created. I would rather this bill set about giving control of business rates to local authorities, for many of the reasons that Andy Wightman set out, which would give them the opportunity to form meaningful and strong partnerships with businesses in their area.
Linking to the existing roles in economic development and to business support into local colleges, each authority would have the clout to shape a more successful community. I accept that the same economic and taxation blueprint does not necessarily work in every region, and the bill does not provide for that.
The Scottish Government is scrabbling around to work out how to avoid taxing people who improve their properties, invest in machinery and install renewable energy. All those issues are inherent problems in the business rates system, and it is fundamental that the system be based on rental value.
Andy Wightman
This might seem to be a pedantic point, but the member has persistently referred to “business rates”. He and I are members of the Scottish Parliamentary Corporate Body, and I do not think that he regards us as business people in that respect. I have just looked it up and found that this building has a rateable value of £6,965,000. The non-domestic rating system is a rating system of the occupational value of non-domestic property. Conflating the system with the interests of business has been damaging to the debate that we have had over the past decade. I am sure that the member agrees with me.
The Deputy Presiding Officer
It is all right, Mr McArthur—you will get your time back.
Liam McArthur
I am happy to take Andy Wightman’s reprimand in the spirit in which it was intended. Having been a member of the corporate body for some eight years, I certainly bear the scars of the impact of the non-domestic rates of this building.
The issues that I mentioned are not tackled in the bill, which is why the Scottish Liberal Democrats believe that a move to a land value system could generate economic advantages and Government efficiencies, if it is linked to council tax reform. However, we do not have a major bill before us; we have a small bill.
Scottish Lib Dems hope that the bill, if it progresses, will close the loophole that allows second home owners to declare themselves a business and get rewarded with a Government tax cut. Willie Rennie has spoken strongly about concerns that holiday rental owners in parts of the east neuk of Fife are not paying their fair share.
Some of the consultation responses are right to point to the large burden that will be placed on local authorities to police the bill’s provisions, as they are currently worded. The respondents suggest making changes to the small business bonus, and I hope that the minister will respond to that. I would like to know how the review of the small business bonus and the review of micro-letting will impact on the ground. The Scottish Government has chosen one approach in the bill, while embarking on two reviews of two other approaches. Ministers are not so much putting the cart before the horse as setting three carts rolling downhill, all of their own accord. I would be interested to learn what timetable the Scottish Government thinks will best allow the three processes to be considered together.
I wish James Dornan and his colleagues on the committee all the best as they take forward their stage 2 scrutiny of the bill.
The Deputy Presiding Officer
We move to the open debate. I ask for speeches of a generous four minutes.
16:32Kenneth Gibson (Cunninghame North) (SNP)
I agree with Liam McArthur about the loophole in relation to second homes.
The bill will update Scotland’s non-domestic rates system and create a more modern and equitable ratings structure. In terms of revenue, non-domestic rates are the second most important devolved tax, behind income tax. In 2018-19, non-domestic rates accounted for £2,847 million; by comparison, last year’s council tax income was £487 million less than the revenue from non-domestic rates.
The Barclay review outlined 30 recommendations that were intended to make the ratings system fairer, make the ratepayer experience better and enable economic growth. I am pleased that the Scottish Government accepted the majority of the recommendations—not least, the one on three-year revaluations—and acted decisively to implement those that do not require primary legislation.
The business growth accelerator should be welcomed across the chamber. Under the current system, when a new property is built, or when an improvement or expansion of an existing property takes place, the rateable value increases. A key business objective is to grow, which is often done by improving or extending premises, but a property expanding so that it had a rateable value of £15,001 to £18,000 would result, in effect, in a payment of rates at 36.75 pence in the pound, and 49 pence in the pound if the rateable value was more than £18,000. Therefore, if the rateable value is £15,000, nothing is paid, but if the rateable value is £18,001, £8,820.49 is paid. That cliff edge can only inhibit expansion and dissuade owners from taking long-term growth decisions due to cost. The Barclay report stated that that
“penalises ratepayers who make environmental improvements (e.g. solar panels), face requirements to improve their properties as a result of regulation ... or invest in plant and machinery.”
Although the small business bonus scheme is not being considered in the bill, its positive impact in saving businesses from going under during a recession could be improved, to allow businesses to not only survive but grow. The Federation of Small Businesses has said that repeatedly.
In addition, the demand for small business premises, which benefit from the small business bonus, has led to overheating in the rental market for cheaper properties. That incentivises companies to take their business away from high streets, where costs are usually higher. The business growth accelerator will incentivise investment and growth, introducing a 12-month delay in rate increases when an existing property is expanded or improved. Entirely new properties will become liable for rates only after 12 months. I agree with Murdo Fraser that if the UK Government were to consider taxing online retailers, that would also help our town centres and shops.
The bill includes provision for reforming the rates revaluation appeals system to reduce speculative appeals and to enable earlier resolution. In 2017, 75 per cent of appeals resulted in no change to specific rateable values. Therefore, I welcome the committee’s conclusion that the existing system incentivises the making of appeals. That is primarily due to no fees being charged for appeals and the ease with which appeals can be lodged. Accordingly, I believe that an applicant who has initially been advised that an appeal has little chance of success should have a fee imposed to militate against the lodging of a spurious appeal.
Independent schools with charitable status are currently entitled to 80 per cent mandatory relief from non-domestic rates. I agree with the majority of committee members, who considered that all independent schools should pay rates and should no longer be able to claim charitable relief. Not only would that end an unfair and unequal practice in relation to state schools; it would generate more revenue for councils to spend on local services. I simply do not accept that independent schools would suffer, because the impact on fees would be only around 1.3 per cent across the sector—far less than that of recent teachers’ salary and pension changes. I believe that that approach should apply to the entire independent sector. It is simply anomalous and inconsistent to exempt one music school from paying rates.
Scotland has the most comprehensive package of rates relief in these islands, which is worth more than £750 million in the current year, and more than 90 per cent of properties pay a lower poundage compared with those in the rest of the UK. The bill puts us on track to achieve our goals of improving our non-domestic rates system, helping businesses to grow and encouraging long-term investment.
16:36Liz Smith (Mid Scotland and Fife) (Con)
I place on the record that I have been a governor of two independent schools.
I agree whole-heartedly with my colleague Murdo Fraser, who earlier in the debate raised Scottish Conservatives’ very serious concerns about the element of the bill that will affect independent schools. We will need to see that being changed before we can agree to the bill at stage 3.
I entirely agree with what Andy Wightman said about there being serious anomalies in respect of treatment of specialist music schools.
I also want to pick up on the point that James Dornan made about the Charities and Trustee Investment (Scotland) Act 2005 on reform of charity law. At the time of that act’s passage, some members believed that no independent schools should have charitable status, because they felt that such schools were elitist, so that special treatment should be removed. However, when the bill was voted on, it was passed unanimously because all parties agreed that the evidence that had been presented to Parliament showed that independent schools play a very valuable role, regardless of whether it was measured by educational, social or economic criteria. It is good to hear the minister agreeing with that.
The other point about the 2005 legislation is that Parliament also agreed—again unanimously—that the charity test should be tightened so that all independent schools were made much more accountable in respect of the public benefit that they offer and, crucially, that they were made much more accessible. That is an important point to remember, because it is relevant to the debate on the current proposals to remove charitable relief from such schools.
Fees in the independent sector will, unquestionably, rise by more than has been the current average annual fee increase, thereby increasing the likelihood that more parents will be unable to choose independent education. In turn, that will mean that the state sector—which is already very hard pressed when it comes to resource provision—will be asked to accommodate more pupils. The second part of the equation is that, by definition, that would then cause independent schools to become more elitist.
James Dornan
Will the member take an intervention?
Liz Smith
If James Dornan does not mind, I will not take his intervention because we are so short of time.
As I mentioned earlier, that is surely the exact opposite of what the Parliament unanimously decided in 2005 and of the Scottish National Party’s stated ambitions for education in Scotland. It would also put Scotland’s independent schools at a competitive disadvantage compared with those in England.
Also, does Parliament really want availability of independent schools’ facilities to be restricted because they will face much more serious financial constraints? Does it want one in which independent schools are no longer quite so able to offer assistance to state school pupils to study subjects that are not in their own schools’ curriculums or are unable to support local primary schools with arts, drama or sports provision?
Does the Parliament want a situation in which the independent sector is not so able to contribute to the target of 1,140 hours of nursery provision, or not so able to provide marking assistance for the Scottish Qualifications Authority, as was stated in one of the warnings that was issued to the committee?
Those are all possible scenarios, each of which would serve to undo all the excellent work that has been done by both state and independent schools to bring the sectors together to enhance education for all young people.
Worst of all, does the Parliament really want a situation whereby some smaller independent schools would close down altogether, which would adversely affect employment in local businesses as well as among their own staff? The Local Government and Communities Committee has been well told that that is a real risk.
There are some serious anomalies in the bill, and I do not think that the Scottish Government has thought them through. We will bring up those issues at stage 2. I am sorry that they have not been thought through, as is evidenced by the fact that there has been no accurate assessment of the effects of the bill. No assessment has been forthcoming in the financial memorandum, which says nothing about the true costs.
Kate Forbes
Will the member take an intervention?
Liz Smith
I am just about to close.
The Deputy Presiding Officer
The member is closing.
Liz Smith
The Scottish Government must review the situation. If that is not done, that will give a completely one-sided and biased view. Those are serious objections, so we will review the matter at stage 2.
16:41Alex Rowley (Mid Scotland and Fife) (Lab)
First, I apologise for being a few minutes late to the debate.
The committee’s report captures many of the key issues that were raised by people who gave evidence and submitted their views. I congratulate the committee’s convener and its members. I am pleased that the committee has focused on the concerns that were raised about the transparency of the revaluation process. It is ridiculous that, as many businesses do, a business would struggle to understand the process, and to understand how revaluation of its property has been done. The process for revaluations should—indeed, must—be totally transparent. If it is too complex and difficult for the majority of people to understand, it is clearly failing and should be challenged. I hope that we will see a culture change that puts people, and the need for them to understand the process, at the heart of revaluation.
In its report, the committee states:
“We also note widely shared views that the more transparent and intelligible the revaluations process is, the fewer appeals there will be, and invite the Scottish Government to confirm whether it sees opportunities, as the Bill continues through the Parliament, to ensure that the process will be more transparent in future.”
Whether the process is intelligible or unintelligible, we surely need to address that issue. From my experience of dealing with businesses in Fife, I can see that there has been no commitment to explaining properly how evaluation is done. That needs to change.
On staffing, many people in valuation talk about the pressure of work and the fact that while staffing levels are falling through pressure from cuts, the workload is increasing. I am pleased that the committee identified that point, and I look forward to hearing how the Government intends to address the workload pressures that contribute to retention challenges in particular. The move to three-yearly revaluation is welcome, but the committee asks what additional pressures that will put on an already overstretched service.
It is important to restate what the committee said about modernising the system for administrating revaluations and appeals. It said:
“We welcome the small steps taken so far in the Bill but urge the Scottish Government to seize the opportunity to consider further ways to streamline and modernise the process.”
I hope that the minister will pick up on that point, and on the many other well-made points in the committee’s report.
On arm’s-length organisations, I think that all members welcome the decision not to proceed with the Barclay recommendations. In reality, the recommendations being implemented would have led to massive pressure on services, and many council services that have been put into ALEOs would have collapsed.
However, the Government needs to clarify whether it is introducing a new policy that ALEOs that are being set up would not qualify for the same relief as the current ones do. I know from having been council leader at Fife Council about the pressure on the education department from many people to make cuts by making savings from putting all the schools out to an ALEO. Where would that stop? The Government recognises that there is a problem, but it needs to state clearly what its policy will be and give local authorities a clear understanding of that.
Once again, Presiding Officer, I apologise for being late for the debate.
The Deputy Presiding Officer
Thank you very much, Mr Rowley. You are a true gentleman.
16:45Joan McAlpine (South Scotland) (SNP)
I welcome the bill, but before I comment on it in detail, it is worth reminding members that under the SNP Scottish Government Scotland leads the way on rates relief. Scotland already has the most generous package of reliefs in the UK, which is worth more than £750 million in 2019-20, and more than 90 per cent of properties in Scotland pay a lower poundage than other parts of the UK this year.
Andy Wightman
Joan McAlpine mentioned the generous package of reliefs. Why does she think that Sheikh Mohammed bin Rashid Al Maktoum, who is one of the richest men in the world, qualifies for the small business bonus scheme on his estate in Kintail?
Joan McAlpine
I do not know anything about that gentleman’s property, and it would not be appropriate for me to comment on the details of someone’s personal tax affairs without looking into the matter further. However, I will certainly go away and do that.
I am pleased that the Scottish Government has already acted decisively to implement the Barclay review recommendations that do not require primary legislation. Those include expanding fresh start relief to help town centres, which is very important to my constituents in the market towns of South Scotland.
The bill reflects the Barclay review’s recommendations that are intended to overhaul and modernise the ratepayer’s experience of navigating the system, which was judged to be poor, in order to increase fairness and, of course, to promote economic growth.
The bill will put in place ambitious reforms to the appeals system, which will improve decisions and build trust. The new two-stage appeals system will facilitate better and earlier information sharing, and it will enable a “right first time” valuation in order to reduce the number of changes on appeal, and to build trust in the system.
The Barclay report acknowledged the
“strong consensus among stakeholders that 3 yearly revaluations ... would provide a better timeframe.”
I note that the briefing for the debate from the Union of Shop, Distributive and Allied Workers says:
“We believe that these changes will ensure that the rates system better reflects market/trading conditions and provide a more effective ‘natural stabiliser’ against cyclical economic effects as well as economic shocks.”
I want to say something about the measures in the bill that are aimed at tackling tax avoidance, with regard to empty properties in particular. Empty property is one of the biggest problems that we face in urban and rural regeneration, so I welcome the attention that has been given to the matter by Barclay and the bill. For example, it was suggested to the Barclay review that a well-known avoidance tactic to reduce an empty property’s rates liability is to occupy only a small part of the property as storage. That allows the owner to qualify for another relief or allows a new period of empty property relief to begin after a set period.
Section 12 of the bill deals with the first of those aspects. I will watch closely to see how that works in practice. I understand that the second aspect will be dealt with through subordinate legislation. Either way, it is important that councils use the new powers to tackle the scourge of empty property and, indeed, that they use the powers that they already possess to deal with the problem.
I note that Barclay recommended reform
“to restrict relief for listed buildings to a maximum of 2 years and the rates liability for property that has been empty for significant periods should be increased.”
The Government’s consultation said that, after two years, relief should fall to 10 per cent and that a surcharge should apply after five years, from 2020.
That would deal with a problem of which I have direct experience. I have been approached by constituents in the town of Annan who are directly affected by listed buildings that have been left to crumble. I pay particular tribute to William Hogg, who is a local resident. He led on a petition that asked for action to be taken on properties including the Albert hall, the Central hotel and Erskine church. Because I was not on the committee that scrutinised the legislation, I am unable to ascertain whether that Barclay recommendation on listed buildings will be enforced through the bill or through regulations. However, I note that the consultation proposed that it would take effect from this year, so I hope that the minister can confirm that that is the case.
16:50Alexander Stewart (Mid Scotland and Fife) (Con)
I am pleased to take part in today’s debate on the Non-Domestic Rates (Scotland) Bill.
As a member of the Local Government and Communities Committee, I thank all those who have supported us during our evidence sessions and given us information.
As a former councillor, I am aware of the impact and importance of non-domestic rates. The Conservatives welcome many parts of the bill. However, we also have to think of the consequences that councils are suffering because of the budget reductions from Government. In this financial year alone, they have already had a real-terms budget cut of £168 million. The Scottish Government is making political choices, and that is the context in which we should see the bill. Many changes are proposed; some go far but some do not go far enough and will not address the chronic underfunding of our councils.
Scotland has one of the lowest growth rates of any country in the European Union and a lower employment rate than other part of the United Kingdom. If Scottish employment had grown at the same rate as the UK’s over the previous 10 financial years, more than 300,000 more people would be in work in Scotland today. That is a staggering and sobering statistic.
On our high streets, retail has been hit particularly hard; Scotland continues to fall behind the rest of the United Kingdom. The committee visited some locations and it was harrowing to hear views from retailers about how they cope with the demands in city centres.
There has already been talk this afternoon about online businesses. As we go forward, they need to be looked at.
When we looked at the amounts that are being ploughed into rates, we found that the hotel and hospitality sector are finding the situation difficult. The renewables sector is also suffering. In Aberdeen and Aberdeenshire, the Government had to support businesses because their rates bill had doubled, trebled or, as we heard, gone up by 1,000 per cent. It is unsustainable for businesses to be put in that situation. I am delighted that the Scottish Conservatives were one of the groups that forced a U-turn, as a result of which £40 million was put into the hospitality sector in Aberdeen and Aberdeenshire.
Andy Wightman
Alexander Stewart has gone on at length about the situation in Aberdeenshire. Does he agree that it would have been better for Aberdeenshire to have had the powers in Aberdeenshire to deal with that problem years before it happened or shortly after it happened, rather than having had to come to central Government, in the national Parliament, to invoke a complex relief scheme?
Alexander Stewart
We have to balance the economy and ensure that there is growth across the sector. I hear what Mr Wightman is saying but I do not agree with it completely.
We know that the Government has looked at the Barclay review’s recommendations on revaluations. One of the biggest benefits will be that revaluations will take place every three years rather than every five years. That is important.
It is disappointing that, despite the long-standing promises to reform business rates, there is no firm timescale to reduce the large business supplement, which means that Scottish businesses are uncompetitive.
Kate Forbes
Will the member take an intervention?
Alexander Stewart
No. Time is pressing.
When he was Cabinet Secretary for Finance and Sustainable Growth, the current Deputy First Minister acknowledged that. He said that the SNP Government was
“committed to setting the poundage rate no higher than that set in England”.
However, seven years on, we have still not caught up with that. The commitment rings hollow.
We have already discussed the independent schools sector. I come from Mid Scotland and Fife, which has a large number of independent schools. I echo the concerns of my colleague, Liz Smith, on the proposal to remove their charitable relief. The comparison with the rates that state schools pay is misleading; it is only cycling money through different parts of the public sector. That should not in itself be looked upon as an area for discussion.
As my colleagues have indicated, we will support the general principles of the bill, but we have missed some opportunities to make progress and improvements. The bill fails to take Scotland’s business forward in a competitive way, and it does not give us the system that we want. We will support the general principles of the bill at this stage, but we will be seeking to amend it at stages 2 and 3.
16:55Rhoda Grant (Highlands and Islands) (Lab)
We welcome the bill, as do organisations such as the Scottish Retail Consortium and USDAW. We will support the bill at stage 1, and we will seek to work with the Government and colleagues to improve it as it goes through the Parliament at stages 2 and 3.
We welcome the powers for Scottish ministers to introduce general anti-avoidance provisions for non-domestic rates. As Sarah Boyack said and as the Local Government and Communities Committee noted,
“Tax avoidance corrodes public confidence in the tax system”.
We need to see tax as a good thing: our contribution towards building a better society. Tax avoidance is often seen as something that should be promoted and, in some instances, tax evasion is encouraged.
Kenneth Gibson spoke about having to deal with the whole tax system. When we see large companies offering miniscule amounts of money in lieu of their tax liability, that devalues the whole of the tax system. Indeed, it encourages others to avoid paying the tax that they are due to pay.
We agree with the committee about the change to end the exemption for mainstream independent schools that claim charitable relief. That is very much welcomed by us, as it creates a level playing field between the state and independent sectors. As many members have said today, that will give local authorities more funding. Along with the committee, we are not persuaded that there is a case for treating independent specialist music schools any differently from other independent schools.
Liz Smith
Would that case not be enhanced if there was a much more detailed financial memorandum?
Rhoda Grant
Indeed. There needs to be more detail on many aspects of the bill. As far as independent schools go, this matter has been a cause for angst for some time, and it is important that independent schools are treated the same as other schools and are not allowed rates relief based on charitable status. While there are independent schools providing specialist musical tuition, there are the same types of schools in the public sector, such as Scotland’s national centres of excellence. I should perhaps register an interest, as I am a former pupil of Plockton high school, which is now a centre of excellence in traditional music. It was not when I was there—and I cannot sing a note, so that is perhaps just as well. In any case, we will consider lodging amendments to strengthen that part of the bill.
Murdo Fraser spoke about further clarity being required on private nurseries, including those attached to independent schools. That is something that the Government needs to provide.
Alex Rowley talked about ALEOs and how they were used by councils that were often cash strapped in order to save money. We need to ensure that that does not backfire on councils at a time when their funding is reducing.
Many members spoke about revaluations and welcomed the change to the revaluation cycle from five years to three years, which will reduce the lag between the date at which the market value is calculated and real-time market conditions for business premises.
Alex Rowley spoke about simplicity in the system, which could lead to much fewer appeals if there were better explanations as to how revaluations were carried out. He also talked about recruitment and retention of assessors. If the cycle is to be reduced, we need to have adequate people in the system who will provide the valuations required. That means ensuring that people are trained, and that we treat those who carry out the work properly so that we can retain them. Many speakers welcomed the reforms to the appeals system.
As Sarah Boyack said, the bill could have engaged further with the current struggles on our high street. It is also a missed opportunity to examine ideas for local devolution, and the scope of rates relief to drive up things such as environmental standards—Sarah Boyack talked specifically about district heating systems—employment standards and the real living wage.
Derek Mackay
Will the member take an intervention?
Rhoda Grant
I am sorry, but I think that I am in my last seconds.
To quote Paddy Lillis of USDAW,
“The retail sector needs urgent action to protect these essential jobs which are a key part of our communities. Business rate reform is a central part of this, but a fundamental review of support for the sector is needed if we are to save our high streets from further decline.”
17:00Graham Simpson (Central Scotland) (Con)
I start by echoing the initial comments of my colleague Murdo Fraser expressing frustration at the truncated time that has been given to the debate. Although there have not been many members in the chamber, a lot of people are interested, and it is a very serious piece of legislation that affects a lot of people.
Moving on from that, I thank the committee clerks for their work on the stage 1 report, as well as my fellow committee members, James Dornan, Sarah Boyack, Annabelle Ewing, Kenny Gibson, Andy Wightman and my good friend Alexander Stewart, who spoke with his usual passion.
The rates system is fiendishly complicated, archaic even, ludicrous at times, and difficult for most people to comprehend. As the FSB said in evidence, only about two fifths of business owners believe that they understand how their rateable value is calculated. That the system has been in need of a shake-up for a long time is not in doubt. However, the bill does not do that. It is a missed opportunity.
True to form, the Government set up a review, which means that it can blame someone else—in this case, Ken Barclay. Unfortunately, the mild-mannered Mr Barclay had his hands tied by a very narrow remit, which told him to make recommendations that were revenue neutral. It is my belief that that instruction led his team to make their most controversial recommendation, on independent schools—though they would deny that.
Kate Forbes
The member of the committee took evidence from Ken Barclay. The idea that he was forced to set recommendations just to balance the books is ludicrous.
Graham Simpson
Well, he was told to balance the books. That is a fact, and it is my view that it led to the recommendation.
Much of the bill is not controversial. [Interruption.] It is sensible, even.
Derek Mackay
It is about fairness.
Graham Simpson
I am glad that the cabinet secretary is enjoying my contribution.
Derek Mackay
Will the member take an intervention?
Graham Simpson
No—perhaps later.
There are some good ideas in the bill: changing revaluations from every five to every three years; reforming the appeals system; making reforms to close a known tax avoidance tactic for those who own holiday homes, which can be used to avoid paying any local tax on the property; introducing the business growth accelerator, which will reduce the rates bills of growing firms; and making those who conduct commercial activity in parks liable to pay business rates. However, there is nothing about dealing with the large business supplement which, as Murdo Fraser pointed out, puts businesses in Scotland—
Derek Mackay
Will the member take an intervention on that point?
Graham Simpson
Yes.
Derek Mackay
Just out of curiosity, if it so happens that such a policy is affordable, would the Conservatives vote for a budget that reduced the large business supplement?
Graham Simpson
Dear me, dear me. We will have to see the entire budget to answer that question, and we will have to see what the Government is doing to councils and whether it will slash their budgets again.
There is another missed opportunity to do something about high streets, which is something that we could consider at stage 2.
I said that much of the bill is uncontroversial, but one section has proved anything but, and has attracted the most comment. That is, of course, the section that takes away reliefs for independent schools. Liz Smith spoke with great authority on the matter. Out of a total of 367 submissions, more than 300 were on the issue of the taking away of rates relief and most of those came from concerned parents, teachers and pupils. We as a committee took evidence and we even visited the independent school George Watson’s College, in Edinburgh. However, the die was cast on the rates relief removal issue before anyone contacted us, before we heard a word and before we stepped across George Watson’s impressive portal.
Parties have positions, which means that some people just do not like the idea of parents having the choice to pay for their children’s education. However, I prefer to go with the evidence, which was overwhelmingly that independent schools are charities, that all charities benefit from rates reductions and that to meddle with that arrangement is meddling with charity law. How can we attack one section of the charity sector without looking at the whole sector? It is a policy born of prejudice and spite. The Scottish National Party has not gone quite as far as Labour, with its aim of abolishing all independent schools, but removal of rates relief is the thin end of the wedge.
I did not know a great deal about the independent schools sector before scrutinising the bill, but what I found was a sector that is proud of its charitable status, proud of its work to widen access to its schools’ facilities, proud of helping the disadvantaged and proud of having schools that are part of their communities. I visited Hamilton College in my region, whose building is that of the former Strathclyde teacher training college. Hamilton College is not a fabulously wealthy institution and, from what I could see, many of its facilities lag way behind those of schools in the state sector—elitist it is not. However, Hamilton College takes its charitable status very seriously, not to avoid paying rates but as a mission. It rents out its facilities and has a pool that swimming icon Michael Jamieson uses for his swimming academy. He is elite, but he is not elitist. Do we really want to put that type of endeavour at risk? As we have heard, the Office of the Scottish Charity Regulator made some damning comments about the bill’s proposal.
There was a proposal to make one exception to amending the status of independent schools and it involved specialist music schools. However, there is only one such school in the sector: St Mary’s Music School in Edinburgh. There was no logic to that proposal and I wonder what or who lay behind it.
There will be amendments at stage 2. We are open to ideas. We will work with other parties and outside organisations to improve the bill. We will work with the minister, if she is willing to be flexible.
17:07Kate Forbes
I applaud and thank the members who have defended the timescale given to this critically important debate. As somebody who has been heavily involved with the bill, I believe that the more time given to it, the better.
Quite a number of points have been raised in the debate, but I will try my best to get through them. However, there is an open invitation to other parties to discuss any element of the bill in advance of amendments at stage 2.
James Dornan, the committee convener, referred to the broad welcome for three-yearly cycles. That in itself will resolve a lot of the challenges that we see in the appeals system. To address a point that was made by both James Dornan and Alex Rowley, I say that we need to both solve the appeals challenges and ensure that assessors are as well supported as possible. That is why we included £2.5 million in this year’s budget to go directly to assessors; that was the figure that they identified as the support that they needed this year and which they welcomed.
Murdo Fraser mentioned the business desire to see a tone date here that is in line with that of the rest of the UK. There are questions around the tone date for the rest of the UK because of the prorogation of Parliament, although I think that the bill to set the tone date there at 2021 is back in play. However, assessors were clear with us, and I believe that they were clear with the committee, that if we want to deliver the bulk of the Barclay recommendations and get things right, we need the timescale that is being proposed.
As I said in my opening remarks, the provisions are not about charity law or the important role that independent schools play. Liz Smith spoke about the financial impact, but that was assessed in the business and regulatory impact assessment.
Liz Smith
The financial memorandum does not, as it should do, give a fair and balanced view of both the costs and the benefits.
Kate Forbes
It was included in the BRIA. I find it difficult to accept that the magnitude of change that has been identified would be sufficient to lead to a mass exodus of pupils. The impact of our proposals is equivalent to a 1.3 per cent increase in current average fees. That is a small increase compared to the average yearly fee increase of 4 per cent. That is why the financial memorandum is as it is—we do not believe that the policy change will result in a mass exodus of pupils to the public sector.
On any potential movement, some of the calculations that have been flying around use the average cost of a school pupil, whereas they should use the marginal cost. In the majority of cases, the marginal cost of a pupil moving from the independent sector to the state sector would be zero. Even if 3 per cent of pupils were to transfer, we do not accept the suggestion that that would leave the policy revenue neutral. The financial impact has been considered through the BRIA.
I will move on to the other points that were raised. Sarah Boyack talked about the importance of guidance, and I agree with her on that point. I will endeavour to provide the committee with as much detail as possible for scrutiny. That will start with the commitment that I have made to provide details on illustrative appeals.
Sarah Boyack also asked about the small business bonus scheme, because the Barclay review called for a review of the effectiveness of the scheme. It called for that review to commence on 1 April 2020. We are ahead of the game here: the contract for the independent review was awarded to the Fraser of Allander institute in the summer. The aim of that review is to evaluate the impact of the small business bonus scheme and whether it can be better targeted to support local investment, employment and growth. It is set to report its findings in 2020.
Andy Wightman
I do not want to sound like a stuck record, but the minister represents a constituency that contains tens of thousands of acres of land owned by the aforementioned Sheikh bin Rashid Al-Maktoum—one of the richest men in the world—who is eligible for the small business bonus scheme. Notwithstanding the review, does she agree that it is ridiculous to exempt some of the richest people in the world from paying a modest contribution to Highland Council?
Kate Forbes
Incidentally, every so often he is my temporary constituent and—[Interruption.]
The point is well made and I do not dispute it. That is why we have committed to the review of the small business bonus scheme. The purpose of the scheme is to ensure that small businesses can grow, develop and invest. We want to ensure that the scheme is well targeted. That is why we have contracted an independent organisation to look at its effectiveness. I look forward to receiving the review’s recommendations and implementing those that we think appropriate.
In light of the time, I will move on. There has been some talk of devolution. We have made moves to devolve elements of non-domestic rates to local authorities, including the empty property relief. However, it is worth reflecting on the initial comments that were made to the Local Government and Communities Committee by the Convention of Scottish Local Authorities. COSLA welcomed the commitment that the Scottish Government made during consideration of the last budget bill to develop a fiscal framework. COSLA’s view is that non-domestic rates should be part of a discussion around local fiscal empowerment to help shape a wider, more far-reaching transfer of powers. However, it also accepted that we have started that process, which is good. I look forward to the other recommendations from the Green Party, all of which I will consider.
Liam McArthur mentioned the interaction with regulation and short-term lets. Those are two very different pieces of work and it is important that we do not conflate those issues. That work might help us reach a shared outcome on short-term lets, but the issue of taxation is very different to the issue of regulation.
Joan McAlpine focused on the current non-domestic rates regime and identified that, in Scotland, we have the most generous rates relief package anywhere in the UK, with more than 90 per cent of properties paying a lower poundage than that in the rest of the UK this year. That indicates the value and truthfulness of the comments that I made at the outset. The Government firmly believes that a strong economy with a growing competitive and innovative business community is essential to supporting jobs, income and our quality of life. The bill will help us to get closer to that ambition.
10 October 2019
Financial resolution
A financial resolution is needed for Bills that may have a large impact on the 'public purse'.
MSPs must agree to this for the bill to proceed.

Financial resolution transcript
The Presiding Officer (Ken Macintosh)
The next item of business is consideration of motion S5M-19269, on a financial resolution. I ask Derek Mackay to move the motion.
Motion moved,
That the Parliament, for the purposes of any Act of the Scottish Parliament resulting from the Non-Domestic Rates (Scotland) Bill, agrees to—
(a) any expenditure of a kind referred to in Rule 9.12.3(b) of the Parliament’s Standing Orders arising in consequence of the Act, and
(b) any charge or payment in relation to which Rule 9.12.4 of the Standing Orders applies arising in consequence of the Act.—[Derek Mackay]
10 October 2019
Stage 2 - Changes to detail
MSPs can propose changes to the Bill. The changes are considered and then voted on by the committee.
Changes to the Bill
MSPs can propose changes to a Bill – these are called 'amendments'. The changes are considered then voted on by the lead committee.
The lists of proposed changes are known as a 'marshalled list'. There's a separate list for each week that the committee is looking at proposed changes.
The 'groupings' document groups amendments together based on their subject matter. It shows the order in which the amendments will be debated by the committee and in the Chamber. This is to avoid repetition in the debates.
How is it decided whether the changes go into the Bill?
When MSPs want to make a change to a Bill, they propose an 'amendment'. This sets out the changes they want to make to a specific part of the Bill.
The group of MSPs that is examining the Bill (lead committee) votes on whether it thinks each amendment should be accepted or not.
Depending on the number of amendments, this can be done during one or more meetings.
First meeting on amendments
Documents with the amendments considered at this meeting held on 27 November 2019:

First meeting on amendments transcript
The Convener
Agenda item 2 is consideration of the Non-Domestic Rates (Scotland) Bill at stage 2. I welcome Kate Forbes, the Minister for Public Finance and Digital Economy, who will speak to and move amendments on behalf of the Scottish Government. I also welcome her officials.
Section 1—Overview of Act and interpretation of references to other Acts
Section 1 agreed to.
Before section 2
The Convener
Amendment 1, in the name of Andy Wightman, is grouped with amendments 5 and 84.
Andy Wightman (Lothian) (Green)
This group of three amendments deals with two distinct issues. Prior to 1956, there were owners’ rates and occupiers’ rates. Currently, the liability for rates lies with the occupier. Amendment 1 would transfer that liability to the owner, who is the party that ultimately benefits from the services that are provided by local authorities and the state more widely in protecting and providing the necessary amenities and infrastructure that generate the value for the owner and the prospect of a return by way of rent. Locating the owner is easier than locating the occupier, and a charge could be secured against property for unpaid rates, if necessary. That is amendment 1.
Graham Simpson (Central Scotland) (Con)
You said that tracing the owner is easier than tracing the occupier. How do you work that out?
Andy Wightman
Because the owners are all listed on a public record.
Graham Simpson
That does not mean that they are easier to trace.
Andy Wightman
They are all on a public record. People can inspect the public record to find out who the owner is and, if necessary, take a charge against the property.
Amendments 5 and 84 deal with a different problem. The committee will recall hearing evidence about phoenix companies that occupy non-domestic property. They appear and disappear, preventing challenges for recovery of unpaid rates. We also heard from Brian Murison, who is the revenues manager at Highland Council, about shell companies as occupiers. In his evidence, he argued that, collectively, they owe around £2 million in unpaid rates across Scotland.
Given that the occupier can disappear but the owner cannot, it seems reasonable to make provision to secure the liability from the owner instead in defined circumstances in which there are difficulties in securing the payment of rates from an occupier. On an initial reading of section 16 of the Valuation and Rating (Scotland) Act 1956, it might appear that councils already have the power to chase the owner when they cannot chase the occupier. However, I read that as a saving provision that was applicable only in the immediate aftermath of the abolition of owners rates.
I initially lodged amendment 5 to provide guidance on section 16 of the 1956 act, but I will not seek to move it. Amendment 84 does the job required. It provides that any council that is
“unable to recover rates ... from the occupier”
has the opportunity
“to recover the rates from the owner”,
and the regulations will set out the specific circumstances in which that can happen. As I said, the intention behind the amendment is not to provide a wide power to collect rates from owners, but to provide a power to do so only in those defined circumstances in which it proves impossible to recover them from the occupier. That seems to me to be a proportionate and sensible response to a real problem that was identified by witnesses.
Annabelle Ewing (Cowdenbeath) (SNP)
Was that one of the Barclay proposals? I do not remember us discussing it when those came to the committee.
Andy Wightman
As I recall, the Barclay review did not identify the issue, and when it came up in the committee the first time, members were rather surprised, because it was perhaps the first time that they had heard about it. I do not know why the Barclay review did not consider it, although perhaps that is explained by the fact that it had a very narrow remit.
Amendment 84 is a proportionate and sensible response to a real problem. I ask members to give it serious consideration.
I move amendment 1.
Kenneth Gibson (Cunninghame North) (SNP)
Following on from what Annabelle Ewing said, I do not think that we should support amendment 1, for several reasons. First, I accept that it might be easier to know who the owner is, but in my constituency there have been difficulties in getting owners to repair buildings because they live in places such as the Republic of Ireland and the Isle of Man. Secondly, we are trying to implement the recommendations of the Barclay review, but the proposal was not even considered by Barclay and was not one of the review’s recommendations. To bring in such a monumental change at this stage, given that we have not taken any evidence on the matter, is wholly inappropriate.
Sarah Boyack (Lothian) (Lab)
I am very interested in the anti-avoidance measure that is set out in amendment 84. The issue of how local authorities can chase people who deliberately avoid paying non-domestic rates has been raised with me, and I have lodged amendment 101, which is similar, although it relates to a later section in the bill, which we will discuss later today.
I am keen to support the principle behind the amendments, because it is important that local authorities have the powers to prevent people from evading such taxes. Our discussions during the process of shaping the bill should send a clear message that that is unacceptable. I am interested in hearing the views of Andy Wightman and the minister on the difference between the effectiveness of my amendment 101 and that of Andy Wightman’s amendment 84.
The Convener
The minister will have a chance to speak in a moment.
Sarah Boyack
Yes, but I wanted to flag up the fact that I would like the minister to comment on that.
I am interested in the different approaches. I think that our amendments are trying to do the same thing, but I would like to hear not only from the minister and Andy Wightman, but from any member who has views on the matter.
Alexander Stewart (Mid Scotland and Fife) (Con)
My views on amendment 1 are similar to those that we have heard from other members of the committee. In some circumstances, it is difficult to ensure that the owner of a property has the feu liability. We have numerous examples of situations in which buildings have fallen into disrepair and, because the owner is outwith the country, it takes years for the community to manage that blot on the landscape. I have some difficulty with amendment 1 in that regard.
Graham Simpson
Last night, we received a late submission from the Scottish Property Federation. I was struck by its point that the proposal would be a fundamental change in the business relationship between owners of properties and people who lease them. If someone signs a lease, that can—and usually does—make them liable to pay non-domestic rates and water rates. The SPF said that there had been just over 4,000 new lease transactions in Scotland in the past year, which would suggest that the change could have an impact on tens of thousands of leases.
Andy Wightman
Will the member take an intervention?
Graham Simpson
I have almost finished making my point.
It would be a fundamental change and one that might have unintended consequences.
The Minister for Public Finance and Digital Economy (Kate Forbes)
I will speak about the point that it would be a fundamental change before moving on to the substance of the amendments.
Members are right to say that the proposed reform, which was not considered by Barclay, would mark a substantial move away from the system that has been in place since 1956. The consequences of such a move have not been assessed or scrutinised by Parliament. There are several big questions, such as whether, in some cases, making owners liable could increase rates avoidance and whether councils would find it easy to recover rates on properties that are in foreign ownership. Those questions would need to be answered before we make such a substantial move away from the rates system as we know it.
Regarding the substance of the amendments, on amendment 1, there is certainly merit in the notion that councils might benefit from additional tools to tackle rates avoidance.
Andy Wightman
Will the minister take an intervention?
Kate Forbes
Yes.
Andy Wightman
There has been a lack of clarity from members on which amendment they are talking about. Minister, you just mentioned amendment 1 in relation to avoidance. I think that you mean amendment 84.
Kate Forbes
I mean your first amendment.
Andy Wightman
Amendment 1.
Kate Forbes
Your first amendment is about transferring the rates liability on a property to the owner rather than the occupier. One of the benefits that you identified when you spoke to that amendment was that it would enable councils to benefit from additional tools to tackle rates avoidance.
Andy Wightman
It is amendment 5 that is designed to provide the tools to tackle not so much avoidance but the situation that was highlighted to the committee by two separate witnesses, whereby millions of pounds in rates are not being collected because companies are formed and wound up over and over again. Therefore, amendment 84 is about providing the opportunity, in limited circumstances, to get the rates payment from the owner.
Amendment 1 is fundamentally different in that it would completely change the whole non-domestic rates system. It is important that we understand the distinction.
Kate Forbes
I appreciate that clarity, which is helpful. As you said, amendment 1 would substantially change the rates system. It has been identified that one of the merits of doing that is that it would enable rates avoidance to be tackled. I was merely making that connection.
I cannot support amendment 1. Such a substantial change would need to be scrutinised before we could go down that route.
I will not speak to amendment 5 unless the member wants me to, because he does not intend to move it.
Amendment 84 would allow councils to recover rates from the owner of a property when they are unable to do so from the occupier. It is unclear to me from the drafting of the amendment whether the council would have full discretion to exercise that power, or whether the circumstances in which a council may recover rates from an owner should be dealt with in the regulations that amendment 84 would allow the Scottish ministers to make.
As I mentioned, we are firm believers in tackling avoidance, which is why part 4 of the bill provides the Scottish ministers with the power to propose regulations to prevent or minimise advantages that arise from
“non-domestic rates avoidance arrangements”
that are “artificial”. As the bill requires us to consult assessors and local authority representatives on those regulations, the people who administer the system will have greater input than would be the case under an amendment to the bill.
In response to Sarah Boyack’s question, I point out that amendment 101 is narrower than amendment 84, in that it talks only about the recovery of rates that could take place when arrangements are subsequently made unlawful by our general anti-avoidance regulations.
The Convener
Normally, we do not speak to amendments that we have not yet reached, but I thank the minister for providing clarity on that point.
I ask Andy Wightman to wind up on amendment 1.
Andy Wightman
I want to put something on the record, because some members did not say which amendment they were talking about. I accept that amendment 1 would involve a fundamental change to the rating system, and I do not think that there is support among committee members for that.
I do not accept Mr Gibson’s argument that the issue was not in the Barclay review. The whole point is that this is a non-domestic rates bill. It is the only one that we have had in 20 years, and it is probably the only one that we will get for another 20 years. The Barclay review was defined in extremely narrow terms; it asked one question of consultees. The bill gives Parliament the opportunity to amend the non-domestic rating regime more generally, if it so chooses.
As I said, I will not seek to move amendment 4.
Members: Amendment 5.
Andy Wightman
Amendment 5—I apologise.
However, I might come back to that in the light of whatever happens with amendment 84, because although the minister correctly said that part 4 of the bill deals with anti-avoidance, it is about avoiding artificial arrangements. That is good—there is no problem with that.
Amendment 84 deals with a very specific problem, which was highlighted to the committee in evidence by two separate witnesses, one of whom was a professional valuer; the other was the head of revenues at a local authority. They made it very clear that there are circumstances in which occupiers are so-called phoenix companies or, as in the case of Highland Council’s evidence, so-called shell companies—typically, Scottish limited partnerships, where the director is ultimately found to be an elderly gentleman in Edinburgh who did not even know that he was a director—and councils cannot recover those rates. In those defined circumstances, amendment 84 would give councils the power to seek recovery from the owner.
08:45To answer the minister’s question regarding regulations, there might be some drafting adjustments to be done, but my intention is that the circumstances in which councils would have the power, and the way in which the power could be exercised, would be set out in regulations. Amendment 84 would make it clear that councils have that power.
I lodged amendment 84 because, although I read section 16 of the 1956 act as a saving provision, the advice that I took suggested that it could be read as a continuing power that councils still have to recover rates from owners. If that is the case, the power is not well defined. Therefore, for the avoidance of all doubt, I do not want to rely on what drafters might have thought and intended in 1956, so I am seeking to insert a new section—
Kate Forbes
I confirm that I agree with the sentiment of amendment 84, which might not be a great consolation, but the point that I was trying to make was that I would far rather go down the consultative route, which would involve assessors and local authority representatives having an input, in considering whether to provide councils with additional powers. I recognise that Andy Wightman wants to achieve that through a formal amendment. I certainly agree with the thrust of his proposal; I just do not think that an amendment is the right way to go about it. I would rather go down the consultative route.
Andy Wightman
I thank the minister for that comment. She mentioned “the consultative route”, but the bill is probably the only legislative opportunity that we will have for another 20 years. I am very happy for there to be consultation on the matter, and that would not be difficult to organise between now and stage 3. I am certainly happy to consider amendments to amendment 84 that would subject the regulations to consultation. I do not see any conflict between the intention of the amendment and the need for consultation, in so far as the regulations that would give effect to the proposal, setting the commencement date and so on, can and—I agree—should be subject to consultation. I would be happy to consider that at stage 3; I agree with that point.
However, if we do not get a provision into the bill at this stage, we will never have the opportunity to address an issue on which we received clear evidence. I would not necessarily describe the issue as being one of avoidance, although, in the case of shell companies, it is avoidance, as they are intentionally winding themselves up and disappearing as legal entities. They obviously have no further liability for rates, because there is no legal person around. That is a clear problem that has been identified by councils, and we, as the Parliament, have a duty to do as much as we can to provide a remedy in the limited circumstances in which the problem arises.
The Convener
The question is, that amendment 1 be agreed to. Are we agreed?
Members: No.
The Convener
There will be a division.
For
Wightman, Andy (Lothian) (Green)
Against
Boyack, Sarah (Lothian) (Lab)
Dornan, James (Glasgow Cathcart) (SNP)
Ewing, Annabelle (Cowdenbeath) (SNP)
Gibson, Kenneth (Cunninghame North) (SNP)
Simpson, Graham (Central Scotland) (Con)
Stewart, Alexander (Mid Scotland and Fife) (Con)
The Convener
The result of the division is: For 1, Against 6, Abstentions 0.
Amendment 1 disagreed to.
Amendment 5 not moved.
Amendment 84 moved—[Andy Wightman].
The Convener
The question is, that amendment 84 be agreed to. Are we agreed?
Members: No.
The Convener
There will be a division.
For
Boyack, Sarah (Lothian) (Lab)
Wightman, Andy (Lothian) (Green)
Against
Dornan, James (Glasgow Cathcart) (SNP)
Ewing, Annabelle (Cowdenbeath) (SNP)
Gibson, Kenneth (Cunninghame North) (SNP)
Simpson, Graham (Central Scotland) (Con)
Stewart, Alexander (Mid Scotland and Fife) (Con)
The Convener
The result of the division is: For 2, Against 5, Abstentions 0.
Amendment 84 disagreed to.
Section 2 agreed to.
After section 2
The Convener
Amendment 6, in the name of Andy Wightman, is in a group on its own.
Andy Wightman
As the committee is aware, recommendation 28 of the Barclay review was:
“All property should be entered on the valuation roll (except public infrastructure such as roads, bridges, sewers”
and so on. A key argument for bringing things on to the roll is that, at the moment, with certain subjects being exempted, there is no information at all about the value associated with the properties—and, therefore, about the revenue forgone and the costs incurred by such exemptions.
For example, a £1 million a year agricultural operation on the edge of a small town is completely exempt from contributing to local authority revenue, while the schools, the pubs, the shops and cafes in the local town are all on the roll and all valued. So the first argument for this—in fact it was a key recommendation of Barclay—is that bringing all properties on to the roll improves transparency. This should not be onerous. More than 10,000 new entries have been made in the past two years in the wake of the Land Reform (Scotland) Act 2016.
The Convener
Are you speaking to amendment 6?
Andy Wightman
Sorry, convener—no, I am not speaking to amendment 6. I apologise. May I start again?
The Convener
Yes.
Andy Wightman
Amendment 6 would alter the basis of valuation of property. In the current non-domestic rates system the whole property is assessed for its rental value, which is a combination of the site and improvements to the site. This amendment provides that the valuation be split, as is done in Denmark, for example, so as to provide two values to the ratepayer. One values the unimproved site and the other provides the value of the improvements, typically buildings. This would enable authorities—if, of course, they are given back the power to set the rate—to weigh the two valuations so as to weigh the rate more on the site value than on the improvements, for example. That would avoid the current situation, which disincentivises improvements.
Of course, a weighting of 100 per cent on a site would, in effect, deliver land value taxation. A weighting the other way, of course, would be perfectly legitimate as well. So this is a reform to the way in which valuations are done and reported to ratepayers: it would make no change, in and of itself, to the rates that are set or the way that they are set. I believe that this reform would provide greater flexibility in the way that rates are applied and would be easily implemented by copying the process that is already in place in countries such as Denmark. I apologise for setting off by talking about the wrong group of amendments.
I move amendment 6.
Kate Forbes
Thank you for those opening comments. I shall start with the practical implications and then comment briefly on land value tax. I do not want to sound like a broken record, but my point about the practical implications is similar to what I said on amendment 1: it would be a fundamental change and it is unclear to me what replacing the “net annual value” of properties, which in turn is used as the basis for the rateable value, with their “value” would achieve, short of leading to an immediate and fundamental change in the tax base and the way that assessors ascribe a value to properties. I fear that this would leave assessors in the very difficult position of having to determine, without the precedent of case law, what is an appropriate way to carry out evaluations.
On land value tax, the Barclay review concluded that more work should be done to assess land values so that the debate over land value tax could be better informed, but until that information exists, any move to a land value tax that has not been properly assessed, consulted on and scrutinised by Parliament would constitute a complete and total overhaul of non-domestic rates.
Finally, my fear is that the amendment would make parts of section 6 of the Valuation and Rating (Scotland) Act 1956 unworkable, as well as a large number of other acts and secondary instruments that would have to be amended to refer to “value” rather than “net annual value” or “rateable value”. In light of that, I am unable to support the amendment.
Andy Wightman
I would not say that this would be a fundamental change. Valuers undertake their valuations independently and it is not for us to tell them how to go about their business. They derive their own practice notes, they are members of international associations of valuers and they are routinely exposed to best practice globally. This is not about implementing a land value tax—there is nothing in the amendment that would require that—it is simply about providing a more nuanced valuation of sites. Of course, it would enable the implementation of a land value tax, but it does not obligate it. I shall leave it there and press the amendment.
The Convener
The question is, that amendment 6 be agreed to. Are we agreed?
Members: No.
The Convener
There will be a division.
For
Wightman, Andy (Lothian) (Green)
Against
Boyack, Sarah (Lothian) (Lab)
Dornan, James (Glasgow Cathcart) (SNP)
Ewing, Annabelle (Cowdenbeath) (SNP)
Gibson, Kenneth (Cunninghame North) (SNP)
Simpson, Graham (Central Scotland) (Con)
Stewart, Alexander (Mid Scotland and Fife) (Con)
The Convener
The result of the division is: For 1, Against 6, Abstentions 0.
Amendment 6 disagreed to.
Section 3—New or improved properties: mark in valuation roll
The Convener
Amendment 16, in the name of the minister, is grouped with amendments 17 and 18.
Kate Forbes
Amendments 16 to 18 are relatively technical in nature. They relate to the mark that assessors have to include in entries in the valuation roll that relate to new builds and improved properties. The mark assists councils in determining eligibility for business growth accelerator relief. The amendments exclude from the definition of “newly built” properties those properties that are being added to the roll because they were previously exempt from being on it but are not newly built. Examples include agricultural lands and heritages and rural ATM sites. If properties of those types undergo a change in use, it may make them liable for entry in the roll. The amendments in the group will ensure that only properties that are newly in existence will warrant a mark in the roll.
Amendment 18 will ensure that the assessor will remove the mark from an entry in the valuation roll when there is a change to the entry, for example at revaluation. The purpose of the mark is to allow the local authority to identify which changes made by the assessor potentially qualify for business growth accelerator relief. Once made, the purpose has been served, as the local authority will administer the relief for as long as the person is entitled to it, so there is no need for the mark to remain in the roll.
I move amendment 16.
The Convener
As no one has any comments, do you wish to wind up, minister?
Kate Forbes
I have nothing further to say on the amendments in the group.
Amendment 16 agreed to.
Amendments 17 and 18 moved—[Kate Forbes]—and agreed to.
Section 3, as amended, agreed to.
After section 3
The Convener
Amendment 7, in the name of Andy Wightman, is grouped with amendment 8. I call Andy Wightman to move amendment 7 and speak to both amendments in the group—again. [Laughter.]
Andy Wightman
I apologise for that, convener. As I was saying, recommendation 28 of the Barclay review was that
“All property should be entered on the valuation roll ... except public infrastructure”.
A key argument for that is that the current way in which we provide for exemptions in primary legislation means not only that no liability arises for exempt properties but that there is no information on the value that is associated with those properties. The cost of such exemptions is incurred by other ratepayers. In the remarks that I made previously, I gave the example of a £1 million a year agricultural operation that is exempt even though it relies on the same services that the local schools, pubs, shops and cafes rely on, and they are valued and on the roll. Whether they pay rates is a separate question, given the systems of relief and so on.
Bringing all properties on to the roll would improve transparency and, as I said, it would not be onerous. Over 10,000 properties were entered in the two years following the passing of the Land Reform (Scotland) Act 2016, which brought shootings and deer forests back on to the roll, those having been removed in 1994.
Kenneth Gibson
Andy Wightman said that it would not be onerous, but that is not the evidence that we heard from the assessors, who told us that they are already under severe pressure and that they have difficulty in recruiting new assessors. What would be the cost of the exercise and what would be the purpose in financial terms, given that ministers have made it clear that they would provide 100 per cent exemption for such buildings in any case?
Andy Wightman
I have not made an assessment of the costs, but I am putting the evidence of what has happened in the past two years, when over 10,000 properties have been entered on to the roll. If such properties are deemed to be worthy of having no liability for rates, that is better put into practice by the granting of relief. It then becomes a conscious decision that has to be justified and is open to scrutiny.
Amendment 7 would bring on to the roll almost all properties that are currently exempt. The exception would be those that are covered in subsection (3) of the proposed new section, which cannot be included for various reasons.
Annabelle Ewing
On that point, I note that fish farms would be brought on to the roll. Salmon companies pay rates on land, properties, processing plants and so forth. My understanding is that the offshore cages and so on are leased from the Crown Estate. That is the current arrangement. What reflection have you made on the benefits or disadvantages of what you propose with regard to the Crown Estate and of changing that arrangement and potentially bringing those things into the rates system without—it would appear—any consultation with relevant stakeholders? That would be a double whammy. Is that what you intend to do?
09:00Andy Wightman
I do not really understand the point of your intervention. They are tenants of the Crown in the same way that all—
Annabelle Ewing
Excuse me, could I perhaps—
The Convener
No, it was an intervention. This is not a debate.
Annabelle Ewing
I know, but the member said that he did not understand.
The Convener
Andy Wightman started to answer. If he lets you intervene again, please make it short. Andy, on you go.
Andy Wightman
Thanks, convener.
Obviously, the fish farms are tenants of the Crown and, just like tenants in offices up in Tollcross, they pay rates. That is what occupiers do. The fact that the landlord is the Crown is neither here nor there—the landlord could be anybody.
Annabelle Ewing
Will Andy Wightman take an intervention on that point?
Andy Wightman
Okay.
The Convener
Annabelle, you will get a chance to come in after he has finished.
Annabelle Ewing
The member indicated that he would take a brief intervention.
In Andy Wightman’s scenario, the offshore salmon farms would pay rent to the Crown Estate, which is the current arrangement, plus they would pay rates. Is that what he is advocating?
Andy Wightman
All tenants of non-domestic property pay rent to the landlord—that is an obvious statement—and they are liable for non-domestic rates. I do not understand what the issue is. Just because someone pays rent does not mean to say that they do not pay rates. I have dealt with amendment 7, so I will move on.
Amendment 8 is an alternative way of moving towards the same objective, though we may never get there. One of the problems with exemptions, as opposed to reliefs, is that they are set out in primary legislation and, therefore, they can be removed only by subsequent primary legislation; that is what amendment 7 seeks to do, but I do not anticipate support for it. Having exemptions in primary legislation that require further primary legislation to amend them is, in many ways, a clumsy way of proceeding. If amendment 7 is not agreed to—I do not expect it to be—we will lose the opportunity to review those exemptions for perhaps another 20 years, or whenever we get another non-domestic rates bill.
Amendment 8 would allow exemptions that are currently set out in primary legislation, of which there are quite a lot, to be removed by secondary legislation. Some exemptions are set out in primary legislation and some are in secondary legislation; those that are set out in secondary legislation can of course be easily removed or amended, but those in primary legislation require further primary legislation to remove or amend them. Amendment 8 would provide a power to the Scottish ministers to make regulations that would remove any exempt subjects that are currently exempt by means of primary legislation. Amendment 8 would not, in itself, remove the exemptions, but it would allow for that possibility in the coming years.
I move amendment 7.
Graham Simpson
Will Andy Wightman take an intervention?
Andy Wightman
I have just finished.
The Convener
If you have just finished, that is great. Let me clarify that interventions should be short and to the point. If members catch my eye, they can get in and make their contribution, if it is relevant.
Graham Simpson, do you want to come in?
Graham Simpson
I was going to ask Mr Wightman a question, but I will just make my point. Amendment 8 is better than amendment 7, as it would potentially tackle the serious issue of consultation that was raised by Ms Ewing. It would allow ministers to at least consult on such issues, whereas amendment 7 is all-encompassing.
Sarah Boyack
I have a similar point. I totally understand where Andy Wightman is coming from with amendments 7 and 8, given that it was one of the recommendations of the Barclay review, and I get the fact—raised by Kenneth Gibson—that there is an issue of priorities and timing.
However, equally, this is our chance to amend non-domestic rates, and I am tempted by amendment 8 as a way to do that by giving the Scottish Government the capacity to do it at a later point. It does not need to be done by Christmas. Representations could be made and consultation could be done. The principle is good.
I raise the matter of clarifying the issue of ATMs. We see their removal right across the country, with the result that people are losing access to cash machines. There is also the issue of free cash machines. I would not want to do anything that inadvertently hastened the decline and removal of ATMs, but my understanding of amendment 8 is that we would be able to craft what is exempted and things would not automatically move on to paying rates. However, the amendment would enable the system to be transparent in a way that it currently is not.
For those reasons, I am keen to support amendment 8. It is not a bad thing that the committee has two choices, but amendment 8 is better because it allows the Government to do a proper consultation while, equally, we will get progress and the issue will not be parked for a decade or two.
Kate Forbes
I will speak to amendment 7 first. I agree that there is merit in having better information on the properties that Andy Wightman identified, which are currently excluded from the valuation roll. However, in line with Barclay, I do not believe that the administrative and associated financial burden on assessors and businesses would be worth while when we have no intention of levying rates on those subjects. Barclay proposed that, in the interests of transparency, rather than exempting properties from the roll they should be entered into it with 100 per cent relief but, because of state aid restraints, that is not feasible for some properties, particularly in agriculture and fisheries.
As such, removing the exemption would have significant cost implications for the agricultural sector, it could easily cause the further deployment of offshore wind to cease and it could present unnecessary risks to rural communities—for example, those that rely heavily on local bank cash machines. I do not think that those inevitable consequences are a price worth paying for the amendment, particularly for the agricultural sector, which is already facing huge uncertainties as a result of Brexit. Therefore, I encourage the committee not to vote for amendment 7.
There is no reason to resist or reject amendment 8, but we do not see a need for it because ministers already have the power to set exemptions by order. I do not think that the amendment adds anything new.
Andy Wightman
My understanding is that ministers cannot remove an existing exemption from primary legislation. That is the point of amendment 8. You appear to be arguing that you already have that power. That is not my understanding, but I stand to be corrected.
Kate Forbes
As I say, I am fairly equivocal on the amendment. I do not see a need for it because exempted classes can already be set by order, but it is right to say that we cannot exclude existing ones, which is what I think Andy Wightman’s question was. If members wish to support amendment 8, we have no concerns about that.
Andy Wightman
That was helpful. To clarify amendment 8, my understanding is that ministers have the power to make new exemptions under secondary legislation if they wish, but they do not have the power to remove existing exemptions that are set out in primary legislation. The amendment provides the power to remove existing exemptions by regulation.
I press amendment 7.
The Convener
The question is, that amendment 7 be agreed to. Are we agreed?
Members: No.
The Convener
There will be a division.
For
Wightman, Andy (Lothian) (Green)
Against
Boyack, Sarah (Lothian) (Lab)
Dornan, James (Glasgow Cathcart) (SNP)
Ewing, Annabelle (Cowdenbeath) (SNP)
Gibson, Kenneth (Cunninghame North) (SNP)
Simpson, Graham (Central Scotland) (Con)
Stewart, Alexander (Mid Scotland and Fife) (Con)
The Convener
The result of the division is: For 1, Against 6, Abstentions 0.
Amendment 7 disagreed to.
Amendment 8 moved—[Andy Wightman]—and agreed to.
Section 4—Entering of parks in valuation roll
The Convener
Amendment 19, in the name of the minister, is grouped with amendment 20.
Kate Forbes
Amendments 19 and 20 address the committee’s request in its stage 1 report that the Scottish Government
“elucidate its policy more fully”
on section 4, with the aim of making the rules on the entering of parks in the valuation roll more straightforward and easier to understand.
Amendment 20 is quite technical and I will endeavour to explain it. Proposed new subsections (1ZA) and (1ZD) of section 19 of the Local Government (Financial Provisions) (Scotland) Act 1963 seek to ensure that, where a part of a park is to be entered on the roll, a separate entry should be made for that part and the remainder should remain exempt. In other words, it is not the Government’s intention that the presence of, for example, a cafe in a public park should lead to the entry of the whole park in the roll. That is consistent with the Barclay review’s recommendation that parks should remain exempt from being rateable.
Secondly, proposed new subsections (1ZB) and (1ZC) of section 19 of the 1963 act set out the conditions under which a park, or a part of a park, becomes rateable. The first reason, which is set out in subsection (1ZB), is that the park is occupied by someone other than the council or other public body that controls the park. The second reason, which is set out in subsection (1ZC), is that the park, or part of the park, is occupied by the council or other public body that controls the park and—critically—that payment may be required
“for access to facilities ... or for goods or services provided on it.”
Taken together, those two subsections will ensure that all commercial activity in parks will be rateable, as was recommended by the Barclay review.
Another key objective of the Barclay review was to level the playing field. Subsections (1ZB) and (1ZC) will ensure equality of treatment across all activities, both commercial and charitable, and both inside and outside parks. All non-exempt properties, including those that are used for charitable purposes outside parks, are currently rateable, so it is only fair that comparable properties inside parks should be rateable as well. Registered charities and community amateur sports clubs that fall to be entered on the roll as a result of section 4 will be eligible for 80 per cent mandatory relief, with a 20 per cent discretionary top-up by the council, as is normal. Further, 100 per cent discretionary relief is available for non-profit recreational activity. Certain properties that will be added to the roll as a result of section 4 of the bill are likely to be eligible for that relief.
I hope that that helps to explain what the Government is endeavouring to do with this significant redraft of section 4.
I move amendment 19.
Amendment 19 agreed to.
Amendment 20 moved—[Kate Forbes]—and agreed to.
Section 4, as amended, agreed to.
After section 4
The Convener
Amendment 85, in the name of Sarah Boyack, is in a group on its own.
Sarah Boyack
Amendment 85 concerns an important issue in my local area, which I would like to address in this debate on non-domestic rates.
In the past few years, we have seen a significant expansion in the availability of private student residences. Historically, universities and colleges provided their own in-house accommodation, but recently there has been a big shift towards private providers. Such accommodation is very expensive, but students often have no choice but to take it because of the shortage of housing in Edinburgh. Access to accommodation is particularly challenging for students from overseas, who often do not know the area until they have settled into their courses.
Students are rightly exempt from paying council tax. That policy should be defended, and I have no intention of seeking to change it. However, I question why companies are able to make profit from renting out student accommodation when they should be expected to make a contribution to our councils for the local services that are provided. In addition, companies should make that contribution without passing it on to the students to whom they rent.
I especially want to raise the issue of the use of private student accommodation that is let out in the summer for tourists’ use. Again, the companies that rent out such properties are making profits but are not making any contribution to the cost of providing local services. As it is drafted, amendment 85 would leave to the Scottish Government the details of how such entries in the roll would be implemented, and I believe that consultation on those would be necessary. However, I feel that we should debate the issue as we discuss the extent to which non-domestic rates are levied and who should be required to pay. I will be interested to hear members’ thoughts on the amendment.
I move amendment 85.
09:15Graham Simpson
Sarah Boyack raises an interesting issue. A number of such developments are cropping up in Edinburgh, Glasgow and other cities. The residences are privately run—not that that matters—and for most of the year they are rented out to students. When the students are not there, they are let out to tourists, so they become bona fide businesses that are competing with other businesses in the self-catering sector. The idea that they should not pay non-domestic rates for the part of the year when they are businesses seems to be wrong. There could be unintended consequences, in that those businesses could hit students for their increased bills—that is a danger. However, I think that it is worth supporting amendment 85 at this stage, although it may need some further work. I am prepared to support it at this point, and we can see where we go from there.
Kate Forbes
I welcome Sarah Boyack’s explanation of the policy intent behind her amendment, and I certainly sympathise with what she is trying to do. I will run through a few of my thoughts. The Barclay review recommended that charity relief be reformed with regard to student accommodation, although it did not distinguish between accommodation that is let by institutions and accommodation that is provided by the private sector. At the time of the review, the Scottish Government rejected that recommendation, in part because of issues with the practicability of distinguishing commercial from non-commercial use. Amendment 85 does not seek to distinguish between those two types of use—instead, it seeks to make private sector and other landlords liable to be rated while providing an exemption for the institutional providers.
My concern relates to the analysis of any unintended consequences for students in particular. I am concerned about the potential impact on students, who may find that their accommodation choices are reduced or become less affordable, as landlords may have little option but to pass on their costs to students in the form of higher rents. I am therefore unable to support amendment 85 without having undertaken a little more analysis, and perhaps some consultation, on what the consequences would be. I would be happy to have a conversation in advance of stage 3 to see whether further analysis could be done at that point on the effects of the amendment. At present, however, there has been too little analysis of the potential unintended consequences to enable me to support it.
Sarah Boyack
I appreciate, and very much welcome, the minister’s comments. I would be the last person who would want to deliver the unintended consequences to which Graham Simpson and the minister referred. As the issue was raised earlier, it would be an omission not to discuss it.
I would be interested in amending my amendment at stage 3, and crafting it in a way that takes into consideration the summer issue in particular. I would be happy to come back and have a look at it during the next few months. A question that arises is what the process would be in terms of the Government bringing forward regulations and the detail that follows. As I understand it, there are issues to do with how it relates to the system for houses in multiple occupation, through which money is paid. I want to distinguish between the private sector and accommodation that is owned by universities or colleges. I think that there is merit in us taking the issue further, to stage 3.
The Convener
Do you want to press or withdraw the amendment?
Sarah Boyack
I would like to press it at this stage.
Amendment 85 agreed to.
Section 5 agreed to.
After section 5
The Convener
Amendment 21, in the name of the minister, is grouped with amendments 22, 24 to 30 and 32 to 37.
Kate Forbes
The amendments all relate to reforming the appeal system. I will first speak to the amendments that I have lodged and then turn to amendment 36, in the name of Alexander Stewart.
The amendments have been informed by the final report of the Barclay implementation advisory group appeals sub-group, which was published on 10 October, and they are quite technical.
Amendment 21 requires, at revaluation for a given property, the assessor to enter in the valuation roll information, including the valuation, that has been agreed in writing between them and the proprietor, the tenant or the occupier beforehand, whether or not the agreement was reached before or after publication of the draft roll. The only exception is if,
“since the agreement was reached, there has been ... a material change of circumstances.”
Amendment 22 introduces a requirement for assessors to publish a draft valuation roll before they make up the final roll. It is intended that Scottish ministers will specify a date for publication of the draft roll. The amendment also requires that assessors send to the proprietor, tenant or occupier of the property a draft valuation notice that contains the details that are listed in the draft roll. The amendment also allows ministers to specify by regulations under the negative procedure any other information that is to be included in the notice.
Amendment 22 also provides that
“A person who receives a draft valuation notice can make representations to the assessor”
about the content of the notice. However, the assessor is not bound by the contents of the draft roll or draft notice when making up the final roll, as there may be a need to amend the draft roll before it comes into force—for example, if new information that would affect the valuation has become available. That provision links with other amendments in my name to allow the proprietor, tenant or occupier to make representations once the draft roll is published about what the entry in the roll should be.
Amendment 24 seeks to ensure that a person may not lodge a proposal to alter an entry in the valuation roll following revaluation if there has been a prior
“agreement in writing between that person and the assessor ”.
The amendment is based on a recommendation of the appeals sub-group that pre-agreements should be binding on a person in that situation, so that a proposal cannot be lodged by a person against a pre-agreed value.
Amendments 25 to 27 allow the assessor to adjust the valuation roll entry for a property when a proposal has been lodged, either in accordance with the proposal or in the manner that the assessor sees fit. That does not require the agreement of the proposer, as the assessor’s role is to provide an accurate valuation with the information that is available at the time that the entry is finalised. There may be information that suggests that the alternative value that is requested in the proposal is incorrect. If the person’s proposal is not accepted, amendment 32 provides that the person can appeal.
Amendment 28 allows Scottish ministers, by regulations, to set fees in relation to the lodging of proposals, as recommended by the Local Government and Communities Committee in its stage 1 report. Amendment 28 is a direct response to the committee’s report. Amendment 29 provides that those regulations will follow the affirmative procedure.
Amendments 30, 32 and 33 will ensure that, when a person has lodged a proposal, only that person may appeal to the valuation appeal committee, for example to prevent the situation in which the assessor discusses and agrees a proposal with a tenant and the owner seeks to appeal. If the owner wishes to be involved, they would have to get involved at the proposal stage.
Amendments 34 and 35 aim to ensure than an appeal can only
“be made on the same basis as the proposal”,
to prevent an appeal from being made on a completely new basis that the assessor has not considered.
Amendment 37 will mean that complaints to the valuation appeal committee under the Lands Valuation (Scotland) Act 1854 can be lodged only by a person who is not the proprietor, the tenant or the occupier of the property.
As members will know, complaints are a means—separate from appeals—by which to have an entry in the roll reviewed or to raise the absence of an entry. The ability of third parties to continue to raise complaints is unaffected by the amendment. The purpose of the amendment is to avoid the risk that proprietors, tenants and occupiers may attempt to circumvent the new proposal stage that is being introduced, and any fees that are attached to it, by complaining to the valuation appeal committee about their own property’s value, rather than going through the normal route of lodging a proposal.
Andy Wightman
I am listening carefully to what you are saying, minister. In relation to amendments 32 and 33, you said that, if an occupier or tenant lodges a proposal, the proprietor cannot appeal. In those circumstances, how would the proprietor know that the tenant had lodged a proposal? At the moment, they can appeal. If the Government removes the right to appeal, what would happen?
Kate Forbes
An owner can get involved at the proposal stage and they will know that an evaluation is due. We are moving to a new two-stage system, where someone can propose and appeal, which, incidentally, formalises what already takes place informally. The hope is that the system does not create something new, but that it formalises the current system.
The current situation of owners choosing not to get involved may present challenges in the future. However, I would hope that an owner would be interested in the business rates that their property is liable for and the valuation of that property. It is really a question of whether the owner chooses to get involved with the process at all.
The amendments merely try to avoid additional delays and bureaucracy so that where an assessor has agreed a proposal with the person—a tenant or an occupier—the owner cannot then say further down the line that they fundamentally disagree with that proposal and appeal in that way. The parties that are involved in the proposal are the same parties that have to be involved in the appeal. A new individual cannot be introduced at that stage. If we do not make that clear, it would completely undermine the proposal stage because someone could always be sure of overturning a proposal at appeal. Does that help?
Andy Wightman
My point was that the opportunities for the proprietor to be involved are being restricted. Is there not an argument that the proprietor should be made aware that a proposal is being made? If they are not aware of that, they lose their one opportunity to have discussions on the matter. I will let you take that question away. It is just a concern that I have.
Kate Forbes
I will take that away for consideration. We can think about how we notify owners that a proposal has been lodged. It is a fair comment.
Mr Stewart’s amendment 36 would place a requirement on Scottish ministers to consult local authorities, assessors, business sector representatives and such other persons as we consider appropriate before making regulations to set fees in connection with appeals. We have taken a consultative approach throughout the bill process and will continue to do so.
I would be happy to support Mr Stewart’s amendment, but if he wishes to bring it back at stage 3, I would be keen to work with him to adjust certain elements. I would expect the Government to consult representatives of assessors and the business sector, but I am not convinced that that needs to be done with individual local authority assessors.
If Mr Stewart chooses to move amendment 36, we will support it, but if there is anything that we can do to fine-tune it for stage 3, I would be keen to work with him on that.
I move amendment 21.
Alexander Stewart
I thank the minister for her positive comments on amendment 36. I will move the amendment because, as the minister has outlined, it will ensure that there is an opportunity to gather evidence on the impact of the policy change for individuals and organisations. That is important. I would be more than happy if the amendment were agreed to at this stage. I would also be happy to have some discussion with the minister before stage 3. If there are things that we can fine-tune, doing so would be advantageous for the bill and the sector. It is all about ensuring that we have that constructive co-operation and consultation to ensure that we provide organisations, individuals and the business sector with the best approach.
09:30Andy Wightman
I agree with the comments that have been made by the minister and Mr Stewart, but I note that subsection (c) in amendment 36 says that, among those who are to be consulted are
“representatives of the business sector”.
I remind members that these are not business rates; they are non-domestic rates. I am a board member of the statutory corporation that owns the building in which we are sitting, which pays £7 million in rates. The words in subsection (c) should really be “representatives of ratepayers”, because occupiers that are businesses make up less than two thirds of all ratepayers.
The Convener
I am sure that that is something that we can clarify and amend at stage 3, if necessary. Minister, would you like to wind up?
Kate Forbes
I appreciate Alexander Stewart’s commitment to work with me to adjust amendment 36 slightly.
Amendment 21 agreed to.
Amendment 22 moved—[Kate Forbes]—and agreed to.
Section 6, as amended, agreed to.
Section 7—Proposals to alter, and appeals against, valuation roll
The Convener
Amendment 23, in the name of the minister, is grouped with amendments 31 and 52.
Kate Forbes
These three amendments are, like others, extremely technical in nature.
It might be helpful if I explained that, as some members might know already, some subjects are valued by what are called designated assessors. There are five such assessors in Scotland who, in addition to their day job as an assessor, have responsibility for valuing certain subjects that could broadly be described as the former public utilities. For example, the Fife assessor is currently the designated assessor for water subjects in Scotland. Once a valuation has been determined for all water subjects in Scotland, that information is entered on the Fife assessor’s valuation roll. In short, unlike the assessor regime, the designated assessor regime takes a subject-based approach rather than a geography-based approach.
The three amendments in this group refine the drafting to provide that a new proprietor, tenant or occupier can make a proposal to the assessor or the designated assessor, as appropriate; that appeals against a valuation determined by either an assessor or a designated assessor can be lodged with a valuation appeal committee, and it will always be a committee for the area where the lands and the heritages are entered in the valuation roll; and that an assessor information notice can be issued, as appropriate, by an assessor or a designated assessor. That, in short, is what the amendments relate to.
I move amendment 23.
Amendment 23 agreed to.
Amendments 24 to 26 moved—[Kate Forbes]—and agreed to.
Amendment 27 moved—[Kate Forbes].
The Convener
The question is, that amendment 27 be agreed to. Are we agreed?
Members: No.
The Convener
There will be a division—I ask Kenneth Gibson to please put away his Etch A Sketch.
For
Boyack, Sarah (Lothian) (Lab)
Dornan, James (Glasgow Cathcart) (SNP)
Ewing, Annabelle (Cowdenbeath) (SNP)
Gibson, Kenneth (Cunninghame North) (SNP)
Wightman, Andy (Lothian) (Green)
Against
Simpson, Graham (Central Scotland) (Con)
Stewart, Alexander (Mid Scotland and Fife) (Con)
The Convener
The result of the division is: For 5, Against 2, Abstentions 0.
Amendment 27 agreed to.
Amendment 28 moved—[Kate Forbes]—and agreed to.
The Convener
Amendment 86, in the name of Sarah Boyack, is grouped with amendments 87, 97, 65, 98, 99, 68, 100, 71 and 72.
Sarah Boyack
The Delegated Powers and Law Reform Committee picked up the question of whether ministers currently have too much power. My amendments in the group propose to limit the powers of ministers by removing their ability to make extra regulations. I have attempted, with support from the drafters, to try to deliver on that aim. Specifically, my amendments seek to limit the extent of the powers that can be exercised by the Scottish ministers.
I am conscious that the Scottish Government has lodged amendments on the matter. Without making too many predictions, I guess that the minister will say that the Government’s amendments are better drafted. I am keen to have a discussion about the differences between the two sets of amendments. My amendments have been drafted so as to remove the power to make provision for “such other matters”, which appears in sections 17 to 21. The amendments together provide an appropriate constraint on ministers’ powers. They are relatively straightforward. I will say no more, at this point.
I move amendment 86.
Kate Forbes
I thank Sarah Boyack for speaking to her amendments and outlining her reasons for wishing to restrict use of ancillary powers. I think that we are all agreed on the issue; as Sarah Boyack said, the Scottish Government has submitted its own amendments in response to the legitimate concerns that the DPLR Committee raised. I thank that committee for its thorough scrutiny of the delegated powers in the bill.
I think that we are all agreed that the bill will amend what is a very complex rating system. That creates a risk that a change to one part of the system might have unintended consequences in another part. The bill will introduce a considerable number of new elements into the rating system—one example is the introduction of a civil penalty regime. Ancillary provisions might therefore be needed as those new elements are created, or as experience is gained and those elements are further developed.
We considered that it was prudent to allow some flexibility in how the ancillary powers in the bill are used, while being mindful of the narrow context within which each of the powers must operate. Such flexibility will enable unforeseen issues to be dealt with without the need to return with primary legislation as a result of the powers being too rigid. Of course, all uses of powers are, quite properly, subject to parliamentary oversight, which allows Parliament the opportunity to stop any use that it feels is inappropriate.
Amendments 86 and 87 relate to section 7(4) of the bill, which will insert new provisions in the Local Government (Scotland) Act 1975. The Scottish Government’s view is that it will be clearer, for the reader, to have the full powers set out in the 1975 act, which currently lacks that. The DPLR Committee acknowledged that point. If Sarah Boyack’s amendments were accepted, that would leave the reader seeing a power in the 1975 act and noting that it lacks the usual incidental powers. The reader might easily miss the fact that there are incidental powers available for use from the act that introduced the power.
With regard to amendments 97 to 100, the Scottish Government considers that the innovative nature of the civil penalty regime will make it extremely difficult to anticipate what types of provision might require to be made as the regime beds in. It is arguable that it is not within the powers to make further provision about civil penalty notices and appeals against the penalties that are set.
In the Scottish Government’s response to the DPLR Committee’s stage 1 report, we said that we would lodge amendments. I believe—the matter is open to members’ opinions—that amendments 65, 68, 71 and 72 strike an appropriate balance between the need to allow flexibility in how powers can be used to respond to a new and complex process, and the need to maintain limits that are tied to the purposes of the act. The amendments have regard to the DPLR Committee’s views on where the balance should be struck. In conclusion, I note that although our amendments and Sarah Boyack’s amendments endeavour to do the same thing, they go about it in slightly different ways.
Andy Wightman
I have not closely studied the Delegated Powers and Law Reform Committee’s report, so it is not clear to me exactly where it recommended that there should be modifications. It would be helpful if Sarah Boyack could say whether her amendments respond directly to the recommendations of the committee or are additional.
Sarah Boyack
My amendments are intended to respond to the committee’s report. It is up to you whether we have done that effectively enough.
The Convener
It is certainly not up to Andy, because he has not read the report.
Minister, would you like to respond?
Kate Forbes
I will not, unless Andy Wightman wants to hear the exact quotation from the Delegated Powers and Law Reform Committee. However, I think that that might absorb time.
Andy Wightman
No.
The Convener
I call Sarah Boyack to wind up.
Sarah Boyack
Because I was not on the committee at stage 1, it is quite hard to get into some of the issues. However, the key issue at this point involves scrutiny, transparency and the need to get the balance right between giving ministers full powers and ensuring that they do not have additional powers that are beyond what is needed.
The one issue on which I would seek comment from the minister concerns the extent to which our amendments overlap and would achieve the same thing. Perhaps the minister could intervene to clarify that.
Kate Forbes
I firmly believe that our amendments seek to do the same thing, but in different ways. They have been drafted differently.
The situation is complicated. Essentially, the Delegated Powers and Law Reform Committee was concerned about duplication between pairs of provisions. In some cases, Sarah Boyack’s amendments would add in additional information to remove that duplication, and our amendments would remove sections in order to achieve the same thing.
Make no bones about it: we have gone about doing the same thing but in slightly different ways. I know that the Delegated Powers and Law Reform Committee considered the amendments. I hope that it had no concerns about the amendments that I have lodged, and that they would achieve the ambition.
In their drafting, my amendments and Sarah Boyack’s take slightly different approaches to dealing with duplication between pairs of provisions. Her amendments would add things, in some cases, and my amendments would remove things, in some cases.
Graham Simpson
Could I add something?
Sarah Boyack
I would be happy to hear Graham Simpson’s views, because he is on the Delegated Powers and Law Reform Committee.
Graham Simpson
I cannot speak for everyone on the Local Government and Communities Committee on this matter, but my view is that the committee would be happy with the Government’s approach. As the minister said, Sarah Boyack’s amendments seek to do the same thing as the Government’s amendments, but in different ways, so I suggest that she not press her amendments. I assure Sarah Boyack that the Delegated Powers and Law Reform Committee will consider the bill again after stage 2 and will, if it still has concerns, report back to this committee and the minister.
Sarah Boyack
That is helpful. I am conscious that the minister’s amendments went to the Delegated Powers and Law Reform Committee, but mine did not. With that in mind, I seek to withdraw amendment 86. If I think that it is necessary to do so, I will bring the issue back at stage 3. At this point, however, I am happy to support the minister’s amendments and not move the rest of mine.
Amendment 86, by agreement, withdrawn.
Amendments 29 to 35 moved—[Kate Forbes]—and agreed to.
Amendment 36 moved—[Alexander Stewart]—and agreed to.
Amendment 87 not moved.
Section 7, as amended, agreed to.
Section 8 agreed to.
09:45After section 8
Amendment 37 moved—[Kate Forbes]—and agreed to.
The Convener
I call the minister to speak to amendment 38, which is in a group on its own.
Kate Forbes
Amendment 38 will exclude a change in rent, in valuations generally or in values generally from the definition of “material change of circumstances” in the Local Government (Scotland) Act 1975. That will restrict the circumstances in which general economic factors can be regarded as being relevant to a change in valuation, which reverts back to the situation that existed prior to 1984.
The recommendation was set out by the Scottish Assessors Association in a letter to the committee dated 25 October. The basis for the recommendation was that a move to three-yearly valuations, coupled with Barclay’s recommendation to move to a one-year tone date, would ensure that valuations are much more closely aligned to current market values. The association concluded that it no longer sees the need for appeals that are based on a material change of circumstances related to economic changes.
A number of written submissions in response to the committee’s call for evidence on the bill also called for the definition of “material changes of circumstances” to be reviewed in order to improve consistency of interpretation.
Scotland was unique in the United Kingdom in having opened the door to changes in rental values being considered to be a material change of circumstances, as it explicitly allowed such changes to be considered in the Rating and Valuation (Amendment) (Scotland) Act 1984. With the significantly reduced period between valuations that the bill will introduce, the need for reviews of rateable values will be removed. Appeals are often resource intensive for all parties, so I believe that the time has come to undo the change that was made in 1984.
Amendment 38 agreed to.
The Convener
I suspend the meeting to allow members a short break.
09:48 Meeting suspended.09:53 On resuming—
The Convener
Amendment 9, in the name of Andy Wightman is grouped with amendments 10, 11 and 12.
Andy Wightman
Amendment 9 is a significant amendment. As members know, non-domestic rates are a local tax. For well over a century they were under the full control of the level of government to which they belonged—the county, region, district and unitary authorities. In the 1990s, the UK Government took away the rate-setting power from local government and centralised the power with the Secretary of State for Scotland, from whom, by virtue of devolution, the Scottish ministers have inherited it. As members know, the rate is now set by a negative instrument that is considered by the Scottish Parliament’s Local Government and Communities Committee. I believe that that is fundamentally wrong. It is a local tax. It belongs to local government and to councils, which should be given back the powers that were removed from them 25 years ago.
I consulted on the issue and other measures over the summer of 2019 and received a range of views. Local authorities, and the Convention of Scottish Local Authorities in particular, have long argued for the repatriation of rates. However, there were two issues that arose in responses and amendment 9 seeks to deal with both of them.
First, such a change will take time—I never envisaged that it would happen overnight—and there are consequential issues to sort out that need not detain us today. I have framed amendment 9 in such a way that the change can take place as late as 2024. That allows four or five years for it to be implemented. I am open minded about whether that date could be changed, but the significant point is that time has been allowed to deal with it.
As I said earlier, it is the first time in the history of 20 years of devolution that we have primary legislation on non-domestic rates, which is the second largest tax revenue under the control of the Scottish Parliament. We may not have another bill for another 20 years. If there is a desire—I believe that there is such a desire within all political parties, if not by all parties—to increase the fiscal autonomy of local government and return to local authorities what was theirs in the first place, the passage of the bill presents the opportunity to do something about that.
Secondly, some councils told me that they do not want to set their own rate. That is fine. Proposed subsection (3) would allow any council that does not want to set the rate to ask Scottish ministers to do so on its behalf. Amendment 9 is a fundamental amendment that would return us to the situation prior to 1994.
Amendment 10 is much the same, but it introduces a halfway house, in that there would still be a national rate, but there would also be regional rates. The councils could set a rate, but ministers would also set a national rate, which would be subject to the approval of Parliament. That is the only real difference between the two amendments. That is what happens in Northern Ireland, for example, where councils set one part of the rate and the Northern Ireland Executive sets the other part.
Amendments 11 and 12 are entirely different. Amendment 11 makes provision in the circumstances that there is a regional rate and amendment 12 makes provision in relation to the current situation. Amendments 11 and 12 are about the fact that the Community Empowerment (Scotland) Act 2015 introduced amendments to the Local Government (Financial Provisions etc) (Scotland) Act 1962 that allow councils to introduce new non-domestic rate reliefs. Crucially, those have to be paid for by the councils themselves.
The committee made a visit to Kilmarnock where we had a discussion with local ratepayers, councillors and council officials who expressed a desire for more autonomy on the detail of how rates were applied in their town, for example, in order to give reliefs—or even perhaps, to raise more—in specific circumstances, for specific subjects, in specific areas. They found that their powers were too blunt to enable them to incentivise the reforms and activities that they wanted to see happening in the town.
Amendments 11 and 12 would allow councils to raise the rates in a similar way to the way in which they can provide reliefs, but only up to the amount being relieved. For example, if the council wants to provide a relief scheme that is worth, say, £500,000—the ratepayers would be relieved of the liability to pay £500,000—at the same time, the council could introduce a scheme to increase the rates on other subjects, up to the same limit. It would be net cost neutral for council revenues.
The only difference between the amendments is that amendment 11 responds to the eventuality of there being a regional rate, as proposed by amendment 10, and amendment 12 applies to the current non-domestic rating system.
I move amendment 9.
Graham Simpson
I will talk about amendments 9 and 10, which are slightly different. To take amendment 9 first, Andy Wightman is trying to empower local authorities to set their own rates. He used the word “incentivisation”, and if councils were to be given that power, they would have the opportunity to set rates that can incentivise companies to come into their areas. Of course, they could do entirely the opposite. That is possibly what some businesses are concerned about. Councils could set colossal rates, which would drive businesses away. However, it is up to councils to make those decisions, so I am attracted to the amendment. We have always been a localist party, so a number of our councillors are quite keen on this idea.
10:00Kenneth Gibson
Will the member take an intervention?
Graham Simpson
I certainly will.
Kenneth Gibson
Was it not the Conservatives that brought in the pooling of rates on an all-Scotland level? I am not sure about the phrase
“We have always been a localist party”.
In fact, it was your party that changed the previous regime.
Graham Simpson
Thank you for that, Mr Gibson. Certainly in my time we have been a localist party and, when I was the local government spokesman, I drew up a manifesto for the local government elections that covered exactly that kind of point, but I will take Mr Gibson’s history lesson on board.
However, the business community has raised a lot of concerns about amendment 10. The idea of having a national and a regional rate is pretty scary to businesses, and committee members will have had a number of submissions on that. That goes too far.
At this point, we are supportive of amendment 9 but not supportive of amendment 10 or the other amendments.
Annabelle Ewing
My recollection from the committee is that COSLA was not seeking the power for councils to set non-domestic rates at this point. Its point was that it did not want this discussion to sit outside the wider discussion on a local government fiscal framework. It wanted the discussion to sit within those wider parameters, and therefore said that it believed that non-domestic rates should be considered as part of that. I am a wee bit confused as to why, given COSLA’s clear position in evidence before us, Mr Wightman feels that he has some other objective in mind at this stage.
Sarah Boyack
The amendments are timely but, like many of the amendments to the bill, they are quite difficult, because they are adding issues at stage 2—before Andy Wightman jumps up and down, I say that that is not a criticism; these are all valid discussions.
I would be interested to see the comments from different parties in Andy Wightman’s consultation, and their nuances, because my challenge is that I have not had much time to consult my party colleagues about the bill and have had different views from different people. Whether to pool non-domestic rates or give local authorities much more freedom is clearly an issue, and I can see a debate on that across the parties.
Andy Wightman, when you close, can you talk a bit more about the significance of the 2024 date in amendment 9? You talked about having five years to implement regulations. What scope is there for having a proper discussion and consultation on that? Annabelle Ewing’s point on the wider issue on local government is right; we need a consultation that joins up the dots. The problem is that the bill does not give us that and we do not have other opportunities to discuss the issues.
As the Local Government and Communities Committee, we are in pole position to join those dots, but the bill does not let us. To what extent does the committee have an opportunity to discuss that and take evidence on it before stage 3?
I am less keen on amendment 10 for other reasons. There would be a national rate and potentially an additional rate on top of that. To what extent can that proposal be seen as an opportunity for local government to raise more money? As I understand it, such a measure has led to a 20 per cent increase in the rates collected in Northern Ireland.
I am very persuaded by amendments 10 and 11, and I will support them. I like the idea that, where councils—if I understand this correctly—have collected the rates and have got their pooled rates back, they are then able to make adjustments so that, if they are carrying out a town centre improvement or regeneration project, for instance, they can lower rates in one area as long as they collect the revenue elsewhere. That gives councils more flexibility and lets them target and—hopefully—bring about more regeneration, if that is one of their priorities.
There are quite a few questions in there, but that is partly because of the nature and scale of the amendments, which could have a pretty big impact.
Kenneth Gibson
We have heard a lot of good points from everyone who has spoken, including Andy Wightman. However, I have concerns. I represent an area where, unless we have a very strong reorganisation of the local government funding formula, the measures could be extremely harmful. That is because many people in areas such as North Ayrshire and North Lanarkshire shop in Glasgow and, all else being equal, there would be a huge increase in the rates gathered in the cities and a huge fall in other local authority areas, unless the entire redistribution model is examined. That is a major concern, and that is why Annabelle Ewing’s point is so valid. COSLA needs to consider the matter in the round. We would have to have a starting point whereby, if the rates poundage went down by several million pounds in one area, the formula was adjusted. We could perhaps then move forward.
The proposals represent such a fundamental realignment of local government finance that having it in an amendment to a bill on non-domestic rates is inappropriate. The matter has been discussed for a number of years, and it will continue to be discussed, but I do not think that we should support such a move until we can sit down and consider the whole thing in the round.
Alexander Stewart
Like others, I can see some merit in amendment 9, which attempts to bring localism back into the mix. Once again, I am quite supportive of that.
Amendment 10 is a step too far. The model would disadvantage individuals and organisations. We can see the anxiety and fear on that point from some of the submissions that we have received, and the proposals could have a major detrimental effect on the business community in some sectors and in some locations. I would not be in favour of amendment 10.
Kate Forbes
I have serious concerns with the amendments. My principal concerns relate to the policy, but it is important also to highlight my concern with the drafting of amendments 9 and 10. They are technically problematic, in that they refer to and rely on amendments to section 7 of the 1975 act that have not been lodged, and amendments 11 and 12 are predicated on amendment 10 passing. Those challenges are passed on. Given the way in which the amendments are drafted, it is simply not apparent what would be required of local authorities, and the legislative implications remain unclear. In that sense, the amendments present a serious risk to the operation of the non-domestic rates system.
My primary concerns go well beyond the technical challenges in the amendments. I respect Andy Wightman’s view that powers over non-domestic rates should be returned to local authorities, but it is important to recognise that, as Annabelle Ewing said, neither local authorities nor ratepayers currently support such a change, and there has been no substantive consultation or scrutiny of the proposal. The Barclay review ruled out such a change, highlighting that
“ratepayers value this consistency”
and that
“such consistency would be lost”.
As Annabelle Ewing mentioned, COSLA has been explicit on the matter, including in evidence to the committee, recommending that discussions on the devolution of non-domestic rates should not be considered outside the discussions to develop a fiscal framework for local government. It is also worth noting that organisations such as the Scottish Retail Consortium consider it
“a retrograde step, anomalous with the thrust of the reform agenda of predictability and competitiveness.”
The natures of the economy and local economies have moved on quite considerably since 1975—not that I remember that year—so simply reinstating local rate-setting powers without giving significant thought as to how that might have an impact on individual local authority finances would not be wise. It is not clear how much flexibility individual councils would have in reality as a result of these amendments. Some will have scope to adjust rates to suit local circumstances, but others will in effect be obliged to match or undercut rates that are set by neighbouring, potentially larger, councils and accept the significant revenue risks of doing so.
I do not believe that a change of such magnitude should be taken forward without genuine consultation.
Sarah Boyack
There are periodic reviews of local government finance and, since joining the committee, I have started reading through them. Almost every Government has a review and then it gets parked. Given that there is a plea to have a joined-up approach to both council tax and non-domestic rates, what are your proposals to allow us to come back to the issue? The Barclay review was tightly constrained and you have been arguing that we should not add anything else to the bill, so when will there be a golden opportunity to come back and discuss the issue?
Kate Forbes
That is a fair question, but I do not think that this is the time to make these amendments. As you say, the Barclay review had a very specific purpose and we should not make an amendment without proper scrutiny and consultation.
The local governance review has to be done in partnership with COSLA. It must be part of the conversation about what local government finances look like in the round, including council tax, non-domestic rates and grant mechanisms. That review is on-going and COSLA is involved, and it is for COSLA as a partner in the review to inform what local government finances look like. Making these amendments to the bill would undercut that process and a change of such magnitude should be subject to analysis and scrutiny.
In that vein, I do not support the amendments.
Andy Wightman
I will make a few points in response to members. It has been COSLA’s long-standing position that it wants the repatriation of non-domestic rates. Annabelle Ewing is correct that, in evidence to the committee—although I cannot remember the person who gave the evidence—COSLA said that it does not see that happening now. I am not envisaging it happening now either. It should take place in the context of the development of the fiscal framework that I understand the Government is committed to designing and implementing in co-ordination with COSLA. It should also take place in the context of appropriate adjustments to the settlement formula; I will come back to Kenneth Gibson’s point on that.
Amendment 9 would place the commitment to repatriate non-domestic rates in the bill, but I am very relaxed about when that should be done by. If someone thinks that 2030 is better than 2024, that is fine, and we can have that discussion. If we do not make provision for it, COSLA’s desire for it not to happen now will be met, but COSLA’s longer-term desire and long-standing position is that non-domestic rates are local taxes that should be set by local councils.
If the UK Government said that it was going to set taxes that are devolved to this Parliament, I think that most parties would be quite aggrieved. Non-domestic rates are a local tax and they should be set by local councils. Amendment 9 is seeking to make such a provision, but its implementation would be delayed to give plenty of time to deal with all this, which relates to Sarah Boyack’s point. It could happen by 2024, or even by 2025, 2026 or 2028, to allow sufficient time for further discussions with COSLA about the knock-on implications of the provision, which are not particularly profound.
Kenneth Gibson talked about the change to the funding formula. At the moment, councils keep the rates that they have raised—there is a complicated system whereby they provide the net difference between that amount and the predicted amount to the Scottish Government and it is redistributed as part of the settlement. The fact is that whether councils are currently in receipt of high revenues or low revenues from non-domestic rates is already taken into account in the funding formula and, fundamentally, there would be no change to that. The only change would be that councils would be able to set their own rate.
I ask Sarah Boyack to support amendment 9 because, if we do not commit to making the change, it will probably be 20 years before we can revisit the question.
10:15Kate Forbes
On Graham Simpson’s point, and Kenny Gibson’s, did the consultation response identify simple things such as whether setting rates at council level would exacerbate income inequalities because wealthier councils would be able to raise more and poorer councils would raise less? Have all the potential unintended consequences been thought through sufficiently for us to take this step?
Andy Wightman
Perhaps not fully and sufficiently, but the point is that the existing funding formula takes account of the fact that some councils, such as the City of Edinburgh Council, have high non-domestic rate revenues, while others have low ones. All that the amendment does is to say that rate setting shall be done by the councils to which the rate belongs. There will be impacts over time—10 or 20 years—from how the power is used, but that is fine. In a similar way, we do not consider the impact on the UK as a whole when we set the devolved taxes, although perhaps we should—I do not know. However, it is a matter of principle that local government should set the rate for taxes that belong to it.
Annabelle Ewing
The member mentioned that it is a matter of principle, but I am finding the process a bit odd. Normally, there are discussions among relevant stakeholders who reach an agreement, followed by a consultation and then the legislation is drafted as well as it can be. That is as opposed to having a series of potential unintended consequences that nobody has looked at in detail. I am curious as to why you would seek to go about the process in completely the reverse order, locking in a position when, as you have just admitted, you have not fully dealt with unintended consequences, and pre-empting the discussions that are currently taking place, as the minister mentioned.
Andy Wightman
I am not doing anything in reverse. I am seeking to use a legislative opportunity—possibly the only one for another 20 years—to make a change that is broadly supported by many political parties and is a longstanding position of COSLA. If we do not make that change in primary legislation now, we will not have the opportunity unless the Government introduces legislation at some point in the future, which it has given no indication that it intends to do.
Sarah Boyack
I get the point about it being a huge change and that it is, in principle, the right way to go. Are there any opportunities in the process for the committee to pause for breath and get comments before stage 3? Andy Wightman has done his own survey, which is useful in informing him, but it does not inform the rest of us and we have not seen how it worked. When we have had complex and difficult legislation in the past, there has been an opportunity to pause for breath before stage 3.
I am not arguing for or against what Andy Wightman is trying to do. It is totally legitimate for members to come up with important and radical changes and, in the past, we have bought ourselves extra time. However, there needs to be equivalence, with our local government colleagues being party to the discussion. I take the point that it could be 20 years before we look at the issue again. Does the committee have scope to have a pause for breath on the bill? There are several amendments that I think are totally correct but which are difficult to resolve in the timescale that we have. Can the convener give me a helpful comment on that?
The Convener
We could have an evidence session on the area between the present stage and stage 3 if we thought that that would be helpful. There is scope for further evidence to be taken.
Kenneth Gibson
We would have wanted the evidence session before we got to this stage, if we had thought that the issue would be brought forward. If we are going to pluck rabbits out of hats, what was the point of all our scrutiny of the bill prior to reaching this stage?
Andy Wightman
Have I just been intervened on twice? I have lost track.
The Convener
Do not worry about how many times.
Andy Wightman
Am I winding up? I think I am.
In answer to Sarah Boyack’s question, the convener has helpfully said that it is open to the committee to take further evidence between stage 2 and stage 3. Committees have done that in the past. In response to Kenny Gibson’s point, I say that we are scrutinising the bill as presented by the Government and, as I have argued, it seeks to implement the primary legislation that is required to deliver on the Barclay recommendations that the Government has decided to implement. The Barclay review was a very narrow review, as the committee discovered when it questioned Mr Barclay prior to the bill coming before Parliament. It was very narrow and it asked one question. This is the legislative opportunity. It might be the only one for the next 20 years, so there should absolutely be discussions about this.
There are two answers to that. One is that this amendment is designed to provide the time to have those discussions and that debate. We could do something around commencement, for example: we could change 2024 to 2026. The point is that, in principle, councils should have these powers returned to them. This is not a radical change, it is just giving councils back what a centralising Government at that time sought to remove. I understand Graham Simpson’s point that, with his presence in the Conservative Party, it has moved on since those days.
Kenneth Gibson
Dark days.
Graham Simpson
Such a radical.
Andy Wightman
The Government then sought to remove powers. I remember the 1990s, when the Government was trying to fetter the freedoms of local government in many ways, such as rate capping. I think that we have moved on from those days and that parties, generally speaking, understand the need to empower the local state and give it the responsibility that virtually every local government system in Europe has. This is the opportunity to do it. I am very mindful that we need to address some technical issues with amendment 9, but if we do not commit to doing this now—
Graham Simpson
Will the member take an intervention?
Andy Wightman
Yes, I am happy to.
Graham Simpson
I take the convener’s point that the committee could, if it so chose, take some evidence on this. My view is that if this amendment does not pass today, the committee will not bother to take evidence. If it is in the bill, we might; if it is not, we will not. I guess that that point is directed at Sarah Boyack.
Andy Wightman
I thank Graham Simpson for using the opportunity to intervene on Sarah Boyack.
Finally, I think that there might have to be technical amendments to amendment 12, in terms of timescales, if members were minded to support it. However, I do not think they are, so I will leave things there.
The Convener
I take it that you are pressing the amendment.
Andy Wightman
Yes, I press amendment 9.
The Convener
The question is, that amendment 9 be agreed to. Are we agreed?
Members: No.
The Convener
There will be a division.
For
Boyack, Sarah (Lothian) (Lab)
Simpson, Graham (Central Scotland) (Con)
Stewart, Alexander (Mid Scotland and Fife) (Con)
Wightman, Andy (Lothian) (Green)
Against
Dornan, James (Glasgow Cathcart) (SNP)
Ewing, Annabelle (Cowdenbeath) (SNP)
Gibson, Kenneth (Cunninghame North) (SNP)
The Convener
The result of the division is: For 4, Against 3, Abstentions 0.
Amendment 9 agreed to.
Amendment 10 not moved.
The Convener
Amendment 14, in the name of Andy Wightman, is in a group on its own.
Andy Wightman
As members will be aware, taxes can be regressive, flat or progressive. With regressive taxes, the tax rate falls as the tax base increases in value. The council tax is a good example: proportionately the rate paid on high-value properties is lower than that which is paid on lower-value properties.
A flat tax such as VAT has one rate. A very wealthy person pays no more VAT than a very poor person. That is one reason why flat taxes and indirect taxes are not a very good idea—they end up being regressive in the bigger scheme of things, because poorer people pay more as a proportion of their income. Flat taxes include VAT at 20 per cent and non-domestic rates at 49p in the pound, or whatever the rate is currently.
For progressive taxes, of which income tax is a good example, the rate increases as the tax base rises. Of course, how progressive we make such taxes is a matter of political choice.
Amendment 14 would move non-domestic rates from being a flat tax to being a progressive tax. One of the problems of having a flat tax is that, if that one wants to exempt or relieve low-value properties, one has to do so through complex systems of relief, which, generally speaking, have to be applied for. A progressive system would mean that there could be a tax-free allowance: for example, we could say that no rates would be charged on the first £10,000 or £20,000 of rateable value. That approach would have the same general effect as relief schemes, but it would be simpler to implement.
Amendment 14 is fairly straightforward. It would introduce into statute the principle that non-domestic rates have to be progressive; exactly how progressive would be set by regulations. As the committee is aware, currently, an instrument that is subject to negative procedure on setting the rate is laid before Parliament each year. If amendment 85 were to be agreed to, each year Parliament would consider a similar instrument that would set the figures that are shown in the text of the amendment in steps 1, 2 and 3. Those figures are not to be debated, as such; they are merely a baseline that we could start with, and they could be amended. The critical point is that, from year to year, the figures would be amended in the same way as we do when we pass the resolution that sets the rates of income tax, in different bands, and the thresholds for that tax.
I do not think that I need to say much more. I will leave my remarks there, convener.
I move amendment 14.
Kate Forbes
If the approach that is proposed in amendment 14 were to apply, owners of properties with a rateable value of less than £60,000 would see their aggregate rates liability fall by a total of £747 million. That would mean either that three quarters of a billion pounds would be taken directly out of funding for vital local government services or that ratepayers with properties with a rateable value of more than £60,000 would need to compensate for that reduction by paying higher rates.
Non-domestic rates is a property tax. We endeavour to make it as progressive as possible, with the small business bonus scheme protecting businesses that occupy the smallest properties and the large business supplement applying to those that occupy the largest ones.
The approach in Mr Wightman’s amendment 14 would present challenges, if it were implemented. I give the example of a prosperous tech company that operates from premises that have a lower rateable value than the premises of another company that has a bigger high street base. In that case, we would be cutting the rates liability of the first company further and increasing that of the one with the bigger high street base, which might have lower turnover.
Although amendment 14 is certainly better than the previous one that I have seen on the same subject—which would have seen the Scottish Parliament building attract a rates liability figure that contained 43 zeros—it would still place an iniquitous liability on those who occupy the largest properties. As a result, I cannot support amendment 14.
The Convener
I call Andy Wightman to wind up and to press or seek to withdraw amendment 14.
Andy Wightman
In response to the minister’s last point, I stress that the previous amendment on the matter contained an error that generated some entertaining headlines.
The minister said that the Scottish Government is trying to make the current system as progressive as possible by introducing measures such as the small business bonus scheme and the large business supplement. However, that is not how to make a tax system progressive. Generally speaking, we do not do that with income tax: we do not get people to pay and then give them money back. Instead, we make the system progressive by having a set of bands, with thresholds, and rates within each threshold.
The minister mentioned numbers in relation to the impact of the figures that are set out in the amendment. I made it very clear that those figures are just a starting point and that the actual rate would be set each year. We could set figures X, Y and Z and then one would not make any calculations about the impact of such a change. The rate would be made each year, as the rate instrument was laid.
Annabelle Ewing
Will the member take an intervention on that point?
Andy Wightman
I will not, at the moment.
I understand why the minister has made that point, but I would be grateful if we could park that. It is not strictly relevant, because in my view the figures that are set out in the amendment are not baked in, but can be thought of simply as X, Y and Z.
My fundamental point is that if we want to make the system progressive, we are not going about it in the right way. The easier way to do that would be to provide a series of bands—three or four—and set rates. That would make the system progressive and give effect to the same policy intentions that lie behind initiatives such as the small business bonus scheme. For example, there could be a zero-rate band.
10:30The minister talked about a tech company on the high street and all the rest of it. Those differences already exist, because we are dealing with a property tax. I understand the point that such a system would increase the differences; that is what a progressive tax system does.
Kenneth Gibson
The committee heard in evidence about an issue with the small business bonus scheme itself, which I raised with the minister when she appeared before the committee. It is the issue of the cliff edge, whereby the scheme acts as a disincentive for many businesses to move into larger premises because they would lose the small business bonus benefits and have to pay higher rates. Would amendment 14 help or exacerbate that situation?
Andy Wightman
Kenneth Gibson raises an important point. That is one of the criticisms—there are many, in my view—of the small business bonus scheme.
My amendment 14 would be independent of such relief schemes, which are in the gift of ministers to introduce in regulations. In a sense, therefore, one should not consider amendment 14 in the context of existing relief schemes. It is legitimate to do so, but we are dealing with primary legislation.
In principle, a progressive system prevents such cliff edges, because there is no sudden move from 100 per cent relief to only 25 per cent or zero relief. In essence, the small business bonus scheme is designed as a progressive relief system in reverse—it is not progressive enough, because it still has those cliff edges. There are cliff edges in progressive tax systems, but the cliffs are not so big, and the bands and thresholds can be set in such a way as to ensure that they are not huge.
The key value in my amendment 14 is that if we want, as a matter of policy, to give relief to properties of—for the sake of argument—below £10,000, the easiest way to do that would be to put them in a zero rateable tax band. That is a better approach than putting in place a complicated series of reliefs that mean that businesses and ratepayers have to fill out forms and submit them to the council, which then has to tell the Government how much the reliefs cost and the Government pays the money to the council.
Kate Forbes
I will make two brief points. The small business bonus scheme is currently the subject of a review—I will come on to that later in relation to another amendment. The premise of non-domestic rates is that rateable value is based on the notional rental value of the property. Progression is linked to the ability to pay.
To give one example, a highly prosperous tech company that is based in very small premises could pay almost nothing in rates, whereas a business that might be making far less money but which occupies far larger premises might have to pay an amount that it finds far less affordable. The system can never be fully progressive in the way that we might imagine the income tax system is. Our relief system currently endeavours to be as progressive as possible at the edges. However, to go down Andy Wightman’s suggested route of a banding system would undermine the whole notion of basing rateable values on a notional rental value.
Andy Wightman
The valuations would continue to be made on that basis—I am not proposing any changes in the valuation methodology. My amendment 14 concerns a proposal to change the way in which the rate is structured.
The minister is correct to use the example of a small tech company, but that is an issue that arises under the current rates system. Indeed, it is currently an issue with income tax, which does not take account of the fact that somebody who earns £40,000 a year might have four children and care for two adults, and have much greater household expenditure than someone else who earns £40,000 who lives on their own with no dependants.
All those tax systems are subject to limitations with regard to those who are liable to pay the tax. The critical point is the design. In broad terms, we should move away from flat taxes and towards progressive taxes.
Annabelle Ewing
Will the member take an intervention?
Andy Wightman
I have completed my comments, so I am happy to take an intervention.
Annabelle Ewing
I am just wondering what fiscal modelling you have carried out on the fiscal impacts of your proposal.
Andy Wightman
There is no fiscal modelling to be done. As I made clear at the outset, the figures in my amendment are just baseline figures—they could be X, Y and Z instead. [Interruption.] I do not know why Annabelle Ewing is sighing. The actual rate would be set by a statutory instrument each year.
It is the responsibility of Government, which sets the rates, to do financial modelling of the impact of its proposals on tax. My proposal merely sets a framework within which, instead of there being a flat tax, there would be a progressive tax. As I said, the figures could be X, Y and Z. I am not proposing the rates: they would be proposed annually. I am providing a framework within which the rates would be set.
The Convener
Thank you, Mr Wightman. I am happy to move on and ask whether you want to press or seek to withdraw amendment 14.
Andy Wightman
I press amendment 14.
The Convener
The question is, that amendment 14 be agreed to. Are we agreed?
Members: No.
The Convener
There will be a division.
For
Wightman, Andy (Lothian) (Green)
Against
Boyack, Sarah (Lothian) (Lab)
Dornan, James (Glasgow Cathcart) (SNP)
Ewing, Annabelle (Cowdenbeath) (SNP)
Gibson, Kenneth (Cunninghame North) (SNP)
Simpson, Graham (Central Scotland) (Con)
Stewart, Alexander (Mid Scotland and Fife) (Con)
The Convener
The result of the division is: For 1, Against 6, Abstentions 0.
Amendment 14 disagreed to.
The Convener
Amendment 13, in the name of Graham Simpson, is in a group on its own.
Graham Simpson
Amendment 13, which relates to the large business supplement, follows on from the recommendation in the Barclay review, that in order to make Scotland the most competitive part of the UK in which to do business, we should align the rate with that in England.
The large business supplement is paid by all properties with a rateable value over £51,000. The rate in Scotland is 2.6p while the rate in England is 1.3p. The Barclay review said that the rate in Scotland should be reduced so that it is in line with the rate in England. The Barclay review report states:
“our decision to recommend the supplement is reduced is in the context of current Scottish Government policy to ensure that Scotland is the best place to do business in the UK ... Several consultation responses raised the issue of the rate of the Large Business Supplement. Most noted the difference with England. In talking to ratepayers and business groups, we have noted a widely held perception that the difference in Large Business Supplement means that Scotland is not as competitive a place for businesses as England currently is. A large majority of the tax base—in terms of tax revenue received at least—sees their ... bills determined by a higher tax rate in Scotland than they do in England”.
The Scottish Retail Consortium has said of amendment 13:
“Of the 22,000 premises affected some 23% are retailers ... costing these retailers alone £13.95 million extra annually. This higher rate makes it more expensive to operate on our high streets and retail destinations and raises the hurdle for attracting commercial investment. This amendment appears to seek to place a cap on the large business rates supplement”—
it would do that—
“so that it is no higher than that which applies down south”.
Annabelle Ewing
Will the member take an intervention?
Graham Simpson
I am just closing. Amendment 13 is also backed by the Scottish Wholesale Association and the Confederation of British Industry Scotland.
I move amendment 13.
Annabelle Ewing
I tried to intervene, but Graham Simpson did not want to take the intervention.
I am curious; it appears to me that here, in this devolved Scottish Parliament, under amendment 13 we would actually be saying, on an issue that is devolved, “No—we don’t want this power any more. Thank you very much, but we’re going to hand the power to set maximum thresholds back to the Westminster Parliament.” I find that absolutely astonishing.
Kenneth Gibson
Yes—it is a complete nonsense. At the end of the day, of course there is a strong argument for reducing the level of supplement, but the current or a future Scottish Government might wish to do that, or to increase it. That would depend on Scottish circumstances. We should not be tied to what is done south of the border. That is the whole premise of devolution. I oppose the amendment on that basis alone.
Andy Wightman
Amendment 13 is not about handing powers back to Westminster. If we agree to it, we will still have the power to change things in the future.
My problem with amendment 13 is twofold. First, the rate for the large business supplement is subject to secondary legislation, which means that it is subject to periodic parliamentary scrutiny. I understand that ministers may, if they wish, introduce other supplements by regulation. That is flexibility in the system. Secondly, I think, as a matter of principle, that it is a poor idea to set out such constraints in primary legislation, particularly if the constraint is tied to the legislative provisions in another jurisdiction.
Sarah Boyack
For me, it is a question about the point of devolution. This is a choice that we should make in Scotland. We should have a debate about this. Amendment 13 should not be included in the bill.
I take Graham Simpson’s point about the pressure in the retail sector, but one of the things that we are not really looking at is online retail and the need for a fairer tax system in that regard. Amendment 13 would not solve that.
Kate Forbes
The Barclay review did not recommend giving control of the large business supplement cap to the UK Government. Who knows what might happen after 12 December? Who knows what we will be connected and linked to? That highlights the core principle that is at play here and the problem with the proposal. Although Barclay called for a reduction in the large business supplement when that is affordable, and the Scottish Government committed to that, I would not support tying our tax policies, particularly with regard to something like the large business supplement cap, to UK Government decisions.
I cannot support Graham Simpson’s call for control of a maximum threshold to be handed to the UK Government. In fact, his amendment 13 would restrict that threshold to the rate that is set by local authorities to fund local economic development projects.
The rates should be controlled in Scotland and should not be determined by whatever rates are set—or not set—south of the border.
The Convener
Mr Simpson, would you like to wind up?
Graham Simpson
No. [Laughter.] I certainly appear to have wound up Annabelle Ewing—not for the first time.
Annabelle Ewing
And others.
Graham Simpson
And others—yes.
My amendment 13 is not about handing power back to Westminster—of course it is not, and members are aware of that. However, having heard the comments around the table, I think that the point has been made that we do not want Scotland to be uncompetitive with the rest of the UK. I accept that the issue is probably a budgetary matter and not a matter for the bill. Therefore, I will not press amendment 13.
Amendment 13, by agreement, withdrawn.
The Convener
Amendment 39, in the name of Alexander Stewart, is grouped with amendment 88.
Alexander Stewart
Amendment 39 will bring additional scrutiny and transparency to the valuation process. Although the non-domestic rates system predates devolution, there is a strong argument that members of the Scottish Parliament should have a role in the system.
The Barclay review urged Scottish assessors to improve and standardise their processes on rate payments, and ministers have been keen to highlight that the bill will not deliver as it should, specifically in relation to a more frequent evaluation cycle, without administrative reforms.
An annual report that was collated by ministers and presented to the Scottish Parliament would give MSPs an opportunity to scrutinise the operation of the non-domestic rates system. That, in itself, would enable there to be additional scrutiny of the operation of the rates system.
I move amendment 39.
Sarah Boyack
Like amendment 39, amendment 88 is concerned with the importance of additional scrutiny and of reporting back to Parliament. I reflected on the issue and thought that a three-year period would probably be appropriate. I note that issues came up in our stage 1 report about pressures on the system. Further, we are dealing with a new piece of legislation, and there might be additional issues that arise as a result of that. It seemed to me that, in terms of ensuring that there were reports back from assessors and in relation to issues around capacity and numbers, input from the Scottish Government to collate the information and present it to the Parliament would be helpful with regard to transparency.
I had not seen Alexander Stewart’s amendment when I lodged mine, but I thought that a three-year period would be appropriate, because that would give us a bit of time to consider the impact of the legislation and make it a priority for our committee or another committee to consider the issue.
10:45Andy Wightman
Amendments 39 and 88 are useful and raise some good points. I will preface what I say by reminding the committee that valuers are professionals and they undertake their valuations on the basis of professional standards.
The issue concerns me a little bit. Of course, if you go to the Scottish Assessors Association website, you can see from its practice notes how it values everything from crematoria to nurseries, bowling greens and whatever other properties it values.
Some of the issues that come before this Parliament and some of the concerns that members have relate fundamentally to valuation methodologies, rather than to any legislative provisions or Scottish Government policy. I am persuaded that it would be useful to make a statutory requirement that valuation boards provide a report to be laid before Parliament—not annually, but certainly periodically—which would, among other things, flag up issues, problems and all the rest of it. I presume that that information is probably already feeding through to Government, but it is not visible to members, and it would be helpful if it was.
I am not clear—perhaps Alexander Stewart could reflect on this when winding up—what amendment 39 would do. It says that there should be a duty to report
“as soon as practicable after the end of each financial year ... on the effectiveness of the valuation process”.
It is not clear to me how the
“effectiveness of the valuation process”
would be assessed. I presume that if I was a professional valuer, I would, on completing a valuation, submit a report saying that it was effective. It is not in clear what is being sought in the amendment, and perhaps Mr Stewart can come back on that.
Sarah Boyack’s amendment 88 is not similar but rather different from amendment 39. Its subsection (1) would restrict reporting to
“a report to Scottish Ministers on the number of assessors and depute assessors holding office”.
That would be a straightforward report, because there are 10 assessors and two depute assessors, or whatever the numbers are, so that provision appears to be overkill.
Amendment 88’s subsection (2)(b) says:
“The Scottish Ministers must lay a report before the Scottish Parliament that—
(a) collates the reports”
and
“(b) considers whether there are—
(i) sufficient assessors ... to enable the fulfilment of the legislative functions of assessors, insofar as they relate to non-domestic rates”.
Assessors do not just deal with domestic rates; they deal with council tax and maintain the electoral roll.
I am not entirely clear what either amendment is trying to do. However, I have said that there is merit in valuation boards laying a report before Parliament, maybe every three or five years. That would give boards the opportunity to highlight issues that have arisen in the valuation process, which would be beneficial to members. However, neither amendment does that.
Graham Simpson
Amendments 39 and 88 call for duties to report on two different things, but they are essentially about one thing: transparency. I am certainly happy to support both amendments, but they probably need a bit of work. Perhaps Alexander Stewart and Sarah Boyack could get their heads together before stage 3 and come up with a joint proposal.
Sarah Boyack
I would certainly be happy to do that. I take the points made by Andy Wightman and Graham Simpson. I would also be happy to work with the minister. If members are happy to push through the amendments, we could come back and take a final view on the matter.
The issue is transparency and proportionality, so I appreciate Graham Simpson’s comment.
Graham Simpson
I will finish on that note.
Kate Forbes
My initial thoughts were that the Scottish Government was being drawn into matters that are best left to local authorities to review and determine. However, I think that Sarah Boyack’s amendment 88 in particular has merit. I appreciate Alexander Stewart’s amendment 39, but I think that, on balance, I would support Sarah Boyack’s amendment and not his.
I would be happy to meet both members to work on and adjust whichever amendment is agreed to. However, it is important to identify that assessors are independent professionals. Their role is to carry out valuations in accordance with law. They are independent of Government, which has no remit—nor should it—to intervene in that process.
The process of valuation is obviously extremely complex and technical and should remain under the purview of rating experts, surveyors and solicitors.
It is not necessary for reporting to be annual, which is why, on balance, I support Sarah Boyack’s amendment 88. Annual reporting would mean a considerable amount of work for little gain, whereas reporting every three years would be more relevant to the nature of non-domestic rates.
We support amendment 88, but if both members are willing to work with me, we could fine-tune the proposal and make adjustments to it.
Alexander Stewart
We have had a useful discussion. My goal was to bring additional scrutiny and transparency to the process, which would be valuable and is what Barclay wanted. I appreciate that the professionalism of the assessors is important to the process. There is merit in looking at the issue. I hear what the minister is saying and I acknowledge Sarah Boyack’s point about time being required. I am live to the discussion and I am more than happy to have further discussions as we progress the bill, so that we get more transparency and scrutiny, the Scottish Parliament gets a role and MSPs have an input to the process. That is what is expected of us.
Amendment 39, by agreement, withdrawn.
Sarah Boyack
I will not move amendment 88 on the basis that there is ministerial and cross-party support for us to lodge another amendment at stage 3.
Amendment 88 not moved.
Before section 9
The Convener
Amendment 3, in the name of Andy Wightman, is in a group on its own.
Andy Wightman
In its annexes, the Barclay review report contains a number of issues that Barclay looked at but did not make formal recommendations on. One of those is in annex C7, which is titled “Ensuring that every ratepayer pays something”.
The principle is straightforward—it is one of accountability. Barclay describes “rates deserts”, which are locations where nobody contributes anything to the costs of running and delivering the public services that the owners and occupiers of property depend on, including the roads by which their customers reach them and on which they make deliveries, the amenities that enhance property values, and the planning and infrastructure that enable their workers to have housing.
The principle that everybody should pay something, albeit a modest amount, is important in building the link between non-domestic property occupiers and the councils that provide the services on which they rely.
Relief schemes such as the small business bonus are separate from all this, but if their effect is to take thousands of people out of a system so that they pay nothing whatsoever, they will begin to undermine the important relationship of accountability between non-domestic property occupiers and local authorities, which has existed for well over a century.
Amendment 3 would insert a “mandatory minimum payment”. It does not seek to eliminate any relief schemes, although its effect would be to adjust from 100 per cent to 97.5 per cent the relief that is available under the small business bonus scheme. It would ensure that every ratepayer would pay something. As the amendment is drafted, that amount would be
“2.5 percent of the valuation of the lands and heritages”,
so a property with a valuation of, say, £10,000 a year would be liable for £250. I am open to debate on exactly how that would be set—it could be a flat rate—but I am more interested in a discussion on the principle, which I advocate. Everybody paying something is an important principle for the rates system and amendment 3 would give effect to that.
I move amendment 3.
Graham Simpson
Andy Wightman mentioned relief schemes, and I think that amendment 3 would meddle with relief schemes.
Some businesses do not pay anything under the small business bonus scheme, but Andy Wightman is suggesting that everyone should pay something. He is suggesting too fundamental a change. It would be a massive change to the system and its introduction could be damaging to some businesses, so I am not supportive of it.
Annabelle Ewing
I agree with that. I am supportive of the small business bonus scheme. From my constituency, I absolutely know the difference that it makes to allowing shops to continue to exist. The committee has referred on many different occasions and in many different contexts to the state of high streets, and amendment 3 would damage rather than help the high street. I do not know what modelling Mr Wightman has conducted; he did not refer to anything specific. I will not support amendment 3.
Alexander Stewart
I concur. Amendment 3 would be detrimental to a number of businesses on our high streets. We should be doing all that we can to encourage, support and rejuvenate those locations within our communities and constituencies, so that they can flourish. The provision in amendment 3 would be a real burden. It would jeopardise development opportunities and the business community’s ability to move forward, so I cannot support it.
Kenneth Gibson
Once upon a time, amendment 3 would have been quite a good suggestion, but we are many years past that. The retail sector in particular is under severe pressure, so it is the wrong measure at the wrong time. We also have to consider that it would impact on charities and others, and we should bear in mind Sarah Boyack’s earlier point about online retailing. Amendment 3 would only exacerbate online retailers’ advantage over high street retailers. I therefore oppose amendment 3.
Kate Forbes
Amendment 3 would create a rates liability for more than 142,000 properties. I am very supportive of the small business bonus scheme. I see its impact at not only the ministerial level, but the constituency level, in allowing small businesses in particular to reinvest.
It is perfectly legitimate to have questions about the small business bonus scheme and to ask whether it is achieving its aim of revitalising local economies, which is why we commissioned the Fraser of Allander institute to review the scheme. It is accepted that improvements can be made to ensure that the scheme supports small businesses. It would be wise to wait for the outcome and recommendations of that independent review, rather than consider the imposition of a minimum rates liability on the properties that benefit from the scheme.
There are other rates relief schemes in operation. For example, the business growth accelerator relief, which encourages investment in property stock, and 100 per cent relief for telecoms masts, to encourage improvements in digital connectivity in Scotland. All those areas would be subject to a rates liability under amendment 3. The reason that those reliefs exist is to incentivise investment and support particular policy decisions to aid high streets and the small businesses on them.
Consequently, I do not support amendment 3.
Andy Wightman
I am slightly bemused by committee members’ responses to amendment 3, including the claim that it would bring about a massive change. It would be an incredibly minor change to the rating system. As I made clear at the outset, amendment 3 is about a principle of accountability.
The minister talked about the small business bonus scheme review and wanting to wait. Again, we will wait and the ship will sail, the bill will be passed and we will have missed another legislative opportunity to put in place the principle that every ratepayer should pay something.
I am not a fan of the small business bonus scheme in the way that it is designed. Some of the wealthiest people on the planet who own land in Scotland are paying nothing as a consequence of it. In Lothian region, there are plenty of premises that, after the rates thresholds have gone up, have become vacant and been let again at a higher rent despite the fact that the owners are paying no more than they were before. The problem is that those higher thresholds get capitalised into the value of the property for the owner. That is always the problem: when we relieve fixed assets, such as property, of a liability to pay tax, it ends up being incorporated into the rent and enriching the owner.
11:00Notwithstanding that point, there is a review under way and I agree with the minister that we need to wait for its outcome. However, amendment 3 is not directly related to that review. Whether there should be reliefs or not is one question. I am proposing a minimum payment that everyone pays on an annual basis, to remind them that they depend upon the services of local government. I am introducing that simple principle.
Annabelle Ewing made a point about the impact of that change. The figures that were given by the Barclay review show that it would raise about £30 million. I do not think that paying £250 a year for a property valued at £10,000 is going to break the bank. If we set the rate too low, the principle might be observed, but the costs of collection would outweigh the revenue that was generated, so we cannot do that. I am open to how one decides that value, but I am more interested in the principle. I will press amendment 3.
The Convener
The question is, that amendment 3 be agreed to. Are we agreed?
Members: No.
The Convener
There will be a division.
For
Wightman, Andy (Lothian) (Green)
Against
Boyack, Sarah (Lothian) (Lab)
Dornan, James (Glasgow Cathcart) (SNP)
Ewing, Annabelle (Cowdenbeath) (SNP)
Gibson, Kenneth (Cunninghame North) (SNP)
Simpson, Graham (Central Scotland) (Con)
Stewart, Alexander (Mid Scotland and Fife) (Con)
The Convener
The result of the division is: For 1, Against 6, Abstentions 0.
Amendment 3 disagreed to.
Section 9—New or improved properties: rates relief
The Convener
Amendment 89, in the name of Sarah Boyack, is in a group on its own.
Sarah Boyack
The business growth accelerator relief, which reduces rates for businesses that have invested in improvements, has been applied in different ways across Scotland. Amendment 89 seeks to highlight the different ways in which it is implemented. I want there to be a requirement for the Scottish ministers to give greater clarity, partly to encourage people to use the business growth accelerator relief and partly to raise awareness among local authorities and businesses about how it works.
Amendment 89 seeks to provide more clarity about and increase the awareness and raise the profile of the business growth accelerator relief.
I move amendment 89.
Kate Forbes
I will identify my current concern and then offer Sarah Boyack the opportunity to consider the matter ahead of stage 3. We agree that reliefs should be accompanied by appropriate guidance for councils and ratepayers alike. We publish non-statutory guidance for all reliefs, which is compiled with the involvement of officers from COSLA and the Institute of Revenues Rating and Valuation. The guidance is updated regularly.
The complexities of the business growth accelerator relief, which amendment 89 relates to, lie in the identification of eligible properties. That goes back to a previous amendment. We introduced section 3 to provide for assessors to mark the valuation roll for newly built and improved lands and heritages. Assessors operate independently of ministers and it is a matter for the assessors to interpret and apply valuation legislation. The Government has no locus either to intervene in that process or to issue guidance to assessors.
Section 9 allows the Scottish ministers to make regulations creating relief for newly built and improved lands and heritages. The mark is there to provide councils with a means of identifying the properties that will be eligible for relief. The intention is that the regulations will specify amounts and durations of relief.
I am open to being persuaded that there is a need for statutory guidance to be issued to local authorities in that scenario. It would be unusual in the context of how we approach guidance for other reliefs, bearing in mind the important distinction between Government intervention and the independence of assessors.
Although I cannot support Sarah Boyack’s amendment 89 as drafted, there are some points that could be explored further in relation to how we issue guidance, perhaps leading to a more nuanced amendment.
Sarah Boyack
If no member has a comment to make, I would be happy to seek to withdraw amendment 89 and to bring it back at stage 3, following discussions with the minister.
Amendment 89, by agreement, withdrawn.
Section 9 agreed to.
After section 9
The Convener
Amendment 90, in the name of Sarah Boyack, is grouped with amendments 91 and 92.
Sarah Boyack
Amendments 90 to 92 are intended to address two of the major challenges of the day: the climate emergency and the challenge of encouraging businesses to adopt business strategies that would be good for our economy. The Scottish Government’s programme for government uses the tags of making Scotland “greener” and “fairer”, and that is what my amendments attempt to do.
We need much more joined-up government, including in relation to how we craft and implement our tax policies. Amendment 90 aims to encourage the owner, company or tenant to be more sustainable, and it gives examples of how they could be incentivised to do that through a reduced NDR payment. I am arguing not that businesses would automatically be exempt from payment, but that they could be offered a discount. I have left it to the Scottish Government to determine the level of the discount and the details of the scheme.
In amendment 90, I have listed as potential sustainable business practices
“reducing waste ... reducing greenhouse gas emissions ... procuring goods which are ... produced locally to the lands and heritages”
and
“environmentally sustainable”.
I have also included the use of energy from
“zero emission sources, as well as energy saved through energy efficiency measures.”
I have provided for the Scottish Government to produce regulations and to detail how those regulations would be implemented, including the periods for which relief would be available and who would be eligible. Given the climate emergency, it could be determined, for example, that such relief would be available for the next five or 10 years, to stimulate action, or a longer period could be stipulated. It would be up to the Government to consider the detail of that.
I have proposed that the regulations would be subject to affirmative procedure, so that they would be given full consideration by Parliament.
In amendment 91, I have set out my proposal for enabling those who practise positive business practices to qualify for rates relief. I have suggested that positive business practices would include
“not using zero hours contracts ... the payment of a living wage ... practices which have a positive effect on the ... local economy ... environment”
and
“the use of district heating.”
Amendment 92 would add a new section containing provisions on the contribution that was made to the net zero emissions target,
“including through investment in district heating”.
I have deliberately future proofed the wording so that other zero carbon investment that would achieve the same aims could be covered. I am very conscious that promoting low-carbon heat is currently a key objective, but that a range of alternative technologies and approaches might be developed in the future.
Although we have innovative low-carbon heat networks in Scotland, they have been slow to get off the ground, they are expensive to construct and they do not make huge profits, particularly if they provide heat that businesses and households can afford to use. Moreover, local authorities face major disincentives in promoting heat networks because of non-domestic rates.
Interestingly, that issue was raised by a Glasgow Scottish National Party councillor, who said:
“District heating systems have clear potential to deliver cheaper, cleaner energy into people’s homes ... But the way district heating systems are treated in the local tax system acts as a deterrent to them being used more widely ... under present rules, installing district heating systems brings in significant new non-domestic rates and that adds unduly to the cost of heating homes.”
She said that the Scottish Government agreed to a specific rates rebate for the Commonwealth games village, but that
“until district heating systems are competitive with conventional gas heating we won’t be able to move forward.
We need the government to cut through this problem if district heating systems are to contribute to the city’s drive to achieve carbon neutrality.”
I do not think that that is an issue only in Glasgow; it is one that affects the whole of Scotland.
I hope that colleagues will support my amendments, which address issues that are at the forefront of the challenges that we face in Scotland and provide incentives to deliver the change that we need now, and not in a generation. Crucially, they have been crafted to give ministers flexibility in how to proceed with the proposed approach.
I move amendment 90.
Andy Wightman
I have a couple of brief comments to make.
I have a lot of sympathy with the intention behind the amendments, but I think that ministers already have the power to design and introduce relief schemes if they so wish. Therefore, if they were minded to introduce relief schemes along the lines that Sarah Boyack has proposed, they have the power to do so. Maybe the minister can address that point. Notwithstanding that, there is always some benefit in drawing specific attention to ministers’ powers to achieve certain things in order to encourage them to do so.
Sarah Boyack talked about flexibility in terms of the rates relief and periods of eligibility, and that will be critical. Ultimately, as is set out in amendment 90, we want everyone to reduce waste, reduce greenhouse gas emissions and procure goods in a more environmentally sustainable way. If the relief was granted, however, no one would pay rates and public revenues would fall. It is arguable that the rates bill for Parliament, for example, would collapse, because we have reduced waste and greenhouse gas emissions, we do local procurement and all the rest of it.
That is not an argument against the scheme; it is a point to strengthen Sarah Boyack’s point that we will have to design it carefully. There will have to be an incentive to achieve certain outcomes, which, after they are achieved, would mean that the relief was withdrawn. As we have just discussed when we were talking about the small business bonus scheme, once a relief is introduced and people are paying 50 per cent less tax or no tax, it is politically challenging to tell them that they will now have to pay it.
Those are just some observations.
Graham Simpson
Amendment 90 is a positive idea that we could have rates relief if we do things such as reduce waste and greenhouse gas emissions and so on. We would all support that. However, I take Andy Wightman’s point that people could do all those things and end up paying nothing. However, the amendment says that ministers should make the provisions through regulations. This is one of those amendments that is good but probably needs more work, so I think that we can support it at this point, with that proviso.
The same cannot be said of amendment 91, which deals with the same idea but in relation to positive business practices. How on earth do you define a “positive business practice”? What Sarah Boyack considers to be a positive business practice might not be what I consider to be a positive business practice.
Sarah Boyack lists a few things in amendment 91. It is quite a bizarre mix, going from zero-hours contracts to the use of district heating. Members will have different views on zero-hours contracts, but places such as ski centres in Scotland would say that they need people on zero-hours contracts. For them, that is a positive business practice, but for Sarah Boyack it clearly is not. There are issues with amendment 91, so we cannot support it.
Amendment 92 falls into the same category as amendment 90, so we are happy to go along with it.
Annabelle Ewing
I am interested in Sarah Boyack’s approach, but I see that there are a number of practical difficulties with it. This goes back to the idea of using stage 2 of the bill process to come up with all this stuff without any detailed consultation or working through the issues carefully and comprehensively. I am concerned about tagging stuff on at stage 2, because I have a host of questions about these amendments.
What is “fairness”, and fairness for whom? Who will assess compliance on all this? What is the machinery for that and what impact will it have? What council money will have to be behind it? The idea is not a bad one, but I do not think that tagging it on at stage 2 without all that work being done is the best way to go about it.
Taking the approach would have many implications for people who are trying to run a business, particularly a small business. Launching it without the Federation of Small Businesses and others having the opportunity to give a detailed response is not really a fair way to proceed. At this stage, therefore, I would find it difficult to support the amendments in their current form.
Kate Forbes
I will speak to all the amendments, and the principles that I will identify are relevant to each of them.
I do not think that anybody would dispute the sentiment behind the amendments. Indeed, I say to Andy Wightman that the Government already uses non-domestic rates to support renewables, including through district heating relief, 60 per cent relief for small-scale hydro schemes and relief for renewable energy generation where there is a community interest. Those reliefs are unique, or are more generous than any equivalent reliefs in the UK.
The Scottish Government is, of course, a strong proponent of fair work. That includes the living wage, which we support through the Scottish business pledge, to encourage fair practices by all businesses.
11:15We also have the new legally binding annual targets on climate change, with the Climate Change (Emissions Reduction Targets) (Scotland) Act 2019 setting a target of net zero emissions by 2045. It is important that we look at every aspect in considering how we will support those ambitions. However, I do not believe that primary legislation on non-domestic rates—which are, as has been said, a property-based tax—is the best way to address our wider ambitions. Apart from anything else, such a system would be hugely burdensome in practice and open to abuse.
Andy Wightman
Can the minister clarify whether I am correct in arguing that, as a matter of law, ministers—if they wish to do so, for the sake of argument—already have the powers in existing legislation to introduce relief along those lines?
Kate Forbes
Yes, we already have the powers to create reliefs along those lines and other lines as we wish. I opened my comments by talking about district heating relief and small-scale hydro scheme relief.
There is another element. Committee members have already expressed frustration when I talk about reviews that are further down the line, but I note that we have committed to a review of plant and machinery valuations, with a particular focus on renewable energy sector valuations. I expect that the review will explore a number of concerns in detail and will make proposals about how we support renewable energy through reliefs or otherwise.
Non-domestic rates reliefs are typically administered on the basis of objective evidence-based characteristics of the property, such as its rateable value or the purpose for which it is being occupied. One example is the small business bonus scheme, which is based primarily on rateable value, whereas nursery or charity relief requires the property to be used wholly or mainly as such. Some reliefs are location based, and even those are based on objective facts and evidence.
I come to the points that were raised by Graham Simpson and Annabelle Ewing. To administer reliefs on the basis of a subjective or transitory feature of the property or occupier, such as positive or sustainable business practices, would increase the administrative burden substantially. In addition, such concepts are ultimately subjective, so even if councils were able to gather information on such practices—potentially at a significant time cost to them—there would be different interpretations across local authorities.
Councils would also need to be significantly resourced to increase their policing, because otherwise the provisions would be ripe for abuse. For example, an occupier could procure local goods on the day that they applied for and were assessed for the relief and then source those goods from sweat shops during the rest of the year. They would still be eligible for the relief in those circumstances. Similarly, an occupier could provide evidence that they were meeting the living wage at a certain point, and councils would struggle to verify the evidence and to monitor the situation over time.
I could go into further detail on an operational level. Businesses would be required to provide evidence frequently to councils on their practices. Those considerations would need to be assessed and costed, and local authorities would need to be consulted on the implications for workload.
I would like to think that we are trying to address some of Sarah Boyack’s concerns through alternative measures that are already in place, but I cannot support the amendments, for the reasons that I have highlighted.
Sarah Boyack
I appreciate colleagues’ comments, but nobody has really disputed the fact that we need to act. As I understand it, the evidence is out there. For example, some people are putting in district heating systems and are having non-domestic rates applied, which puts them off developing such schemes.
The minister commented on my amendment 91 about progressive business practices. She said that someone could pay the living wage on one day and not do so for the rest of the year. However, there are already schemes in which people sign up as living wage employers, and they do not let people sign up for only one day. There are alternative ways in which people could demonstrate that they have met the requirements that would not be time consuming for councils and would be possible to apply.
I have not really heard why the objectives behind the amendments are wrong. They address two of the key issues of the day with regard to fairer and greener businesses and they are practical. For those reasons, I will push them. I press amendment 90.
The Convener
The question is, that amendment 90 be agreed to. Are we agreed?
Members: No.
The Convener
There will be a division.
For
Boyack, Sarah (Lothian) (Lab)
Simpson, Graham (Central Scotland) (Con)
Stewart, Alexander (Mid Scotland and Fife) (Con)
Against
Dornan, James (Glasgow Cathcart) (SNP)
Ewing, Annabelle (Cowdenbeath) (SNP)
Gibson, Kenneth (Cunninghame North) (SNP)
Wightman, Andy (Lothian) (Green)
The Convener
The result of the division is: For 3, Against 4, Abstentions 0.
Amendment 90 disagreed to.
Amendment 91 moved—[Sarah Boyack].
The Convener
The question is, that amendment 91 be agreed to. Are we agreed?
Members: No.
The Convener
There will be a division.
For
Boyack, Sarah (Lothian) (Lab)
Against
Dornan, James (Glasgow Cathcart) (SNP)
Ewing, Annabelle (Cowdenbeath) (SNP)
Gibson, Kenneth (Cunninghame North) (SNP)
Simpson, Graham (Central Scotland) (Con)
Stewart, Alexander (Mid Scotland and Fife) (Con)
Wightman, Andy (Lothian) (Green)
The Convener
The result of the division is: For 1, Against 6, Abstentions 0.
Amendment 91 disagreed to.
Amendment 92 moved—[Sarah Boyack].
The Convener
The question is, that amendment 92 be agreed to. Are we agreed?
Members: No.
The Convener
There will be a division.
For
Boyack, Sarah (Lothian) (Lab)
Simpson, Graham (Central Scotland) (Con)
Stewart, Alexander (Mid Scotland and Fife) (Con)
Wightman, Andy (Lothian) (Green)
Against
Dornan, James (Glasgow Cathcart) (SNP)
Ewing, Annabelle (Cowdenbeath) (SNP)
Gibson, Kenneth (Cunninghame North) (SNP)
The Convener
The result of the division is: For 4, Against 3, Abstentions 0.
Amendment 92 agreed to.
Amendments 11 and 12 not moved.
The Convener
This is an appropriate point at which to conclude today’s meeting, as consideration of the next section would take up considerable time. I apologise to Liz Smith—we thought that we would get to it a bit earlier than we did. Due to other circumstances, we have to finish the session at a quarter to 12, so we would not be able to give the next section our due diligence.
That concludes today’s meeting. Any remaining amendments to the parts of the bill that we have not reached today should be lodged by 12 noon tomorrow.
11:22 Meeting continued in private until 11:49.27 November 2019
Second meeting on amendments
Documents with the amendments considered at this meeting held on 4 December 2019:

Second meeting on amendments transcript
The Convener
Under agenda item 3, the committee will consider the Non-Domestic Rates (Scotland) Bill at stage 2, on day 2. I welcome Kate Forbes, who is the Minister for Public Finance and Digital Economy, to speak to and move amendments on behalf of the Scottish Government, and I welcome her officials. I also welcome Liz Smith, who has amendments to speak to. The intention is to finish stage 2 today; we have enough time, I hope, to do so.
Section 9 agreed to.
After section 9
The Convener
Amendment 73, in the name of Liz Smith, is grouped with amendments 74 to 83.
Liz Smith (Mid Scotland and Fife) (Con)
Amendment 73 is about the equality of charities, which Mr Martin Tyson of the Office of the Scottish Charity Regulator raised as an issue when he gave evidence to the committee. He said:
“Our concern is that”
the proposal about section 10 of the bill
“goes to the basis of what the charity law in Scotland says a charity is ... For a long time, the assumption has been that any tax reliefs or rates reliefs apply equally to all charities, across the board. There are not some charities that are more charitable than others.
Our main concern is that we could start getting a blurring around the edges of what a charity is and of what the public ... understand a charity to be.” —[Official Report, Local Government and Communities Committee, 19 June 2019; c 10-11.]
He went on to say that it was not clear why anybody would want to create that ambiguity, which would introduce differentiated treatment and be likely to open up legal challenges.
As members know, section 4 of the Local Government (Financial Provisions etc) (Scotland) Act 1962 provides for
“Reduction and remission of rates payable by charitable and other organisations”.
As it stands, that section does not provide for any differentiation in how charities are treated in terms of their eligibility for reduction or remission of rates. Therefore, without section 10 of the Non-Domestic Rates (Scotland) Bill, charities would continue to be receive equal rates relief treatment. With that in mind, amendment 73 seeks to provide beyond doubt that all charities should be treated equally for rates relief.
Amendments 74, 75 and 78 are to do with rates reliefs for nurseries in independent schools. In combination, the amendments seek to provide that nurseries in independent schools will still be eligible for rates relief, putting them on an equal footing with private nurseries that are not in the independent school sector.
It is wholly anomalous to make legislation that removes charitable relief on business rates for not-for-profit charitable institutions yet allows private profit-making nurseries to continue to enjoy rates relief.
When responding, I ask that the minister explains the logic behind that decision, especially in terms of the pressure that the Scottish Government is under to deliver its 1,140 hours policy, to which independent schools, particularly the larger urban day schools, contribute.
The amendments provide that lands and heritages that are related to the provision of nursery classes in an independent school will be entered separately into the valuation roll and will be eligible for rates relief.
Amendments 76 and 77 are about the provision of education to children with additional support needs in mainstream independent schools. The amendments provide that mainstream independent schools will still be eligible for rates relief, if they deliver education to pupils with additional support needs who have been
“selected for attendance at the school ... by reason of those needs”.
I see no reason why their needs should be classified differently from those of pupils at schools that are currently named as special schools.
Amendment 79 would leave out section 10. The minister is well aware why the independent schools sector is so strongly opposed to section 10; most especially, it does not consider that any comprehensive cost benefit analysis has been carried out. The evidence for that is the weak financial memorandum.
The minister persistently says that she values the high standards of education that is provided by the independent sector, and that it is an important part of Scotland’s education system. Indeed, on the previous occasion when many such issues were considered, during the passage of the Charities and Trustee Investment (Scotland) Act 2005, much more detailed analysis was provided to assess the significant public benefit that is delivered by Scotland’s independent schools, which resulted in unanimous agreement across Parliament. If that support remains, as the minister insists it does, and given that the Scottish Council for Independent Schools states that the independent sector provides £51 million in financial support, it would surely have been appropriate to have carried out an accurate and comprehensive financial assessment.
However, this is about more than that. The proposed policy move has significant implications for the state sector, which should not be forgotten in the financial considerations and, indeed, in relation to the availability of places and teaching resources.
Annabelle Ewing (Cowdenbeath) (SNP)
I hear what Liz Smith is saying, but I am a wee bit confused about why that is her conclusion. Why would there be a negative impact on the state school sector?
Liz Smith
That is because the state sector would inevitably be asked to place children from independent schools whose parents were no longer able to afford the fees. We know from many of their letters that headteachers in the independent sector anticipate that they will lose some of their pupils if there are fees increases. Those pupils have to be educated somewhere, so there would be an impact on the state sector.
The minister is also well aware that there are issues to do with the likely impact of the policy move on availability of bursary provision. It could have a detrimental effect on the ability of some schools not only to offer bursaries, but to offer their other facilities for public benefit. That is particularly true for many of the smaller schools.
To my mind, such schools face a very difficult situation. Without exception, there are likely to be considerable increases in fees and therefore fewer parents will be able to choose independent education, which means that independent education is likely to become more elitist and parental choice will be reduced. That is the exact opposite of Scottish Government policy and of what Parliament agreed to in 2005.
Amendments 81 to 83 are about the timing of the commencement of section 10. Amendment 81, which is a paving amendment, sets out that the Scottish Government ministers’ power to make regulations on the commencement of the bill’s provisions would be subject to the provisions of one or other of amendments 82 and 83.
Amendment 82 provides that regulations bringing the section into force cannot be made until after the next revaluation year, which, as the minister knows, is 2022. Ministers have already initiated some discussions about that, and they intimated that they are willing to listen to the sector’s call for a short delay to implementation. It makes sense to ensure that the start date follows rather than precedes the new revaluations.
Amendment 83 recognises the provision of amendment 82. In addition to those provisions, it provides that the Scottish ministers must conduct a consultation after the bill receives royal assent and lay a report on that consultation before Parliament before making the regulations.
I move amendment 73.
Graham Simpson
Amendment 80 deals with the date on which section 10 would come into force. It gives the committee another option, if it was minded to agree that there should be a delay in introducing section 10. The committee is essentially faced with a choice between Liz Smith’s amendment 82, which would delay commencement until 2022, or my amendment 80, which would simply delay it until 1 August 2021, which is the start of the school year, which seems a natural point in a school’s business. I much prefer Liz Smith’s amendment 82, but I am giving the committee a slightly softer option.
09:15We have heard that some—not all—independent schools are in a perilous position. I am certain that the minister does not want schools to close, because I have heard her say so, but if we continue with the bill as it is, that could be the effect. Certainly, some smaller schools could close, which could lead to the situation that Liz Smith described in which the kids who go to those schools would enter the state sector. Of course, as we have heard, sadly, the Government has done no financial planning on that. I will therefore be happy to move amendment 80 when the time comes.
Andy Wightman
I have a few comments on section 10. I support its overall intentions. In principle, I believe that all non-domestic properties should pay something, and I moved an amendment to that effect last week, which was rejected. To that extent, independent schools are no different. Like many other non-domestic properties, they benefit from local services and should contribute towards them.
However, it is notable that the bill deals with the issue in a rather clumsy way, which in my view derives from the narrow focus of the Barclay review, which asked one question that was focused on business performance, notwithstanding the fact that more than a third of non-domestic properties are not occupied by businesses. That is why OSCR was not really involved at the beginning. The review’s remit was to be cost neutral so, in order to provide the tax reductions that it suggested, it had to find money to pay for them. I put it on record that the review was not the comprehensive one that John Swinney promised about 10 years ago; it was a narrow review, and that is why we are in the current situation.
On the withdrawal of charitable relief, as a matter of principle, I do not believe that any taxpayer, whether they are paying VAT, income tax or non-domestic rates, should have to face a fourfold or fivefold increase in tax liability almost overnight. At stage 1, the minister told the committee that she had no settled view on the commencement of section 10. No decision has been made on that and the bill makes no provision for it. I do not necessarily believe that the changes brought about by section 10 should be deferred.
However, I want to talk about the impact on different schools, which Graham Simpson mentioned. The committee held a round-table event at George Watson’s college that was attended by representatives of quite a lot of independent schools. We went round the table and they were asked to provide information on the number of pupils at their schools and the cost implications of the withdrawal of the 80 per cent mandatory relief. I did a quick calculation, dividing one by the other, and it was clear that, for some smaller schools, the impact per pupil would be five, six or seven times higher than the impact would be on larger schools.
Another issue that became clear related to the fact that the tax is on the occupation of non-domestic property. We heard from the Steiner school in Edinburgh that, although it has about 250 pupils, it has a very efficient campus—basically, it is two detached villas in Morningside or somewhere—and so will have a relatively low non-domestic rates liability when the relief is withdrawn. Another school that has a similar pupil roll—I cannot remember which one, so I will not risk making an error by naming it—would have a tax liability that is three or four times higher because it has a much bigger campus and more buildings.
An issue is that we have a class of ratepayers who, for many years—certainly since mandatory relief was introduced—have not paid much attention to the efficiency with which they occupy their property, because they have no rates liability. There is therefore an argument for phasing in the change, so I would welcome the minister’s comments on that.
I agree with and will support Liz Smith’s amendment 75 and the related amendments 74 and 78.
Ministers indicated at the outset that the purpose of section 10, on the withdrawal of relief, is to provide a level playing field for the independent sector and the public sector. If one is going to provide a level playing field, one needs to do so in all circumstances; I will move on to discuss that in relation to my amendment 15 in the next group. It seems logical that nurseries that happen to be located on the campuses of independent schools should be eligible for the same rates relief, given that they are in the same class of property as nurseries that are located outside such campuses.
Annabelle Ewing
Good morning, minister. I will pick up on a few of the issues that have been raised thus far. To go back to first principles, the “Report of the Barclay Review of Non-Domestic Rates”, which was published in August 2017, recommended that mainstream independent schools should receive the same rates treatment as state schools. In December 2017, the Scottish Government indicated that it accepted the review’s recommendations, including the one to which I referred. That was two years ago, so the direction of travel should not come as a surprise to any interested party.
The committee, at paragraph 116 on page 36 of its stage 1 report, noted:
“A majority of the Committee supports section 10 of the Bill, by virtue of which mainstream independent schools will no longer be able to claim charitable relief. The Committee agrees that this change is necessary to create a ‘level playing field’ between the state and independent sectors. It will also generate more revenue for councils to spend on services for citizens.”
It went on to say:
“The majority accepts that there will be a financial impact on independent schools, but notes the Scottish Government’s view that on average the additional cost would equate to about 1.3% of annual fees.”
That is the information that the committee had to hand.
In addition, it is worth noting that, as the report states clearly, the committee received no real evidence, if any, to suggest that there were any concerns that the wish to address the lack of a level playing field between the mainstream independent sector and the state sector was motivated at all by any petty desire to get rid of independent schools. The committee’s report states that no real evidence to suggest that there was such a motivation was expressed on the part of those who had taken the time and trouble to make their submissions known to the committee. I hope that that clarifies a few myths that may have arisen.
With regard to some of the detail, Liz Smith suggested that a whole host of individuals would be seeking a place in the state sector because they could no long