Non-Domestic Rates (Scotland) Bill

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

Bill is at Introduced stage.

Introduced (25 March 2019)

Bill is at Stage 1 stage.

Stage 1 (10 October 2019)

Bill is at Stage 2 stage.

Stage 2 (4 December 2019)

Bill is at Stage 3 stage.

Stage 3 (5 February 2020)

Bill is at Act stage.

Act

Non-Domestic Rates (Scotland) Bill as introduced

Related information from the Scottish Government on the Bill

Why the Bill is being proposed (Policy Memorandum)

Policy Memorandum Non-Domestic Rates (Scotland) Bill Policy Memorandum Non-Domestic Rates (Scotland) Bill

Explanation of the Bill (Explanatory Notes)

Explanatory Notes Non-Domestic Rates (Scotland) Bill Explanatory Notes Non-Domestic Rates (Scotland) Bill

How much the Bill is likely to cost (Financial Memorandum)

Financial Memorandum Non-Domestic Rates (Scotland) Bill Financial Memorandum Non-Domestic Rates (Scotland) Bill

Opinions on whether the Parliament has the power to make the law (Statements on Legislative Competence)

Statements on Legislative Competence Non-Domestic Rates (Scotland) Bill Statements on Legislative Competence Non-Domestic Rates (Scotland) Bill

Information on the powers the Bill gives the Scottish Government and others (Delegated Powers Memorandum)

Delegated Powers Memorandum Non-Domestic Rates (Scotland) Bill Delegated Powers Memorandum Non-Domestic Rates (Scotland) Bill

Scottish Parliament research on the Bill

Have your say

The deadline for sharing your views on this Bill has passed. Read the views that were given.

Committees involved in this Bill

Lead committee: Local Government and Communities Committee

Delegated Powers and Law Reform Committee

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.

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.

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

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

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.

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

The Convener

Thank you, that is very clear.

Kenneth Gibson

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.

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.

11:00

Jonathan 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

Second meeting transcript

The Convener

The next agenda item is the committee’s second evidence session on the Non-Domestic Rates (Scotland) Bill at stage 1. I welcome, from the Scottish Assessors Association, Ian Milton, who is its president; Alastair Kirkwood, who is its vice-president; Jim Doig, who is chair of the public buildings committee; and Heather Honeyman, who is project manager for non-domestic rates reform implementation.

That would certainly help. The goal is to make it more challenging for people to avoid returning the information.

Ian Milton

Getting down to specifics might help, so I refer to section 14. It is anticipated that the assessor will be given the power to request information that

“the assessor may reasonably require for the purpose of valuing the lands and heritages referred to in the notice.”

For me, that is far too narrow. One of the big issues for me and all assessors is that we will have to do the revaluation every three years. Every 36 months, we will have to refresh our values, and we will have only around eight to 12 months to do that work from the tone date once we move to a one-year tone. Therefore, we will need the information to come in very quickly, but we do not want to be restricted to asking only for information that will allow us to value particular properties, because a lot of our properties are valued by reference to costs. We use unit costs, and we analyse costs. At each revaluation, we will already have a valuation roll with a quarter of a million properties valued in it. At the next revaluation, two years into the previous revaluation, we will want a refresh of that data. We might want information for a property that we have already valued, but it will inform our next revaluation. Therefore, we really need a power to reasonably request information that is required to fulfil our statutory duty to maintain valuation rolls. If it is simply a case of asking for the information to enable us to value a property, that is not sufficient for us to do our job.

Let us say that the Government decided that rates should not have to be paid on them. Would it be good practice to exempt them from the roll, or would it be better to have them on the roll but made subject to relief?

Ian Milton

The Scottish Assessors Association’s position throughout our involvement in consultation responses, going back to the “Supporting Business—Promoting Growth” consultation in 2013 and in the more recent consultation last year, has always been that, if all land and heritage is entered on the valuation roll, we have complete transparency and clarity on the landscape in terms of valuation. It is then up to local government and central Government to decide how they want to use their economic levers and whatever strategic objectives they have to grant reliefs.

At present, we have a mixture of reliefs and exemptions. We made reference to that in our responses to the Government consultations last year and in 2013. For example, rural ATMs are exempt; agricultural land is exempt, too, as are many other subjects, as you know. Therefore, there are gaps in the valuation roll that introduce an element of opacity to the overall land valuation assessment process.

Andy Wightman

As a matter of principle, therefore, does the Scottish Assessors Association agree with recommendation 28 in the Barclay review, which states that

“All property should be entered on the valuation roll ... except public infrastructure”?

Ian Milton

Our position is that it is easier to value everything than it is to be selective. If we have everything on the valuation roll, we have a much clearer situation.

Andy Wightman

Would that therefore also go for recommendation 29, which is that

“Large scale commercial processing”

that happens to take place

“on agricultural land”

but which is exactly the same as processing that takes place in a food park should be rated? Would you want that, as a matter of professional best practice, to be on the roll and then the Government to make a policy decision as to why farmers who make ice cream should not pay rates but other businesses that make it should pay them?

Ian Milton

Yes. The position is that, for transparency, it is much better to have a complete valuation roll that has all lands and heritages shown on it. That gives Government and those who determine policy the opportunity to decide precisely how they want to implement local taxation and the distribution of rates according to our assessments, granting reliefs or otherwise through their process.

Andy Wightman

Other members of the panel are free to come in. You all represent the Scottish assessors in some way.

That brings me on to parks. I confess that I am a little bit confused about the provisions on parks. The Barclay report says:

“all public parks are exempt from rating and there are no plans to change this, except where commercial activity takes place.”

As I understand it, the provisions in the bill try to bring into the rating system those parks or parts of parks where commercial activity takes place. Is that a fair summation of what the bill attempts to do?

Heather Honeyman

Yes. The issue is to do with the definition of “commercial activity”. Not all public parks are exempt at present, as they have to fulfil specific criteria. The Barclay review recommended that that be broadened to cover commercial activity. The bill could bring in more parks than has been envisaged, depending on the definition of “commercial activity”. Given what is proposed, various types of subjects could be brought in.

The bill is potentially a little unclear on restricted access. For example, public parks that are exempt at present may have within them trampoline areas or putting greens that customers have to pay to enter. Is the suggestion that such areas should be on the roll but the remainder of those parks, which there is no charge to get into, should be exempt? Or is the proposal that the whole park should be included because part of it has restricted access?

At the moment, buildings that are considered ancillary to the park would also be exempt. The proposals in the bill suggest that those would come on to the roll. Bowling clubs and sports clubs might enter the roll because they are not in the occupation of the local authority.

10:15

We also need to think about what a park is. When we think about parks, we think about green areas, but the definition of park can extend to other types of subjects, such as golf courses, bowling greens or sports areas—effectively, recreation grounds—which might not be what first spring to mind as public parks. Many properties are exempt at the moment and the proposals would bring them on to the roll. They might be subject to rates relief, but they would be included in the roll.

Andy Wightman

That is similar to my earlier point: they might be subject to relief but they will be on the roll.

The Barclay review highlights the fact that the St Andrews links’ courses are exempt from rates because the land is classed as a public park. It is owned by a trust, but the courses are commercially operated, and other golf courses pay rates.

Is there a problem with section 4? In your evidence, you highlight that

“It is not clear from the Bill how Assessors should deal with local authority parks where part is open for free and unrestricted access and part is not.”

Going back to my previous question, would it not be better to bring all parks on to the roll and, through secondary legislation, deal with what is rateable and not rateable, so that you can adapt to circumstances that are changing all the time? In Edinburgh, there are proposals to turn the Ross bandstand into a commercial venture. The occupation and use of parks change all the time.

Heather Honeyman

Kenneth Gibson

Thank you for those comprehensive answers.

Graham Simpson (Central Scotland) (Con)

I want to follow up on the impact on you of moving to three-yearly revaluations. Have you assessed how many extra staff will be needed across Scotland?

Ian Milton

Yes, we have. We provided input to the Scottish Government and the Convention of Scottish Local Authorities in the preparation of the financial memorandum.

The estimates that we provided were based on our understanding at the time. Our first estimate in September was reasonably sketchy, I suppose, but over time, up to February, we managed to form a better understanding of what the NDR reforms mean on the ground. That informed the information that is in the financial memorandum.

As you can see from the financial memorandum, we are talking about an estimated additional 122 personnel, of whom 50 per cent will be trainees, 20 per cent will be qualified surveyors and 30 per cent will be information technology and support staff. We will have to gear up in terms of the information powers so that we can support staff to ensure that we get the information coming in and manage it properly.

However, we also need the expertise. As I think is acknowledged in the policy memorandum, in the past, we have always dealt with things sequentially. We did a revaluation, the staff who did the revaluation went on to resolve the appeals and then, three years later, they went back to revaluation tasks. Instead of a sequential approach, we will now have two teams: one that will deal with revaluation full time and all year round, and one that will deal with dispute resolution, proposals and appeals.

Although we have done some work in that regard, that work and the figures in the financial memorandum must be considered alongside the caveats and assumptions that we made based on what we knew in February. One caveat—which I do not think is mentioned in the financial memorandum—is that we are assuming a 25 per cent reduction in appeal volumes. That assumption is built into our figures. In addition, there is no funding allocation or estimate for the additional costs that designated assessors will face in relation to public utilities. There is also the issue of the impact of asynchronous revaluations compared to the other jurisdictions in the United Kingdom. There are therefore gaps in the estimate that are difficult to fill at this point.

Graham Simpson

So although the 122 figure takes into account three-yearly revaluations, a new pre-appeal mechanism and everything else, it cannot be wholly accurate.

Ian Milton

From the assessors’ point of view, that is likely to be a more complex procedure than the current one-stage process. At the moment, 80,000 appeals are lodged at each revaluation. It will not help us if there are 80,000 proposals followed by a second stage. The same amount of work will be involved for assessors whether it is called a proposal or an appeal. In fact, it is likely that the volume of work will be higher because of the two-stage process.

10:30

We envisage that ratepayers will lodge their proposal with the assessor, a discussion will take place, the assessor will intimate his thoughts on the matter, and the ratepayer will then have the opportunity to proceed to a formal appeal with the valuation appeal committee. That will probably reduce the number of appeals that go to the valuation appeal committee, but it will not necessarily reduce the number of proposals that the assessor receives.

The Convener

So you think that those people who automatically go to appeal at the moment would automatically go to the proposal stage and that some of them might go on to appeal.

Alastair Kirkwood

Indeed. In fact, some of the provisions in the bill suggest that there might be slightly more proposals than there are appeals.

Graham Simpson

Will having the extra stage increase the workload?

Alastair Kirkwood

It is likely to increase the workload. A lot will depend on exactly how the Scottish Courts and Tribunals Service deals with the appeals, which is yet to be decided. The valuation appeal committee structure will be absorbed into the Scottish Courts and Tribunals Service in 2022, which will coincide with the introduction of three-yearly revaluations. We are not sure of the details of how the tribunals service will manage those appeals. We have concerns that the streamlining of the process and the timescales for dealing with appeals will have a significant impact on our ability to achieve revaluation on a three-yearly basis.

The assessors consider that it is imperative that appeals are resolved within the course of the revaluation. The issue of fairness to ratepayers and their having certainty about their liabilities aside, going into the following revaluation with appeals outstanding and continuing legal uncertainties or valuation issues doubles the potential income loss from one revaluation to the next. We consider that all appeals should be resolved within the three-year period.

The new arrangements could be slightly more administrative than the current arrangements, but we see the logic of going down the proposed route.

Graham Simpson

Given the concerns that you have expressed, is there anything that you would change in the bill to make things better?

Alastair Kirkwood

One issue that is not addressed in the bill but which could be dealt with through mechanisms other than the bill is the role of public sector appeals. It has been suggested that the number of appeals from the public sector could be reduced, given that it could be argued that that involves money going from one public purse to another public purse.

Beyond that, assessors have suggested a number of measures, the first of which is that a fee could be charged at the proposal stage. The bill contains provisions for a fee to be charged at the second stage, when the valuation appeal committee or the tribunal considers the matter, but not at the proposal stage. We have suggested that there could be measures whereby, if a property is in receipt of 100 per cent relief, there should be no right for a proposal to be lodged. We have also suggested that there should be no right for a proposal to be lodged when there has been a pre-discussion in which ratepayers have reached an agreement with assessors about what the value should be. A number of measures have been suggested that do not appear in the bill.

Andy Wightman

I want to follow up on Mr Simpson’s questioning.

Mr Milton—when you were asked whether there would be any change in the volume of appeals, you said that there would not be. You said that you did not know how many appeals there would be. You mentioned that the issue will be resolved in secondary legislation. I presume that that was a reference to subsection (6) of proposed new section 3ZB, which the bill will insert in the Local Government (Scotland) Act 1975. It states that ministers may make regulations that make provision about the

“circumstances in which such an appeal may be made only with the permission of the valuation appeal committee”.

Alastair Kirkwood has mentioned a few gate-keeping rules. Could another one be that someone would not get to make a proposal unless they were appealing a valuation that was more than, say, 10 per cent away from the current valuation? I presume that, at the moment, it is possible to appeal a valuation without there being any threshold with regard to the extent to which the new valuation departs from the existing valuation.

Ian Milton

It is anticipated that a proposal could be made against an entry in the valuation roll. It might not be just the rateable value that is in dispute; the existence of the entry itself might be in dispute.

The bill introduces the business growth accelerator, which we have not touched on. The bill anticipates that there would be a marker in the valuation roll, the existence or lack of which might be challenged by a proprietor, tenant or occupier, as it might be a gateway to their getting or not getting relief. As Alastair Kirkwood mentioned, we anticipate that more proposals might come into the system unless there are active measures to reduce their volume. Another means of reducing them might be to say that, if an outstanding request for information has not been responded to or a civil penalty was sitting against an entry, there should not be a right of proposal.

The position is quite complicated. The volume of appeals is very significant, but I argue that the actual adjustment of properties under appeal is not significant. With any appeal or proposal system, there is an issue about public resource being gummed up. Obviously, we would not want to deny people access to justice, but we have a finite resource. The question is how we can ensure that the volume of appeals is minimised but injustices are remedied.

With other stakeholders, we are currently feeding into the Barclay implementation advisory group’s appeal sub-group, and we are looking at options. One issue is the potential for the exchange of information to be set down in secondary legislation. That would tie up assessors in providing information, which is fair enough, but it would also tie up ratepayers in providing information on grounds of appeal, comparisons and such like. There is the potential for a huge raft of work. To be perfectly frank, it will be a challenge to find a system that would be fair to all parties and would not overburden public resources.

The Convener

Graham Simpson wants to come in on changes for independent schools.

Graham Simpson

The panel might be able to answer this question quite quickly. I noticed that the panellists did not have anything to say in their written submissions about the proposals for changes to the way in which rates for independent schools are handled. However, as they are here, now is their opportunity to tell us their views on that.

Alastair Kirkwood

Our position on independent schools is that the matter is one of relief from the charging of rates. That issue would not impact directly on assessors, which is why we have not commented on it in our submission. Currently, such schools are valued and they appear on the valuation roll, and applying the relief is a matter for policy makers and councils.

Graham Simpson

That is fair enough. That is really a policy question, which is not for the assessors.

Annabelle Ewing (Cowdenbeath) (SNP)

Good morning, panel. I want to go back to the issue of information notices. First, I will deal with time limits. I note that you would prefer a limit of 28 days with the possibility of appeal instead of, in effect, 56 days plus another 28 days. As far as you are aware, why is the current position in the bill that the period would be 56 days plus 28 days? What was the thinking behind that? Obviously, you do not agree with it.

Ian Milton

To be frank, it was a surprise to us that the limit came out at 56 days. Such a provision might apply in the jurisdiction of England and Wales, but our position has been that we need the turnaround of information to be quicker. The current rule specifies a limit of 14 days, which we accept is unrealistic, especially when detailed information is looked for. However, we are also aware that detailed information for large, major projects is available through quantity surveyors and project managers, often in digital form—in spreadsheets, for example. A period of 14 days is far too short. Our view is that a period in the region of 28 or 30 days would be about right.

At the end of the day, we have a tight turnaround time of only 12 months between the tone date and the roll coming into force, so we need to get the information in. That is the background. I dare say that, if there was an appeal, there would be a further 28 days. Currently, people have 84 days—12 weeks—between receiving the first notice and the civil penalty appeal stage. Given that we are dealing with a revaluation cycle that is measured in months rather than in years, that is an issue.

Annabelle Ewing

We will doubtless pursue that issue with the minister in due course.

In your submission, you stress that communication should be “digital by default”. I presume that that also applies to information notices. Will you explain a bit more about what that approach would rule in and rule out? Does the bill support the position that you are seeking to achieve?

Heather Honeyman

Under the current legislation, valuation notices have to go out in writing in paper form. We are responding to the modern world and looking at ways of having more streamlined processes. When the bill was introduced, there were suggestions in relation to writing. It was also suggested that how information and valuation notices go out might be agreed between the parties. We believe that the process of going to and fro to get agreement on email addresses and how the notices are sent out could be burdensome. Issuing correspondence digitally and maintaining email addresses and so on would lead to greater efficiency in delivery. We are trying to respond to the modern world and to be more efficient in how we do things.

Ian Milton

As part of our preparations for NDR reform and as we formalise our strategy for delivering it, we are looking at what goes on elsewhere in the United Kingdom. In Northern Ireland, all the assessments are published online, and no valuation notices are issued to ratepayers. There is, of course, an accessibility issue, but that system means that all the information is published at the same time in one place. People know where the information is, and proprietors, tenants, occupiers, agents, rating consultants, advisers and neighbours can all access it online. We have the SAA portal website, on which we publish all our rateable values, all our council tax bands and lots of other information. We are very keen to move towards delivering NDR reform and our service through our portal rather than through paper notices.

We need to issue 400,000 valuation notices each time we do a revaluation. The proposals to increase the amount of information that we provide to ratepayers are very sensible, useful and good, but the problem is that, if we provide that information—such as the addresses of properties that we use for comparisons in our valuation process—on a paper valuation notice, there will be all sorts of challenges. For example, how will notices that contain a list of addresses that have been used for comparison purposes be printed? Sometimes, the list might contain several hundred properties but, in other cases, it might contain only one or two. There are all sorts of such issues.

We believe that the answer is to have all the information available online and to have messaging for ratepayers, proprietors, tenants and occupiers on where they can access that information. We believe that, to ensure cost efficiency, online publication is the way forward. Whether that can be achieved while ensuring accessibility and that nobody is discriminated against is an issue. However, if we look at the common delivery models that taxation services use, we see that Revenue Scotland and other bodies in Scotland are moving to online delivery to drive efficiency.

Annabelle Ewing

I hear what you say, and we can put some of those issues to the minister, who has a digital element to her brief. It will be interesting to hear what she has to say. I take it that you feel confident that you have the infrastructure to go digital.

Ian Milton

We have the infrastructure, in that we have the portal, for which Heather Honeyman is the senior responsible officer. We have that resource available, but we would need to work to expand it.

10:45

Alastair Kirkwood

The Lands Valuation (Scotland) Act 1854 makes it a criminal offence not to respond within 14 days to a reasonably made request by the assessor. Some of the language around that provision is, again, quite restrictive in the sense that the request can be served only on the proprietor, tenant or occupier, not on any other party, and only for the purpose of valuing that subject. For a number of years, assessors have said that it is inadequate for their purposes. Nevertheless, it had some value as a deterrent. Simply being able to put that on the valuation notice or on a questionnaire reaped some benefits, albeit that larger ratepayers, who were perhaps professionally advised, were not always inclined to comply with it.

Alastair Kirkwood

I very much agree. There are, if you like, two separate issues, the first of which is the size of the penalties. In many cases, we are dealing with properties of rateable values running to tens of thousands, hundreds of thousands and, in some cases, millions and tens of millions of pounds. With the current penalty set at £100 plus £20 per day, the maximum charge in a year would be £7,000 or £7,500, and it would be several years before you would get a more sizeable figure. Even then, that is really nothing at all to some of those who own such properties and companies. I suppose that it will be a meaningful amount of money to smaller individual concerns, in which regard it might be useful, but I would suggest that it is not meaningful to larger organisations.

Mr Milton has touched on the restrictiveness of the provision in question, but I also point out that it is worded in such a way that the maximum penalty is linked to the rateable value of the property on the roll on the day on which the notice is issued. That does not really kick in if we are making an information request about a property that is not yet on the roll. It means that the penalty will be limited to £500, which, to be honest, will be meaningless to the majority of those who own properties of a high rateable value.

Annabelle Ewing

We hear what you and our witnesses last week have said on that matter.

I have a final brief question about the level of the penalty that is applied by local authorities, which is slightly lower than that which is applied by the assessors. Is there any reason for that? Why is the penalty not the same?

Alastair Kirkwood

I am not aware of the thinking behind that. Perhaps there is a difference in the complexity of, or the need for, information.

Annabelle Ewing

The difference is marginal, but it is a difference nonetheless.

Alastair Kirkwood

I should also say that we welcome the fact that the proposed assessor information notice will contain the maximum rateable value of the property. I do not want our comments about civil penalties to be seen as negative; we would just like the provisions to be a bit more complete.

Alexander Stewart (Mid Scotland and Fife) (Con)

The anti-avoidance measures in the bill have been welcomed by some organisations. Phoenix companies have been identified as a potential problem, but do you, as assessors, believe that the measures are strong enough and go far enough in closing such loopholes?

Ian Milton

Our submission is silent on the general anti-avoidance regulations because we do not see this as an area of our practice; instead, we see it as an issue of rates avoidance.

Because we are not involved in that side of things, we have not made any comment on it. If we have the right information powers to enable us to get the detail that we need, we will be able to get on with our job and assess the property in question. What happens downstream with the levying and collection of rates is another issue.

You will find that there is a greater degree of engagement and provision of information across different sectors. Evidence that we have given to the committee in the past has covered that, to a degree. Perhaps my colleagues will have something to add.

Alastair Kirkwood

I am not sure whether the question was aimed at the civil penalty aspect.

Alexander Stewart

Yes.

Alastair Kirkwood

We would like there to be no civil penalties. We would like the information to be provided and there to be a route to ensuring that penalties do not arise. We do not think that ratepayers should be disbenefited by the penalty regime. Our fundamental interest is in getting the information; we are not really interested in applying penalties. It is really just a tool to make sure that we have the necessary information.

Kenneth Gibson

You have been talking about avoidance. In your submission, you say:

“The SAA recognises the rationale behind the proposed change to section 72 of the Local Government Finance Act 1992”

and that the provision will

“counter a known avoidance tactic for second homes, owners or occupiers of self-catering properties must prove an intention let for 140 days in the year and evidence of actual letting for 70 days.”

However, you have some concerns about local government—how shall I put it?—treading on your toes a wee bit. What are those concerns?

Jim Doig

Although the SAA supports the measures in the bill, we make the point that, historically, assessors have decided whether a property enters the roll or the council tax valuation list, whereas in this case, there is a provision to allow the local authority to do that. We are concerned that there should be some sort of criteria to at least determine in what circumstances local government could make the change. For example, in our submission we say that some properties genuinely—through location or whatever—will not be able to do 70 days’ letting. We just want to make sure that councils have a policy in place.

At the moment, there are a lot of changes, with self-catering properties moving in and out of the roll. I will give you an example. In my area, there are about 1,300 self-catering properties. Since the revaluation in 2017, I have made about 600 changes through properties coming in and out. We just want to make sure that we do not end up with local authorities making ad hoc decisions on properties moving in and out of the roll.

11:00

Kenneth Gibson

Your submission also says that

“the SAA would recommend that the exercise of that discretion should require a policy decision of the Council.”

I am a bit unclear as to whether you feel that that decision should be made for each individual property or whether the local authority should make some overall decision.

Secondly, you refer to

“an island situation or very remote area,”

where

“the letting season is not as long as 70 days.”

I have two islands in my constituency—Arran and Cumbrae—where the letting season goes on for months and months. Where in Scotland is there a letting season of only 70 days? We are talking about May, June, July, August, September, October, Easter and so on. Surely, there is nowhere where the season is 70 days—not even Iceland or the Faroe Islands have a letting season of under 70 days. I was just a bit curious about that, but I am more concerned to know how you expect councils to operate in that respect.

Alastair Kirkwood

In that part of our submission, we are pointing out that assessors and local authority officials do not have any discretion to add subjects either to the valuation roll or to the council tax valuation list. There is already legislation from policy makers in the form of the Scottish Government that would be applied by assessors, and the proposal is a departure in the sense that the responsibility will now fall to local government. That is entirely appropriate, but we want to make it clear that it means that decisions on whether properties go on to the valuation roll or the council tax list will move from the Scottish Government to local authorities. The assessors have no difficulty with that; we just want to point out that that is the effect of the move.

As Mr Doig has said, we would welcome it if the policy were not changed frequently, because each change will require moving more subjects from one list to the other, which in turn will require information gathering and valuation administrative processes. From a working point of view, the assessors’ desire would be not to have a regular process.

Kenneth Gibson

I see that, but councils generally do not change a policy within six months of its being made.

My question was about whether you are looking for the local authority to put in place some overall policy or to have a policy to meet each circumstance. That is what I am trying to get clarity on, because I am not sure what you are trying to get at in your submission.

Alastair Kirkwood

One would imagine that a council would make a policy decision with regard to a particular circumstance such as a landslip on a major access road. If there were to be a provision whereby, in certain areas where, we are told, the letting season is less than 70 days—

Kenneth Gibson

I am sorry, but where would those areas be?

Alastair Kirkwood

Some of the Western Isles and the northern isles. It is not my area, so I cannot speak authoritatively on it, but it has been suggested to us that, in some of those places, the letting season is not 70 days. It might be for the council to make a policy decision on the matter. We are just highlighting it as an issue that we hope will be decided by policy makers at the Scottish Government or local government level and not implemented by, say, assessors, directors of finance or other such officials.

The Convener

Let us return to the anti-avoidance measures. Surely, the assessors would be the front line in that respect, because they would be out there, seeing what is going on. You must have intelligence from the assessment work that you do. Would you not be the people who, first and foremost, would see where the loopholes were and who was using them, and would you not feed that information back to, for example, the Government?

Ian Milton

We have certainly identified weaknesses in the lands valuation acts that make it difficult for us to make an entry in the valuation roll, and we have also highlighted areas where our attempts to make such entries can be frustrated by the non-provision of information—which is, indeed, the classic example. If part of a property is sublet and that information has not been provided, we cannot, if the entry in the roll is challenged, make a new entry outside the current year for the sublet bit, although we might be able to correct the former entry.

I see the anti-avoidance proposals as addressing not that particular matter but phoenix companies and the like, which is not an area in which I have any particular experience or professional expertise. My job is to make sure that everything in my area—in this case, the Grampian area—is accurately assessed and on the valuation roll.

The Convener

Would it not be assessors who, with their experience, would feed back on the loopholes that are regularly used?

Ian Milton

We have identified situations in which weaknesses in the Lands Valuation (Scotland) Act 1854 are being exploited, and we have fed that information back to the Government. There are elements of these reforms that address them, but it remains to be seen whether they go far enough. I do not know whether my colleagues have other views.

The Convener

You seem to fear there being a shortage of funding, but the Government has said that it will fund the anti-avoidance measures and, at last week’s meeting, COSLA said that it was very confident that the Government will do that and that the funding will be there, so what in particular do you fear?

Ian Milton

Derek Mackay, the Cabinet Secretary for Finance, Economy and Fair Work, has been very clear that we fall in the local government family—that is understood. Local government is being subjected to funding challenges. Valuation joint boards have a power to requisition—assessors for unitary authorities do not have a valuation joint board; nevertheless, the valuation authority has a power to requisition funding from the local council. When making a requisition request, valuation joint board members are conscious of the financial situation that they face as members of their councils. The challenge is that there is a limited pot. Although the Government might say in the financial memorandum that the estimated cost over so many years of funding the NDR reforms for assessors is £29.1 million, the challenge will be to make sure that the money reaches assessors, while their baseline funding is maintained.

As Andy Wightman identified, the definition of “dwelling” for council tax purposes is in section 72 of the Local Government Finance Act 1992. That definition is varied by a number of statutory instruments. Prisons, for example, are defined as dwellings; the definition also identifies self-catering subjects. Dwellings that are in fact still dwellings, and which would, but for the provision, be subject to council tax, can be defined as lands that fall within the definition of “lands and heritages” that need to be entered on the valuation roll by way of a statutory instrument.

Just to be clear about that, are you saying that you cannot make entries between valuation years?

My final point is on the financial memorandum. You have been closely involved, as has COSLA, with drafting up the numbers for that. Apart from the points that you made about additional personnel and baseline funding, do you want to draw to the committee’s attention other areas in which we should scrutinise the numbers more closely?

On the baseline funding, I notice that the gross estimated costs that are associated with the bill are £32 million and the cost to ratepayers is £68 million, meaning that there will be a £34 million net uplift in public revenue. Is there an issue about making sure that that money goes where it should and that the administrative costs are covered? I know that that is a policy decision, but there is £34 million of flexibility to cover the costs that you have said you might have to meet.

Ian Milton

There is no doubt that moving from five-yearly to three-yearly revaluations means that there will be a whole new pile of work to be done. Even if we just think about issuing paper valuation notices—if we are still issuing them in paper form—every third year instead of every fifth year, that would mean mailing 400,000 items, and the immediate costs would include stamps, envelopes and stationary.

The costs that we have estimated are based on our current understanding, and I have identified caveats in a number of areas. We do not have funding for the designated assessors, if they face challenges; there is also an issue to do with the costs of asynchronous revaluations. At present, we benefit from a lot of sharing of information. Heather Honeyman will be able to speak to that, if members are interested in what is involved for designated assessors in working with colleagues south of the border. That area is not fully covered, so the financial memorandum is not the final story.

There is no question in my mind but that we can do the job, but we need the tools to do it. We need not only the legislation, but the resources, which includes the finance and, as identified earlier, the expertise, which will be a real challenge to get. If we get those things, we should be able to do the job.

Andy Wightman

Paragraph 99 of the financial memorandum says that the Scottish Assessors Association

“did not carry out a sensitivity analysis in relation to their cost estimates (Table 4), therefore the margin of uncertainty is not known.”

The Convener

Agenda item 2 is evidence from two panels on the Non-Domestic Rates (Scotland) Bill. The first panel is made up of representatives of independent schools and the second is made up of representatives of local government. For the first panel, I welcome John Edward, director, Scottish Council of Independent Schools; Liam Harvey, headmaster of St Mary’s school in Melrose; Colin Gambles, rector of Hutchesons’ grammar school; and Martin Tyson, head of casework, Office of the Scottish Charity Regulator. Thank you all for attending and for your written submissions.

I will start the questioning by asking you to outline the difference between mainstream state schools and mainstream independent schools. Would anybody like to kick off?

John Edward (Scottish Council of Independent Schools)

In our view, there is very little difference in the education that they provide. That is our point. They are education institutions like any other in Scotland. Some of our schools teach the Scottish Qualifications Authority exams, some teach the international baccalaureate, some teach to GCSE and A levels and some teach a combination of those, plus there are Steiner and Montessori schools and all sorts of other things.

The key difference is in the management. Apart from our schools, all schools in Scotland—with the exception of Jordanhill school—are under the control and management of local authorities. Our schools are specifically under the management of independent boards of trustees or boards of governors. All of our mainstream schools in Scotland are registered charities, so they are bound by the legislation that affects charities on the independence of the directors and trustees. For us, the big difference is the autonomy for the headteacher and the senior management in relation to the curriculum, the extracurricular offer, the management of the school, the size and the location.

Colin Gambles (Hutchesons’ Grammar School)

That is a fairly good summary, although there may be different details school by school.

The Convener

On a committee visit last week, we talked about mainstream schools providing support to state schools. Will you expand on that a bit? What exactly is the support that independent schools give to state schools?

John Edward

The interaction goes both ways. What our schools do is part of their commitment to public benefit. They take their role in the community seriously, in a broader community sense and an academic sense. There may be subject and teacher sharing, the sharing of sports resources or coaches or the sharing of music or careers events. It is not necessarily about one sector helping out the other; it is about those parts of the school system in Scotland working together as best they can. By their nature, many of our schools have a slightly different offer, different facilities and different opportunities. It is about trying to make the most of them.

Of course, the Charities and Trustee Investment (Scotland) Act 2005 gave our schools a specific obligation to meet that public benefit requirement as registered charities. That changed the nature of the relations in terms of access to the schools and the provision of means-tested fee assistance to pupils who want to access the sector, since assisted places and all those other programmes had ended. It also meant that the schools began auditing their relations with the local communities that they sit in, which I am sure my colleagues can say more about.

Liam Harvey (St Mary’s School, Melrose)

We have a very good relationship with the local primary schools in Melrose. It is a small town, but we are often involved in joint ventures such as choirs that participate in charitable events and church events. Practices take place in our facilities. We are blessed with having a nice assembly hall with good acoustics. That enhances the relationship between St Mary’s school and Melrose primary school, for example. It matters to us and it matters to them, and we have a good relationship with that school.

Colin Gambles

We find the situation to be variable, depending on the headteachers of the schools that are around us in Glasgow. We would like to do more, but we do not always find that easy.

The Convener

I put on record our thanks to George Watson’s college for hosting a useful visit last week for the committee and our thanks to those who attended, who included you, Mr Edward.

We hear that independent schools offer tuition for state-school pupils on topics that are not covered in the school that they are enrolled in. How is that different from state schools that offer that to other state schools that do not cover certain topics? I know that that happens in Glasgow, and I am sure that it happens elsewhere.

Colin Gambles

One of the things that our sector prides itself on is trying to support what we might call niche subjects. Our parental body expects that we will provide the full range of the curriculum, which includes support for things such as Latin or Greek, which the state sector finds increasingly hard to support. We can provide a breadth of curriculum and of permutations within the curriculum that the state sector finds much harder to provide.

John Edward

We see that in the subject teaching. For instance, George Watson’s has developed a big programme in Mandarin teaching and has built that up in co-operation with state schools in the south of Edinburgh. One school on its own simply would not have been able to do that because of the scale. That happens in lots of places, as Colin Gambles mentioned. We see it in subject areas such as economics, business studies and design technology. For instance, one of our independent schools has one third of all the advanced higher design technology students in Scotland. That is an option for anybody who wants to do design technology and who may not have access to the appropriate laboratories or facilities in their school.

Therefore, to an extent, our schools are maintaining the breadth of subjects, but there is also the provision of more general academic opportunities. I think that the committee has heard from Kilgraston school in Perth and Kinross. The independent schools in Perth and Kinross provide an enormous amount of arts, drama and sports provision for the primary school sector in the area. That is because they have the facilities, a dedicated teacher or a background in an area and they see it as part of their purpose to extend that wherever possible.

The Convener

I have a question for Martin Tyson on that aspect of charitable status. The example of the support that independent schools give to mainstream schools is raised all the time. However, some state schools do that, so independent schools are not necessarily different from state schools in that way.

Martin Tyson (Office of the Scottish Charity Regulator)

For us, it is about the assessment of public benefit. When we reviewed the charitable status of all the independent schools on the charity register between 2007 and 2014, we looked at the total picture of public benefit that they provided. That was looking at the benefit that they provided to their students—who are generally fee-paying students—and the benefit that they provided in furtherance of education to people outwith their student body, whether that was students from schools in the local area or otherwise. That counts as part of their public benefit and it is relevant in meeting the charity test under the legislation.

The Convener

I am trying to get my head round this, because I am not sure I am following it. If a school that is in the state system now decided for whatever reason to become independent, the work that it already does in that regard—most state schools do that—would qualify it for charitable status.

Martin Tyson

Andy Wightman (Lothian) (Green)

I have a few follow-up questions, the first of which is in response to a question about whether a public school could become independent and get charitable status. I presume that it could not, because the charitable status is tied to the organisation. A local authority cannot be a charity.

Martin Tyson

That is exactly right. For us to be able to consider it for charitable status, the school would have to be a legal entity. That would raise a lot of questions about the relationship of the school to the local authority.

Andy Wightman

Can I pick up on something that you said in your submission? I want to understand this. On the consequences of removing charitable status, you say:

“There is the possibility that some schools may wish to request removal from the Scottish Charity Register under section 18 of the 2005 Act, in effect a voluntary de-registration as a charity.”

You then say:

“When a charity is removed from the Register for any reason, it must still prepare and submit accounts to OSCR for any outstanding charitable assets ... This is because the assets still need to be used for charitable purposes (but not public benefit)”.

I do not understand all that. If any entity—a school or any other charity—says that it no longer wants to be a charity, presumably on a certain date after that it is not a charity.

Martin Tyson

That is right, and it is removed from the charity register. However, the Charities and Trustee Investment (Scotland) Act 2005 provides for a bit of residual protection for the charitable assets after the charity comes off the register. Some of our regulatory powers still apply to the assets that the charity had at the time that it came off the register, and the charity continues to be under a duty to apply those assets for the charitable purposes that it had. A school would still be under an obligation to apply those assets for charitable purposes. However, the requirement to provide public benefit as defined in the 2005 act would not necessarily apply.

Andy Wightman

In your submission, Mr Edward, under the section on

“How the Government has responded to the Barclay review, in particular on those recommendations it has rejected in full or part”

you say that

“The consultation did not address any of the wider context relating to independent schools”

Thank you.

Mr Tyson, let us say that you are looking at an independent school with 600 or 700 pupils. What would be the typical things that it does to satisfy you that it is a charity?

Martin Tyson

There is a set of things in the charity test that it has to do. Typically, the purpose will be to advance education and in most cases the schools do that primarily by providing education to their pupils. They have a charitable purpose and they have activity in furtherance of that purpose.

Another thing that we need to look at, if the school is charging fees, is whether those fees unduly restrict access to that educational benefit. How much does it cost to become a pupil at the school? If those fees are high, what help is there for people who cannot afford them? We also look at the rest of what the charity does in providing public benefit, which would include things that we have already talked about here such as access to subjects for pupils from other schools, access to facilities and so on.

I do not know of a single school that would want to deregister, because they see their charitable status and their charitable purpose as integral to them. I do not know of a single school that would want to reduce the level of its means-tested fee assistance. In that respect, nobody is looking to go down that road to somehow avoid their responsibilities. Quite the opposite is true.

Unlike our colleagues down south who took the Charity Commission to court to deliberately not be held to a test, the schools in Scotland embrace the test and I do not know of anybody who would want to get away from that.

David Torrance (Kirkcaldy) (SNP)

In its written submission to the committee, OSCR said:

“Allowing the creation of a ‘two-tier’ charity sector within a ‘single-tier’ regulatory regime could be damaging to the public’s trust and confidence in both the sector and charity law.”

Can you expand on how that could be damaging to the public’s trust?

Martin Tyson

Our concern is that that goes to the basis of what the charity law in Scotland says a charity is. The virtue of the system in Scotland is that it is very simple—if you are on the register, you are a charity. 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 can be confident of and understand a charity to be. Drilling down a bit, we could have a system in which there is a whole bunch of charities that are set up to provide education—schools, universities, colleges—and one group from among that set of charities starts to be treated differently for the purposes of rates relief. That starts to become very hard to understand and we start to get anomalies. At the level of principle, it is not clear why we would do that.

Alex Rowley (Mid Scotland and Fife) (Lab)

I suppose that that is where confusion arises for the public. I have a 10-year-old granddaughter who attends the local primary school. What is the difference between our local primary school and a primary school in the independent sector? What makes one of those schools a charity and the other one not? I cannot remember what the rates bill is in Fife, but it is a lot of millions of pounds.

This is about public perception. What is the difference? My granddaughter is in a class of 32-plus. Maybe you could tell me what the average class size is in private schools.

You made a point about confusion, but the confusion is already there. I remember a really difficult budget round when I was the leader of Fife Council. One of the directors in education made a proposal to set up an arm’s-length school company in order to save the rates. A number of arm’s-length external organisations were already being set up in Fife when David Torrance was in the administration there. For example, Fife Sports and Leisure Trust saves about £3 million a year on rates. That is the only reason that that was done.

Had I not dismissed that proposal and made sure that it never saw the light of day, we could have decided to set up a Fife schools company at arm’s length from the council and saved tens of millions of pounds. Is that right? Can you see why the public get a bit confused about this question?

Martin Tyson

I understand the comparison that is made between the state schools and independent schools. Obviously, our priority is charity law and the integrity of the charity sector and the confusion that would be created. On the question about the potential for an ALEO, I think that we would have had to look at that on its merits if Fife had applied for that.

10:15

Liam Harvey

Mr Rowley mentioned his 10-year-old granddaughter and her class size of 32 pupils. St Mary’s spans the primary range and two years into the secondary range. I can speak for us only, and not for the sector. We have an average class size of 14, but we have a pupil to adult ratio of seven to one. If your granddaughter had a particular need—say, for example, she suffered attention deficit hyperactivity disorder—that would matter hugely to her. Assistance would be available to her and, if need be, we could facilitate one-to-one assistance for her in that class. That is very much a part of what we do and what we believe we should be doing.

As I said in my submission, I wish that that pupil to adult ratio and average class size was available to all children in Scotland and England—in fact, across the United Kingdom. It is what we do, and what makes us special.

Alex Rowley

I understand entirely. I suppose that, for the majority of the population whose children go to state schools, the question is why Fife Council is paying rates on, for example, the very large school that my granddaughter goes to when a private school 10 miles up the road that has an adult to pupil ratio of 1:7, compared with 1:32 at my granddaughter’s school, is not. That is the public perception and why the public do not understand the difference here. You can imagine the tens of millions that Fife Council pays in rates. If it were not paying that in rates and putting that into education, perhaps the class sizes and certainly the adult to pupil ratio would be much lower. Do you understand the point of view of members of the public when they say, “Why would certain schools get rates relief when others do not?”

Colin Gambles

I am no expert on the rates system, but I have been reading the Barclay review. It states that the purpose of rates is to raise money for education. It does not seem to me to be real money. The Barclay review talks about cycling of money in that the Government gives the money to the schools and takes it straight back from them, so that they never see that money. I do not think that those schools should pay rates. I do not think that any schools should pay rates, because the Barclay review states explicitly that the purpose of rates is to generate money for education.

I have the paragraph in which Barclay states that. There are other reasons as well, but one of them is to generate money for education. No school should pay money in rates to generate money for education because it is nonsense. To then say that independent schools should pay as well is also nonsense, just as it is with universities. It is not the correct reason to generate money, because it is about providing education. That is why the rates are charged.

John Edward

To pick up Alex Rowley’s point, perceptually I think that he is absolutely right. There is a lack of understanding and some of it comes from terminology. That is why we do not use the term “private”, because it somehow gives the indication of a private business wanting to stay on its own and be isolated from the rest of the sector, whereas “independent” speaks to the school’s autonomy rather than its business status. These schools are by definition, because of what OSCR does, not for profit. They cannot raise a profit and they have no desire to.

Colin Gambles’s point is well made about local authority taxation. If I speak to state school heads, which I do all the time, none of them knows what their rateable value is, because it does not matter to them. If their rateable value triples overnight or halves overnight or goes up fivefold, as is proposed for our schools, it makes no difference to that headteacher’s recruitment of teachers and staff, to the equipment that they buy, to the subjects that they offer, to their facilities or to any of the offer that the school makes, because it is simply, as was mentioned, a cycle of money from general and local taxation going around.

Our contention would be that there are 11,000 charities on OSCR’s register whose purpose is the advancement of education, of which we are only 50. They all pay rates. All those schools pay 20 per cent in rates, all of which is new money into the system. It is not cycled taxation money; it is new money from parents every year. The anomaly and the exception in Scotland is not our schools. The anomaly is charging a nominal rate to state schools, when it makes no difference to the financial decisions that those individual schools have to make.

Alex Rowley

It makes a difference in the sense that, in the example that I gave earlier, if the deputy director of education in Fife had set up schools as an arm’s-length company, that would have saved millions of pounds. Had the budget transferred in its entirety, it would have made a difference because that money would have gone to the children. Therefore, it is wrong to say that it does not make a difference and it is just a paper exercise. It is what I am suggesting. That is why it would be difficult for parents whose children are in class sizes of 30-odd to understand that their school pays rates and a school along the road with a teacher to pupil ratio of 1:7 or 1:8 does not. That is just a fact.

Colin Gambles

I have found the note that I was looking for. In the background to the Barclay review, it states:

“Non-domestic rates are a tax based on property which is levied in order to help pay for the very wide range of services that councils deliver (such as education).”

I cannot understand why the state sector schools have to pay taxes and rates. They should not.

Alex Rowley

I will move on, but I think that we acknowledge where I am going to get to in terms of the public perception.

John Edward

To confirm your point about that money, I absolutely agree. I think that the local authority should have that money freed up. I do not understand why it is captured in a cycle, but it does not change the overall tax take of the local authority one way or the other. Our point is that, if you change the taxation rate on these schools, it has a direct and significant effect on them.

The Convener

I will let Kenny Gibson in very briefly.

Kenneth Gibson (Cunninghame North) (SNP)

It is on this issue. All Governments of all political colours have charged rates on non-domestic properties. However, rates are not collected from, say, Fife Council and handed back. They are collected nationally and recirculated based on a needs formula, so it is not quite accurate to say that the rates that are raised are immediately thrown back. For example, a local authority such as East Renfrewshire, which is more prosperous than North Lanarkshire, might put in more rates from its schools, but then Glasgow will probably put in more rates than just about anywhere else in Scotland because of its huge retail sector. For example, people from North Lanarkshire and Ayrshire, which is the area that I represent, all come in and spend their money in Glasgow. That keeps businesses going in Glasgow and the money goes to a collective pot and then gets reallocated. It is all done on a national redistribution formula. If schools were suddenly not to pay rates in the state sector, there would have to be a reformulation of the formula and that is extremely difficult, because every area in Scotland then complains about the money that it gets or does not get. That is a brief explanation of that. It is more complex than it seems.

Alex Rowley

It highlights the question about the different levels of provision of education in Scotland.

Mr Tyson mentioned the availability of bursaries earlier. Is any work being done to quantify the value of bursary provision in Scotland and the number of people in receipt of full or partial bursaries?

Martin Tyson

We looked at that when we did the reviews of all the schools. I think that, on average, around 10 per cent of schools’ incomes was going on bursary provision.

John Edward

Obviously, that is information from individual schools, but we looked at the situation before the charity test was brought in by the Parliament and subsequently. Means-tested fee assistance has more than tripled as a direct result of the bill that was brought in by the predecessor to this committee.

Means-tested fee assistance is now in excess of £30 million a year, which is derived purely from parental fee income—it is not coming from anywhere else. On top of that, there is probably about another £10 million in other forms of assistance, such as sibling or staff discounts. The bottom line is that means-tested fee assistance has tripled. By my rough calculation, if you exclude the publicity costs and other things that are done in the higher education sector to attract people in, the per capita fee assistance that is given out in higher education is now roughly the same as the fee assistance in independent schools, the difference being that ours is derived entirely from parental fee income.

Alex Rowley

If that data is available, it would be useful for the committee to have it.

Colin Gambles

Are you interested in a specific example? When Hutchesons’ was set up in 1641, it was specifically for the education of 12 male children, all orphans. We now have 40 pupils in our senior school who are paying no money at all—they have a transformational 100 per cent bursary—and we have another 90 children who are on partial bursaries. In deciding on the ratios between those types of bursary, we have taken a steer from OSCR. It has advised us that, rather than giving solely transformational bursaries, the limited money that we have in the pot will be better spent by making it available to different strata of people who need different levels of support.

One of the attendees from whom the committee heard last week was from Hamilton college in Hamilton, which is a school that goes back less than 40 years that took over an old teacher training college. The school has said on public record, and it has been reported in the press, that it would close.

In the time that I have been at SCIS, pupil numbers have not dropped much. There has been a lot of belt tightening in the sector, but the one thing that has started to happen has been changes to the structures of schools, such as Craigholme. Beaconhurst school in Bridge of Allan closed last summer. In the projections that boards have to do six or seven years in advance—

The Convener

Are the schools that you mentioned, except for the one in Hamilton, which was a completely different type of school from the main stream, part of a cluster? Is Craigholme school part of a cluster?

Liam Harvey

The junior school at Craigholme is still operating. Craigholme sought to go into a connective days trust with Kelvinside academy, which is quite a unique model, basically so that the schools could support each other. Generally, most of the schools are almost entirely stand-alone. There are two here in Edinburgh.

The Convener

They have not really closed; they have just merged.

John Edward

Part of the school has been closed and the expectation is that most of the pupils will go to one. However, in the case of Beaconhurst school in Bridge of Allan, for instance, some of the pupils may have gone elsewhere to independent schools but many will have gone back to the state. Hamilton college is not the same as Hamilton school in Aberdeen, which closed a couple of years ago. St Margaret’s in Edinburgh closed. It does happen.

Liam Harvey

There are five remaining stand-alone prep schools in Scotland. Although I am not going to name schools, if the committee scrutinises the accounts of those five stand-alone prep schools, it will see that three of them are under threat.

Graham Simpson

OSCR has looked at the accounts, has it not? You said in your evidence that schools were struggling.

Martin Tyson

This goes back to a previous point. There will be as many individual circumstances as there are schools, but there are groups of schools that are in different circumstances from other groups of schools, such as boarding schools being in a different market from day schools. Rather than schools being on the edge, what we are seeing is a lot of schools operating without much in the way of fat to be cut. There will be some difficult decisions to be made about absorbing extra costs.

Graham Simpson

You said that schools are in “marginal financial positions.” You could say that that is on the edge.

Martin Tyson

It is the idea that there is not much to play with.

John Edward

I go around schools speaking to governing boards regularly. I attend probably two or three strategy sessions at boards per term. All we have talked about for the past 18 months is money, not challenges of education or other aspects. I know for a fact that when boards such as Beaconhurst’s have been looking ahead and taking their strategic decisions, they have had Barclay in mind.

Of course, if a school is giving means-tested bursaries to somebody in secondary 1, they are committing to five, six or seven years of education. If they are projecting into, say, 2025 and being told in 2020 that their budgets are all going to go haywire, that speeds up the decision-making process in schools quite quickly.

Kenneth Gibson

This has always been an issue. We heard earlier that there is a new independent school being opened this summer, but Allen Glen’s school and St Mungo’s academy in Glasgow went down the stank many years ago. There has always been evolution within the sector—mergers, new schools, and so on.

We are asking what the point of all this is—and we are going to ask the Government that directly. It would seem to many people that you are saying that you should have charitable status because of your involvement with the community. The schools in my constituency, none of which are independent, also allow the local community to use their halls and playing fields and swimming pools, and they have to pay rates.

One issue that we have not touched on is the fact that you choose who goes to your schools. I went to Bellahouston academy, which is near Hutchie, and we used to get all the pupils who were expelled from Hutchie. If folk were taking drugs or involved in fights or any other antisocial behaviour, they were effectively dumped on our school. You are able to select who you have at your school, and I understand that there is a vigorous selection process. The fees, according to your own evidence, are more than twice the average amount that is spent on a state pupil.

What has been the impact of recent changes in teachers’ salaries and pensions on the sector? You said that you had 850 senior pupils at Hutchie. What is the capacity?

Colin Gambles

In 2006 we had 1,720 pupils and now we have 1,220.

Kenneth Gibson

Is that the school’s choice or is that because there has been an erosion of the number of people who want to send their children there? What is the reason for that?

Colin Gambles

The pattern that I would describe is that the parents and the children still want to come to us. Our educational standards and our results are excellent. The only thing that I can see is that the fees keep going up, and the tipping point is coming for more and more parents.

Kenneth Gibson

Have you done any analysis of what you think? You have said, for example, that if 47 children—3.7 per cent of your pupils—left your school and entered the state sector, the state sector would have to fund them. Obviously, there will be economies of scale in the state sector.

Indeed.

Does it benefit the wider community if some of the more ambitious parents have their children removed from state schools? It may benefit their children, but what about the rest of society? That is one of the arguments.

The Convener

Can you all answer briefly, please, because we have a lot to get through and we have another panel coming in after this? It has been a very interesting discussion and I hate to curtail it.

Liam Harvey

I understand exactly what you are saying about people being dumped on your school because they had been expelled from Hutchie or wherever. In our means-tested bursary process, we screen children to assess their level of need.

You should not overlook the fact that we have a number of pupils at St Mary’s who are not coping in the local authority system because they have ADHD or are perhaps slightly on the autism spectrum and need one-to-one assistance. Do not overlook the fact that we provide and have in the past provided 100 per cent bursaries to children who have been isolated and marginalised by their community because they have been disruptive in their local primary schools. Those pupils have come to us and we have done our level best to provide them with a level of assistance that makes learning accessible to them, while managing their conditions.

There is an assumption that we are creaming off the more academic pupils and the more affluent people who apply for places in our schools. Do not overlook the fact that that is not the case.

10:45

The Convener

Are there any statistics that would show the number of pupils who receive a bursary not because of academic ability but because of their level of need, such as the people that you were talking about?

John Edward

It would be slightly blunt, but we could put together figures for the selection processes for individual schools. In purely academically selective schools, there are relatively few such pupils. We have talked about the pupil to teacher ratio, and a lot of the schools’ attraction is precisely because there is a higher level of one-to-one learning support.

Liam Harvey

We have a number of pupils who are highly functioning autistic and have Asperger’s, for example. We know that parents are coming to us because those children are not coping in the state sector. They are not flourishing and that is why the parents have come to us.

The Convener

That is exactly the type of person that I am asking about.

Martin Tyson

When we reviewed the schools and looked at their public benefits, we saw that there is a separation between scholarships, which are usually awarded purely on academic merit, and bursaries, which are means tested. What we gave the weight to was the means-tested bursaries that are about need and ability to pay.

The Convener

The point that Mr Gibson makes is that both of them seem to have coalesced in the entry to schools such as Hutchesons’.

John Edward

The scholarships in that traditional model have almost died out in Scotland, apart from a nominal amount. Down south, people will still get offered places on their ability, with fee assistance attached, which is something that one simply could not do in our schools anymore. That has changed as a result of the test in the legislation that this Parliament passed.

To come back to Mr Gibson’s general point about parents, we are only 4.5 per cent of the schools sector, so it does not matter how many pupils or parents there are in our sector. We pay no disservice to the 95 per cent in the state sector who do extraordinary things.

The Convener

The issue is about public perception.

John Edward

Yes, absolutely.

The Convener

That is very important.

Kenneth Gibson

Andy Wightman

The argument is that just taking away the 80 per cent relief is a rather blunt instrument. The Barclay report says:

“Independent (private) schools that are charities also benefit from reduced or zero rates bills, whereas council (state) schools do not qualify and generally will pay rates. This is unfair and that inequality should end by removing eligibility for charity relief from all independent schools.”

That is Barclay’s argument. I do not think that that argument has changed. I think that that is the Government’s argument as well, but we will give the Government the chance to tell us whether it is. There might be some change, but we do not know whether it will involve the complete removal of mandatory 80 per cent relief. For example, it could involve making non-domestic rates more progressive—they are a flat tax at the moment, at 48p, but you could have tax-free amounts, based on percentages such as 10 per cent and 20 per cent. Alternatively, we could do something about phasing in the change over a number of years, or we could end up with the relief being 40 per cent instead of 80 per cent.

It is important to place on the record the fact that, last week, we visited George Watson’s college, and some of the references that we have made are to conversations that were held last week in private. It was interesting to me to hear from schools what their school rolls were, how much the proposed taxes would cost them and what that meant per pupil. At George Watson’s college, that cost would be £191 per pupil and at Hutchesons’, where I think that there are 1,300 pupils, it would be £246 per pupil. However, it would be much more for the smaller schools, with the cost per pupil being £450 at Hamilton college and £500 at Kilgraston school. There is an issue about scale here.

There is also a question about your property, because the rates are being charged on your property. Are some of your schools inefficient users of property, in that, if they rationalised their estate, they could possibly reduce their non-domestic rates bill?

If we are to address the current unfairness—I know that you do not view it as unfair; we will take that as read—do you have any general ideas of how we could do that in another way? What else could be done?

Colin Gambles

I would have thought—of course, this is just an opinion—that a calculation needs to be done for charities to see what would be a fair level in relation to their rates, and that should be applied to them.

Andy Wightman

At the moment, that is 20 per cent.

Colin Gambles

Yes. If that is wrong—if that is too low—I propose that you should bring the state schools to the same level. That is, you should devise a formula that says what a charity or a state school should pay, because it makes no sense at all for a state school to be paying the full rates. The headteachers need that money; it should not be being paid in rates to raise money for things, including education. I think that coming up with such a formula would be the fairest way across the sector.

Liam Harvey

I am thinking slightly outside the box, but, from the point of view of my own personal philosophy, I wonder why nobody—I ask Martin Tyson to forgive me—has suggested what I am about to suggest. In England, with regard to the level of bursaries per independent school, a level of over 5 per cent was balked at and, I believe, challenged through the courts. Whatever level per independent school in Scotland might be deemed acceptable—whether it is 6 per cent or 8 per cent—is there a possibility that raising that level, plus a consideration of public benefit being apparent in the function of the school, might help all concerned? For example, if there was an expectation, when the Office of the Scottish Charity Regulator was carrying out its inspections, that independent schools were expected to give up 10 per cent of their income, all of a sudden that would slightly alleviate pressures on oversubscribed state schools. Most independent schools in Scotland would be able to accommodate that.

The Convener

How would they be able to accommodate it if you are telling us that they are under huge financial pressure just now?

Liam Harvey

Half a fee would help the bottom line, as opposed to no fee at all.

John Edward

You are completely right in what you say about rates. Although Barclay suggested it, I do not know of any of our schools that pay no rates at all. Possibly, some of the special schools get full discretion from the local authority but none of the mainstream schools pays no rates at all. You are absolutely right that paying rates should be part of their role in society.

I think that the trouble that the schools have had is that, in contributing that money and in relation to the charity test that is there, they are stuck with the question, “What do we do to maintain our situation as a school?” I take your point about facilities. There are no bursars on this panel, but if you ask a bursar whether their facilities are well used, they will say they are extremely overused.

Andy Wightman

I was not talking about whether facilities are well used; I was talking about whether a school’s property is efficiently managed. It might have a high rateable value because it has too much property.

John Edward

Indeed, which ultimately comes back to the question: if rates go up, where does the money come from? The money comes from parental fee income. There is independent evidence that shows that, beyond a certain point, affordability cuts in and people start to leave. Each one of the pupils who leave our sector represents, on average, a £6,500 cost to the state. Other ways of getting that money involve selling off assets—rugby or hockey pitches, land, boarding houses and so on—or getting rid of staff. I assume that, given the aims of increasing physical activity and improving attainment in Scotland, those things are not what anybody wants to happen. There are no other ways of generating that income. If you start to sell off the buildings, you have a problem.

We sit in the shadow of a former school that for 60 years has sat letting in water, because it is a grade 1 listed building that nobody can do anything with. In the mainstream and the special needs sector, we have 17 grade 1 listed buildings. I know of one school in Edinburgh that has spent £1 million on its roofs in the past two years. Those schools are making a contribution and are keeping those facilities going. There are a lot of houses in Edinburgh, Glasgow and elsewhere that are built on former playing fields. I think that most schools would not want to go any further in that area.

Colin Gambles

As a specific example from Hutchie, we have some rugby pitches but we rent them from the council. They are on a flood plain, so they are not really fit for purpose. We maintain them, we keep them looking lovely and we play sport on them, but I think that our lease is up for renewal in the next few years. That is not a facility that we own.

Andy Wightman

Mr Tyson, is it the case that OSCR believes quite strongly that it wants to retain the integrity of the charitable sector and therefore the reliefs that are associated with it as one sector?

Martin Tyson

Yes. I have been meditating on your previous question, and I think that what we would want to see is a way of looking at that question that involves a consideration of principle—that is, the basis of what the charity law is—and which bears in mind the issue of the integrity of the sector.

The Convener

I thank everyone for attending. This has been a useful session. We will suspend briefly to allow a witness changeover for the next panel.

11:00 Meeting suspended.

11:04 On resuming—

The Convener

For today’s second evidence session on the Non-Domestic Rates (Scotland) Bill, I welcome Cheryl Hynd, customer manager (transactions), and Fiona Law, NDR team leader, from the City of Edinburgh Council; Brian Murison, revenues manager, from Highland Council; and Jack Orr, senior property executive, from West Lothian Council. Thank you for your submissions.

I will kick off. Does the bill as introduced, along with the early measures implemented by the Scottish Government, sufficiently address the Barclay group’s findings and recommendations? Who would like to be the first to dip their toe in the water?

Jack Orr (West Lothian Council)

I am happy to respond to that. In broad terms and in many respects, the bill has been drafted with the main recommendations of the Barclay report in mind. As ever with these things, the devil is in the detail. Having looked at the bill, I think that a few points of detail arise and that perhaps we have been invited along today to elaborate on some of those detailed aspects of the bill.

Brian Murison (Highland Council)

We concur. We feel that the bill is work in progress. The details need to be ironed out.

The Convener

Do you have any views on the recommendations that the Scottish Government rejected? I refer to recommendation 28, which says that

“All property should be entered on the valuation roll (except public infrastructure such as roads, bridges, sewers or domestic use) and current exemptions should be replaced by a 100% relief to improve transparency”,

and recommendation 29, which says that

“Large scale commercial processing on agricultural land should pay the same level of rates as similar activity elsewhere so as to ensure fairness.”

There are no strong views about that—okay.

You will have heard some of the previous debate. The question of how non-domestic rates work within the state school system kept coming up. Could somebody give us an easy-to-understand explanation of that?

Jack Orr

I am happy to give a brief view from West Lothian. All our schools are subject to the valuation process, and all of them—secondary, primary, nursery and special schools—are liable to pay rates as per the rateable value that is entered on the valuation roll. There are certain exemptions from or exceptions to that through various reliefs. The most obvious are some of the special schools. Reliefs are granted in relation to physical and other disabilities, so special schools get an element of relief. Otherwise, everything that is on the valuation roll is charged. I do not have the figures for individual schools, but the total non-domestic rates bill that West Lothian Council paid last year was £8.7 million. Of that, some £2.9 million was paid in respect of primary and nursery schools. The remainder is made up of the other schools, which form by far the largest part of our estate, together with other operational buildings.

We have looked at it, but due to financial constraints we have not been able to offer any form of relief.

Alex Rowley

On the role of assessors in the potential application by local authorities of discretionary relief to recreational sports clubs, concerns around playing fields seem to come up as an issue in relation to the bill. Are there changes that threaten businesses that run cafes or whatever in public parks?

Brian Murison

In our view, the difficulty with the examples that we are aware of is that they are so small in value that they would be entitled to the small business bonus. As such, you would just be creating an administrative burden. The net gain would be very limited.

Jack Orr

I concur with that view. We already have a number of individual entries for some of West Lothian’s public parks—cafes, shops and caravan sites, for example. In some ways, it is difficult to see how, without creating an administrative burden, you might bring other activities on to the valuation roll.

We have an interesting scenario in front of us at the moment, with a proposal from someone who wants to do a winter wonderland in one of our country parks—it would be modelled on the enchanted forest at Pitlochry. It is probably focused on Christmas, so it would be time limited and would not be there all year around. I suppose that that kind of thing might attract an entry on the valuation roll, or perhaps a look from the assessor to see whether it would be appropriate to include it on the roll. Other de minimis things—an archery club or an ice cream stand, for example, which are seasonal—speak for themselves, I think.

Fiona Law

The Christmas market in Princes Street gardens in Edinburgh, which is the capital city, does not go on the valuation roll. If we were to include such things, would we deter them from happening? Given the tourist attractions at Christmas, that could be detrimental to other businesses in the area. We would need to weigh that all up.

Alex Rowley

Is there anything that we could put in the bill to try to help town centres? Throughout Scotland, most town centres are struggling. As the MSP for Kirkcaldy, David Torrance knows that it is not easy to see what the answers are.

Brian Murison

We have two main issues with town centre businesses. One is the rateable value, but that is an assessor matter that is driven by non-retail businesses that are willing to pay town centre rentals. The other issue is out-of-town centres and parking, but we are trying to address that by offering free parking in town centres for a limited period.

Jack Orr

We have no parking charges in West Lothian in any of our towns.

The Convener

That is great. Thank you very much.

Andy Wightman

Have you made any evaluation of the impact of moving to a three-year revaluation cycle on the administration of non-domestic rates in your councils?

Jack Orr

Andy Wightman

I turn to parks. The intention with the bill seems to be to make sure that commercial activities in parks are not exempted unnecessarily and that there would be parity between what goes on in parks of a commercial nature that is similar to what goes on outwith a park. Are you comfortable with the bill’s provisions? Do you think that they are justified?

Cheryl Hynd

Yes. For Edinburgh, the issue is mainly about consistency of approach and making sure that rates are applied in the same way across Scotland.

A lot of our comments on the bill, which have been from an administrative and a ratepayers’ point of view, are about the need for consistency to be applied. Our concern is that whatever council someone falls under— whether it be West Lothian Council, Highland Council or the City of Edinburgh Council—exemptions, discounts, reliefs and so on are all applied in the same way. As I said, there needs to be consistency. We also need to make sure that people know exactly what the regulations are.

Andy Wightman

I have had a quick look at Princes Street gardens, and I note that the Scott monument is listed as a distinct historic building for example. In St Andrew Square in Edinburgh, which I think that many members will be familiar with, there is a Costa Coffee with a rateable value of £42,000. It would seem that there are premises in parks that are already on the valuation roll. The new provision in the bill would appear to be about making sure that all premises in parks, particularly local authority parks, that should be on the valuation roll are put on the valuation roll. Is that a fair assessment?

Yes.

Alexander Stewart

What discussions have local authorities been involved in regarding the cost for future years? The financial memorandum mentions only what will happen initially and it may have to be refined as years progress.

Cheryl Hynd

I have not seen anything for future years. If you change something, you need to take on board learning about what needs to be amended to make the activity successful in the future. That would have to be considered.

Scottish councils are very good at sharing learning. As practitioners, we have shared learning about automation, the publication of non-domestic rates on websites and so on. That is one thing that makes me proud to be a local authority employee. The IRRV quite particularly talks about sharing learning. In relation to the administration of non-domestic rates in the future, it will not always be the case that it will be about money. It might be about how to do things in a smarter way. As authorities, we have become very good at that, because we have had to.

Alexander Stewart

You have been forced to adapt to many situations—and you will adapt to these circumstances—but there might be a knock-on effect on personnel and resources and implications for them.

Cheryl Hynd

At the minute, that is an unknown unknown.

Kenneth Gibson

Many things that I wanted to raise have been raised, but one issue about town centres that has not been mentioned—there is not a lot that we can do about it—is online shopping. There is a question about how those retailers get taxed at some future date. I know that the UK Government is at least thinking about that.

Have you noticed whether not charging for parking in West Lothian has had a positive impact? Are people not going into Edinburgh, for example, to shop? Obviously, the parking charges in Edinburgh are horrific.

Jack Orr

I would guess that people who go shopping in Edinburgh town centre mainly take the train. Although parking in all our town centres is currently free, it seems to me that that has not of itself had a positive impact. Some of our town centres—I am thinking of Linlithgow, for example—have a good range of independent shops in the high street and the occupancy rates in the high street are very high. In probably the remainder of our traditional town centres, which were formerly associated with coal mining areas and the like, that is certainly not the case. Free parking may help in some respects, but I do not think that it shows a specific positive impact. Many of the parking spaces are simply used on a daily basis by people who are perhaps the employees of the retail enterprises or whatever. Once that car is in there in the morning, it is there for the whole day.

Kenneth Gibson

Jack Orr

I understand that members have had circulated to them plans that I supplied. We have raised the matter because of the nursery relief provisions that are already in place. I heard some of the latter evidence from the previous panel.

I can speak only from my authority’s point of view. In terms of provision of relief, the regulations provide for 100 per cent non-domestic rates relief from business rates, from 1 April 2018 until 31 March 2021, for properties “wholly or mainly used” as day nurseries

“within the meaning of the Education (Scotland) Act 1980”.

My reason for writing about that was to point out an anomaly or an unintended consequence of the regulations. I can give you figures to illustrate where I am coming from.

You must have done some calculations about lost income.

Jack Orr

Until a few weeks ago, the authority’s only car park in the centre of Linlithgow had for the previous 20 years, from 1995 or thereabouts, been let to a private car-parking company. The reason was that it was being used as a commuter car park. People would park there of a morning, then walk along to the railway station and go wherever they were going. Our transport people at that time—I appreciate that it is many years ago—took the view that we should go for short-term parking. The two-hour maximum in St Andrews is the obvious comparator. That principle was employed in Linlithgow, and we decided to put that out to the private sector because we did not have the expertise or resources in-house to do it ourselves.

That had three effects. First, it very quickly removed commuters from the car park. Secondly, it provided us with a commercial income of about £40,000 per annum, and thirdly, it meant that the lessees were responsible for payment of non-domestic rates. It was a win-win-win situation, from the council’s point of view.

The Convener

Why did you scrap the parking charges if there was income coming in and it had a positive impact on the town centre?

Jack Orr

The tenancy came to an end at the end of May, and the current operator decided not to renew the lease and relinquished its tenancy at that time. We currently have the car park on the market and have already had expressions of interest to do the same thing again in that location.

The Convener

There are no more questions, so I thank the panel very much for their evidence. It will be very useful. We will take more evidence on the bill at our next meeting on 26 June, then we will hear from the Minister for Local Government, Housing and Planning at a meeting in September. The committee will also visit East Ayrshire on 24 June. At a meeting there, we will discuss the bill with local businesses, enterprises and charities.

11:52 Meeting suspended.

11:52 On resuming—

19 June 2019

Fourth meeting transcript

The Convener

Under item 2, the committee will now hold its fourth evidence session on the Non-Domestic Rates (Scotland) Bill. Today’s session will be split into two panels. I welcome our first panel: Rachel Blair, the Charity Retail Association’s public affairs and communications officer for Scotland; Stuart Mackinnon, external affairs manager for Scotland for the Federation of Small Businesses; David Lonsdale, director of the Scottish Retail Consortium; and Marc Crothall, chief executive of the Scottish Tourism Alliance. Thank you all for attending and for your written submissions.

I will kick off the questioning by asking whether the findings of the Barclay review group and the subsequent bill represent a fair approach to non-domestic rates that will better support economic growth.

David Lonsdale (Scottish Retail Consortium)

We must hold up our hands: we were in the vanguard of campaigning for a review of business rates, and we strongly supported the work that was done by Ken Barclay and his group. We did not necessarily get everything out of the review that we would have liked to get, but there are many measures, both in the Barclay report and in the bill, that we can get behind and support.

The agenda to have more frequent revaluations gets a big thumbs-up from us. I can go into the reasons why that is the case in more detail. We also support the efforts to reduce the period from when valuations are undertaken to when they come into effect. That has been condensed from two years to one year.

We would like to see more being done on the business rates agenda that is not necessarily legislative. I would point to two aspects. One is the large business rates supplement. Ken Barclay’s report alights on that, and says that parity with England should be restored by April next year. I hope that the committee will broach that with Mr Barclay when you speak to him later on.

The other issue, which is pretty fundamental for us and for our members, who account for about a fifth of the business rates that are paid in Scotland, is the whole issue of how onerous the poundage rate is at the moment. It is at a 20-year high and has accelerated markedly since the start of the decade. That is a big issue for us.

There are lots of positives in the bill, but there is more still to be done.

Stuart Mackinnon (Federation of Small Businesses)

Absolutely. David Lonsdale is taking credit for the Barclay review, and I will do the same. The First Minister announced a review of business rates at the FSB’s conference a number of years ago. We were closely involved in the Barclay review. Fairly early on, it emerged that the review would be focused on modernising the current system, rather than fundamentally rethinking the business rates system. The review is aimed at doing that, and we applaud many of its recommendations.

Since Ken Barclay reported, work has been done to try and put his recommendations into practice. The bill that is before us is one part of a jigsaw of measures that we broadly support. The switch to a more frequent revaluation cycle should ensure that rateable values better reflect prevailing local market conditions. We broadly support the other bits and pieces in the bill.

We would like the Barclay review, and the focus on business rates that comes as a consequence of the Barclay review, to deliver a step change in the user-friendliness of the business rates system. I am sure that, at the time of the last revaluation, many MSPs had correspondence from local business owners who did not have a good understanding of the rates system and the revaluation process. We would like there to be a real effort to get every part of the business rates system working together to deliver a more user-friendly system. The proposed legislation is a part—but only a small part—of delivering that.

Rachel Blair (Charity Retail Association)

I am here representing the Charity Retail Association. There are more than 900 charity shops in Scotland, and we represent 85 per cent of them.

Overall, we support the objectives of the bill and the Barclay review to simplify the system for ratepayers. We were pleased that the Barclay review concluded that the mandatory level of charitable relief for charity shops should be kept at 80 per cent. That should be protected. We hope that there will be consideration, by local authorities or during the bill’s progress, of upping the mandatory level of relief to 100 per cent.

The health of the high street should be a key consideration in the bill. Charity shops increase footfall in high streets and help to fill vacant units. Our case studies—particularly the one in Margate, in England—show that, during the recession, there were a lot of empty units and there was a decline in the high street. Charity shops filled the vacant units, which allowed footfall to increase, and Margate is now quite a successful seaside destination. It is important that the bill considers the importance of the charity retail sector.

Marc Crothall (Scottish Tourism Alliance)

I thank the committee for inviting me. I am from the Scottish Tourism Alliance.

We welcome being part of this process. With our colleagues from UKHospitality and the Scottish Licensed Trade Association, we have been active in representing the views and concerns of the industry. The volume of visitors that we are enjoying brings with it many challenges. We are seeing specific declines and cost increases for businesses, which pose a big threat to many.

We were particularly grateful that the finance secretary afforded a 12.5 per cent real-terms cap on the rates at the last valuation, and that cap has been extended again. However, for many, the cap has become null and void due to the state aid caps and so on.

As others have said, we very much welcome the review of the frequency of valuations, particularly given the fluctuation in business trends and trade. Aberdeen is an obvious example to point to, given the impact of the oil industry on the tourism business.

A challenge for our sector has been the calculation methodology that is used in the current rates system. Along with colleagues from the SLTA and UKHospitality, we have had dialogue with others about Ken Barclay’s response in bringing forward a proposal that might be more satisfactory and fairer for the future. We are very supportive, in principle, of any proposals that encourage investment and entrepreneurship. The industry needs to innovate, and it needs flexibility to be able to do that.

I can talk more about other issues and concerns later. However, in summary, as others have said, the bill is a good step forward, but there is still more to do and discuss.

The Convener

Do you have any views on the two recommendations from the Barclay review that the Scottish Government rejected? Recommendation 28 said:

“All property should be entered on the valuation roll ... and current exemptions should be replaced by a 100% relief”.

Recommendation 29 said:

“Large scale commercial processing on agricultural land should pay the same level of rates as similar activity elsewhere so as to ensure fairness.”

David Lonsdale

For the retail sector, one of the great frustrations about the previous revaluation period was that the revaluation was undertaken in spring 2008—in a sense, at the top of the market, before we had the financial crash and the well-known travails of the retail industry in recent years. That underpins the need for more frequent revaluations. Although that would not solve every problem—as I said, business rates, the poundage rate and tax rates are too high—more frequent revaluations would smooth out a lot of the problems.

Basically, we had a seven-year or eight-year period when values were set at one level, but when bills landed on doormats, some organisations in some sectors would have experienced quite a change in their sector’s performance. Marc Crothall can speak for the hospitality sector: some elements of it were—if you like—hot during that period and did well, and therefore there would have been differences. However, for the retail sector things were challenging towards the end of that period .

Alex Rowley

You made a point earlier about out-of-town retail centres. Is there a good balance between out-of-town retail centres and town centres? A lot of retailers in town centres argue that out-of-town retailers have a lot of advantages—car parking and so on. Is the system fair as it is, or should there be another look at out-of-town centres?

David Lonsdale

We are always open to that. Town centres have a tremendous amount to offer, but like all businesses and sectors, they need to reinvent themselves, in particular because people need a compelling reason to spend time and money there.

I think that all retail destinations have been struggling: all have been ceding ground to online retail. The other day, I saw a figure that suggested that almost nine out of 10 people in this country have shopped online in the past year. The figure is much higher in this country than it is elsewhere in Europe. The situation here is much more advanced—we have bought into the idea of online retailing in a bigger way.

That reads across to a range of other sectors. For example, I am probably not the only person who has bought a holiday online in recent times. The same thing can be seen in banking and financial services, newspapers and other media, estate agents and so on. The digital revolution is touching every sector. One of the strengths of the bill is that more frequent revaluations will mean that the rating system keeps up with changes not only in individual sectors and how they are performing, but in relation to structural changes in the economy.

Alex Rowley

Town centres, in particular, are really struggling. You just need to walk around most areas of Scotland to see that. Is there more that the bill could do to support town centres? If so, what?

David Lonsdale

Again, that goes back to my earlier point. As far as we are concerned, the bill is positive in many respects, but non-legislative action is also required. Lots is being done in terms of public-realm investment and so on to get people to live in town centres—the Cabinet Secretary for Finance, Economy and Fair Work has made an announcement about a town centre fund, for example. All those things are worthy, positive and have a lot of merit but, at the end of the day, if it is too expensive for retailers and other businesses to invest in town centres—I note that the poundage rate is at a 20-year high and that the large business supplement is double what it is south of the border—then you have a problem.

There is an issue with coherence. We think that there is a lot of merit in the bill, but it is only one aspect of what must be done. There are other things that government can do—not just the Scottish Government, but local government. For the past three and a half years, councils have had the power to reduce business rates, but I am aware of only three of the 32 local authorities having done anything on that front.

Stuart Mackinnon

I would like to come in on a couple of those points. The rating of the hospitality sector has been a fairly persistently controversial issue. I suggest that, because it has been such a persistent problem, Parliament might want to take the opportunity to scrutinise the role of assessors. Historically, Parliament has been reluctant to do that, but the bill might present it with an opportunity, ahead of the next revaluation, at the very least to get assessors in to give evidence about how they come up with rating methodology.

The FSB has long been a champion of town centres and high streets. At the moment, in a lot of town centres and high streets, it feels like independent businesses are fighting the battle by themselves. Many large businesses—banks being a prime example—have left our high streets. If we want them to be successful, we need to get a wide range of organisations back into them. The right rates package would be one element of that, but it will work only as part of a wider mix of policies.

I am sure that the upcoming small business bonus review will look at place-based issues. That might not be something that has to be attached to the bill; it might be possible to consider it in another way. It is just over five years since the town centre action plan and review was launched. It is time to revisit high street policies: rates is only one part of that.

Alex Rowley

Does the panel generally support the small business bonus scheme and the review to which you will contribute?

Marc Crothall

I would echo what Stuart Mackinnon and David Lonsdale said. Tourists come to visit places in order to experience them. We are starting to shape our future tourism strategy for Scotland beyond 2020, and all the traveller trend data is showing that people want to absorb and consume. We have seen changes in behaviour in relation to how people choose to stay at and experience destinations.

We have seen failures of major restaurant chains—for example, Jamie Oliver’s restaurants—and other operators that have fallen off the high street that were offering alternatives. We have a lot of independent restaurateurs and real creative talent in Scotland. Those people are now seriously questioning whether they can afford to operate in some places because of the rates structure.

Everything that has been discussed so far is about frequency of revaluation and allowing businesses to flex, but equally we have out-of-town experiences at many destinations, which draw and attract tourists.

We have asked the Scottish Government on several occasions to really get a grip on what the assessors are doing in terms of methodology and the evaluation process. The challenge is partly due to lack of data. However, much clearer understanding is needed for the benefit of the industry, as much as for the benefit of assessors and the Government, so that we can get regular and more frequent revaluations that work for the sector. That will prompt investment: not being able to plan ahead does not encourage investment.

Rachel Blair

In terms of long-term planning, there is some uncertainty around the 80 per cent rates relief that charity shops currently get, because there is a postcode lottery in terms of application of discretionary relief. Only a third of local authorities in Scotland grant the full 20 per cent of discretionary relief, and our members tell us that where the 20 per cent relief does not exist or has been removed, that can result in lower-performing shops closing, in rural areas or in disadvantaged communities.

We are looking for a system in which there is more consistency across local authorities, which will allow charity shops to invest in high streets. As it is, that can be quite difficult.

Alex Rowley

Okay. My experience of trying to deal with assessors was a one-off, but they were—to put it mildly—certainly not helpful. I think that it is important to note in our report that concern is coming through from the panel about that, and that something needs to be done, even without legislation.

The Convener

Thank you. You have made your views known.

Andy Wightman (Lothian) (Green)

A key aspect of the bill is the move from five-yearly to three-yearly revaluations. I do not think that Rachel Blair has said anything about that, but the others have said that that move is helpful. Why do you think that that would be helpful—in particular, in the context that a revaluation is only as good as the data on which value is based? If issues about capturing data and the accuracy of the data continue to exist, will a move to three-yearly revaluation help?

David Lonsdale

From the SRC’s perspective—as I alluded to earlier, and as is set out in our evidence—we strongly support more frequent revaluations. A number of benefits will accrue from that.

There is also a provision in the bill to extend from 14 days to 56 days the time that ratepayers are given to provide information to assessors. That should help, because the short period of time is, I suspect, one of the challenges for ratepayers. When they have a window of only a couple of weeks to provide information, it is a matter of saying, “We’ll just try to appeal.” Their having more time to consider what information is required will be positive.

Theoretically, more frequent revaluations should mean that ratepayers will get up to speed on what information to provide over a relatively short time. There will be greater incentive to ensure that they provide the information, because they will be revalued more often.

10:15

Stuart Mackinnon

My answer will be similar to what David Lonsdale said. There will be a challenge. The current system is not working very well with five-yearly revaluation, so three-yearly revaluation will mean that we will really have to sharpen up our act. Among the reasons why we support the switch are that ratepayers will become more familiar with the revaluation process, and it should necessitate the assessors and local authorities looking at how they deal with it. Those things in themselves would be helpful in making the system a little more user friendly.

Marc Crothall

When we look at what is happening around us, we see that we need to be able to flex relatively quickly. I will use the example of digital. In 2012, when the current tourism strategy was written, the word “digital” featured in it only three times, but by 2016 it was the number 1 issue for all of us.

There is also less chance that the jump between rates valuations will be as significant as it is could be with a longer period between revaluations. Therefore, we certainly support three-yearly revaluation.

Rachel Blair

The Charity Retail Association is broadly supportive of a change from five-yearly to three-yearly revaluation, but we also ask for relief to be confirmed within the three-year period. Currently, relief is confirmed yearly, which makes long-term planning difficult for our members. We also want to ensure that that is carefully considered, so that there is not an unnecessary burden placed on smaller charities, in particular.

We are also broadly supportive of a digital interface, which should—I hope—make communications better. Our members have told us that communications can be quite poor around revaluation times.

We also ask for the revaluation times to be aligned with the other revaluation times in the UK. That would help a lot of our members.

Andy Wightman

Stuart Mackinnon’s written submission on behalf of the Federation of Small Businesses says on its second page that

“FSB has concerns regarding the decision to introduce a number of changes to the proposed legislation at Stage 2, reducing the opportunity for scrutiny”.

What do you mean by that? We have not reached stage 2.

Stuart Mackinnon

I understand that the Government will detail in Parliament, at stage 2, changes to the appeals system, and that the details of those changes will be important to ratepayers in terms of understanding how that system will work. I understand that from having been part of the Barclay review group.

Andy Wightman

So, you have had advance sight of intended Government amendments.

Stuart Mackinnon

No—but I understand that that is the intention.

Andy Wightman

Okay. That is interesting.

You also said that

“FSB has long argued that the Scottish Parliament should have a role in scrutinising the activity of assessors.”

We are broadly supportive of the specific measure in the bill to remove what the Government describes as a “loophole”, whereby owners of second homes are applying for the small business bonus. In our view, that is a misapplication of the relief. It has been highlighted to us that MSPs’ offices are eligible for the small business bonus. Given the name of the relief, I am not sure that its application to those properties would necessarily be right. Such issues will be looked at during the small business bonus review. However, we are broadly supportive of the move to apply the small business bonus only to premises in which small businesses are being run.

Andy Wightman

That is interesting. MSPs’ offices are just offices as far as the rating system is concerned; it does not matter who occupies them.

The Scottish Retail Consortium says that it is

“firmly opposed to repatriating control over the poundage rate to local authorities.”

Given that it is a local tax, should local authorities not have control over the rate? What is the problem?

David Lonsdale

You have read our submission correctly. We are opposed to that, if for no other reason than we fear that ratepayers would be treated as a cash cow. We are conscious of the fact that council tax bills have just gone up by 3 to 5 per cent, which is well in excess of inflation. As I said in our submission, the poundage rate—the tax rate—has gone from 41 to 49 per cent since the start of this decade. It is at a 20-year high, and it is about to go up even further. I am not convinced that local authorities would do a better job of keeping down the poundage rate.

Annabelle Ewing

You might want to have a look at the evidence that we took. I suspect that if legal privilege is not to be understood in its normal context, your members might have thoughts on that.

Let us move on to the consequences of not providing information. First, the criminal penalty is being removed. It will be interesting to hear your thoughts on that; some people think that the penalty should be retained, because there has to be a sufficient imperative to provide information fully and expeditiously.

Secondly, the view has been expressed that the level of the civil penalty will be nothing more than pocket money for some of the people involved. There will be no imperative for the large players to pay heed to the requirement, because the penalty attached is de minimis.

Rachel Blair

Any fees or penalties would not be welcome in the charity retail sector. We are concerned that they would take funds away from key charitable causes—

Annabelle Ewing

I am sorry—we will come on to fees. I should clarify that I am talking about the penalty for failure to comply with an information notice. What would be the imperative to comply if there were no penalty?

Rachel Blair

I can look further into the matter and report back to the committee, but my impression is that charities would be inclined to follow the guidance and ensure that they did not face penalties. We do not support the use of fees, which would take away from charitable funds.

The Convener

At present there is a criminal penalty; the bill will replace that with a civil penalty.

Rachel Blair

I think that that is proportionate.

Marc Crothall

Stuart Mackinnon talked about the need for a simple system that enables businesses to contribute and input information. That is probably the number 1 opportunity to change culture. It could be argued that the challenges that we faced with the recent revaluation were to do with some businesses finding it difficult to communicate, respond and so on. There is a recognition that the data that is currently gathered is limited, so valuations are based on a small sample.

If we have a culture of acceptance that everyone contributes and there is access to information, through a portal that is simple, governed and protected, there absolutely should be a penalty for folk who choose not to comply. Why should there not be? What the penalty should be, I do not know. From the conversations that I have had, I think that a fair approach is needed, and to enable that to happen there should be a level playing field.

Stuart Mackinnon

Yes. A more frequent revaluation cycle necessitates the gathering of more data by the assessors. In discussions that I have had about that, we have talked about the need for sticks and carrots when it comes to gathering more data. Of course, the business groups will ask for the carrots and will argue that, if the system is made easy to use, things will get better. Communicating more effectively with the business community will bring better data, with more people returning it. We would like the fees and fines to be used only as a last resort.

At the moment, when people at a business receive a form from the assessor, whom they have not heard from for seven years—or the business might have been operating for only four years—they do not understand what the form is, or its significance. If we can improve communications between business communities and the rates authorities, we can get an improvement in data collection without resorting to widespread fines on the business community.

I was slightly concerned about some of the figures that are highlighted in the financial memorandum. There has been an attempt to estimate the amount of revenue from fees and fines using current rates for the non-provision of data. We would hope that the rates on the provision of data would improve dramatically, before we start handing out fines.

Annabelle Ewing

I hear what you are saying. The legislation has to set the level somewhere. The point has been made that, if the maximum penalty was set at £500—if the property is not on the roll—or at about £7,500, that would be a drop in the ocean for a business with a turnover of millions of pounds. What is the stick that would compel the large player to get on with it and provide the information? One of my colleagues will ask about anti-avoidance issues in due course, but we will have to wrestle with these issues as we prepare our report.

Stuart Mackinnon

There is a strong argument for any fees or fines to be proportionate, with smaller businesses paying a smaller share of their rateable value than their larger counterparts. I am sure that David Lonsdale will not agree with me on that point.

David Lonsdale

I think that being proportionate is a good basis. I am not sure why turnover suddenly comes into the mix. Why not use profits or some other metric as the basis? I am not sure what the relationship is between turnover and the point that you make.

Annabelle Ewing

My point is simply that, in separating out a small business from a multimillion-pound business, a penalty of £500 or £7,000 might provoke a response of, “Who cares?” It would not matter, would it? There would be no incentive to provide all the information required. That will be important as we get on to anti-avoidance issues, although I will leave that for a colleague.

I have one last area of questioning. A moment ago, Rachel Blair mentioned the issue of fees. There are proposals to introduce fees for appeals—that is one issue. The other side of that is the potential for retrospective increases to rateable values. Those are two very important issues. Do you have any comments on either or both of them?

Stuart Mackinnon

The switch to a more frequent revaluation cycle necessitated a massive drop in appeals. I understand that, at present, only 8 per cent or so of appeals are successful. In the experience of our members, unrepresented businesses are almost never successful in their appeals.

On the subject of fees in association with lodging an appeal, the small business community could perhaps accept it if the fee structure was proportionate, perhaps tapering down to zero for the very smallest businesses, and if it resulted in a significant improvement in the appeals process. With the new fee income, there has to be a significant improvement in customer service.

Marc Crothall

I echo what Stuart Mackinnon has just said. Being proportionate is one thing. We expect to get a good service for what we pay for within the timeline, with affordability at different levels of scale of business.

To pick up on David Lonsdale’s point about profit, as opposed to turnover, many different-sized businesses potentially make a lot more money on the bottom line, as a proportion, than larger businesses. There needs to be an agreed approach.

Annabelle Ewing

So, you would seek a differentiated fee structure, depending on criteria to do with size, turnover, profit or whatever.

Marc Crothall

Absolutely. There is such a wide scale of business base. We want to encourage future investment and growth; we do not want to penalise. As with anything, we expect a service to be given back.

There are umpteen different discussions to be had about various services that are currently provided; many would question whether they are actually worth the value that is paid out in return. Expectations are high.

The Convener

We move on to anti-avoidance measures.

Alexander Stewart (Mid Scotland and Fife) (Con)

We have touched on some of the current loopholes. In the bill, there is a section on tax avoidance and the process of how that works. It would be good to get a view from the panel on whether the anti-avoidance measures in the bill that deal with empty premises are strong enough. Will they close some of the loopholes, or will that still be an on-going problem?

David Lonsdale

We have not really touched on that in our written submission; it is not something that our members brought to our attention as one of their top issues. I am simply not aware of it being a systemic problem. It might be for others, but not for us.

Your colleague spoke about profits. In the past four years, it has been quite difficult for retailers to make a profit. The profitability of the sector has halved over the past five years. Retail is a low-margin business: the margin is somewhere in the region of 3 to 4 per cent, so it is different from a wide range of other sectors. We are not conscious that there is an issue.

Alexander Stewart

There are some retailers who do not use their premises—they ensure that their business is not live and running from that location. There are attempts to ensure that premises are being utilised if it appears that the owners are somewhere else or the building is not being used, but there are loopholes from which businesses currently benefit. We are talking about trying to clamp down on some of that in the bill to ensure that there is a change and that the issue of avoidance is taken on board.

David Lonsdale

We certainly do not have a problem with the Government or agencies clamping down on companies or other organisations, or ratepayers, that are believed to be avoiding their responsibilities.

The fact remains that the structural change in retail means that a lot of retailers have come out of retail premises. The figures that were published last week show that there has been an 8 per cent reduction in the number of shops in Scotland over the past 10 years. Retailers are in the business of making money. Where they are not making money from a particular unit or site, they hope to exit it or to change it round so that they can make money.

In recent times, there has been a shift towards much shorter lease periods than has historically been the case. Things could shift back if the economy improves, depending on various other factors. Retailers are not in the business of wanting to shell out a lot of money for units where they are not trading. As I said, quite a lot of retailers have exited properties in recent times. I am not conscious of empty properties being a particular issue.

Alexander Stewart

Does anyone else on the panel have a view?

Stuart Mackinnon

We broadly support the move to ensure that the small business bonus would no longer apply to empty properties; that is a tweak that we can live with.

Generally speaking, our typical member will not necessarily be involved in complicated tax-avoidance tactics. We broadly support the measures in the bill. The financial memorandum to the bill highlights evidence from England that, in the rates system, the level of tax avoidance is 1 per cent of the amount on the roll. In comparison with other taxes, therefore, avoidance is perhaps not as much of a problem, but it is good that local authorities will have the legal powers to address the problems that exist.

Another point that we make in our written submission is that it is all well and good for local authorities to have new legal powers, but the rates system must be well resourced if they are to be able to check whether existing reliefs are being used as they should be.

10:45

Alexander Stewart

In managing the situation, a financial burden might be placed on local authorities, which might impact on how effective and efficient they will be at dealing with the rates situation across the piece and ensuring that the business sector is supported. What would happen if that were the case? We know that local authorities are having to do a lot more with fewer staff and resources, and that could impact on your sectors.

Stuart Mackinnon

I have real sympathy for the local authority rates teams that I chat with. Often, there are only 0.8 full-time equivalent staff in those teams, even in significant local authorities.

I would suggest automating as much possible, so that local authorities are not dealing with paper forms. Basically, the machine should run itself, and would need to be looked at only if it breaks. As professionals, the staff could then spend their time checking the data, where appropriate, and looking at things that do not look quite right, rather than processing paperwork.

Alexander Stewart

Is everyone else content? I see that no one has any other views.

Graham Simpson

I have three quick questions, to mop up some of the things that have been said and some of the written evidence from the panellists.

I was in front of the Rural Economy and Connectivity Committee a few weeks ago to discuss the workplace parking levy. As I understand it, the fact remains that, if the legislation is passed and councils get that power, they will charge a levy on part of the valuation roll for which business rates are already paid, so that is double taxation. There may be other examples of double taxation in both the devolved and reserved taxation systems in the round, but it does not seem to be a particularly sensible way forward.

We have a number of other concerns about the workplace parking levy, but in relation to rates our concern is that adding to the burden is probably not sensible. As I said, the poundage rate—the tax rate—is at a 20-year high, and a number of workplace parking spaces, depending on the property or building with which they are associated, will already be subject to the large business rate supplement, which in Scotland is twice the rate that applies south of the border.

We are in the fourth year of the large business rate supplement having been doubled and, over those four years, ratepayers in Scotland have paid an extra £250 million. In retail alone, somewhere in the region of £45 million to £60 million extra has been paid because of that doubling.

Kenneth Gibson (Cunninghame North) (SNP)

The UK Government charges VAT on top of taxes—I am thinking of tobacco, alcohol and fuel duty, for example—so double taxation is quite common and is done on a large scale. We all probably pay huge amounts of money in that way. That does not make it right, but it is not uncommon.

I want to touch on a couple of things. Mr Lonsdale, I found paragraph 26 of your written submission particularly interesting. In it, you said:

“Ministers are forecasting that the annual cash value of rates reliefs will have increased by £159 million over the 4 years until 2019/20, to £750 million, a 27% uplift. The value of reliefs as a share of the total take from business rates rises over the same period, from 21.6% to 26.9%. The system only seems to function through myriad exemptions and reliefs that continue to grow as an overall proportion of the total amount paid in business rates. The use of these sticking plasters underlines the need for more regular revaluations”.

You talked about the poundage rate being at a 20-year high. It seems bizarre that we have rates relief at a record high and a poundage rate that is at its highest level for 20 years. Would a better way to address the issue be to have fewer reliefs and lower overall poundage? If so, which reliefs should be removed?

David Lonsdale

One aspect of the bill is that of putting the business growth accelerator on a strategic footing. Our colleagues down south have picked that up and are saying that there should be something similar in England, but it should be over a three-year period to allow firms to recoup the cost of commercial property investments and so on.

We fully accept that there will be rates discounts and reliefs, but the broader principles of having more regular revaluations and keeping down the overall poundage or tax rate are a sensible starting point for looking at these things.

There will be cases for which there must be reliefs. Stuart Mackinnon talked earlier about there being a review of the small business bonus scheme. We have been supportive of the scheme, but it is right and proper that we look at individual reliefs from time to time and check whether their rationale is still pertinent and whether they deliver value for money. The Barclay review, which we have been broadly supportive of, did that.

Kenneth Gibson

It almost seems as though the poundage rate is being increased to take account of the number of reliefs. What do other panel members think?

Stuart Mackinnon

The FSB strongly supports the small business bonus and the help that it gives smaller firms. The most recent survey work that we did on it suggested that, if the scheme were abolished, about a fifth of the recipients would amend their growth plans, a fifth would cancel planned investments and a fifth would close their doors completely. Going into the small business bonus review, we will stand up for our members who currently get that important help from the Scottish Government.

I note that a small number of our members pay the large business supplement, and some work might be required to ensure that small and medium-sized firms do not accidentally fall into that tax bracket.

We have tried to be as constructive as possible and we have talked about tweaking the small business bonus. For instance, we have suggested that it should not apply to empty properties. We want to ensure that it goes to the right businesses, and we will continue to take that approach.

11:00

Marc Crothall

Many of our members are small businesses. We support the review of the scheme but, as you will have seen in my written submission, we have caveated that quite heavily by saying that we need to recognise the importance of tourism businesses in communities and what they do for the wider economy. The other side of the coin to consider is that we have long argued that for many properties in the hospitality sector a rateable value of £51,000 does not mean that the businesses in those properties are large—they tend not to operate at that scale. Perhaps we need to look at the scale across the valuation measures. Overall, to go back to what has been said several times, the frequency of the revaluation process will, we hope, mean that the sort of increments that we have seen are not required.

The Convener

We continue today’s session on the Non-Domestic Rates (Scotland) Bill, and I welcome Ken Barclay, the former chair of the Barclay review of business rates. I appreciate that there was a late change to the agenda, given that Mr Barclay’s attendance was confirmed only yesterday. We are really grateful to Mr Barclay for attending today’s meeting.

We move straight to questions. I ask Andy Wightman to kick off the questioning.

Andy Wightman

Thanks very much for coming along at short notice, Mr Barclay.

Broadly speaking, do you feel that the recommendations of your review group have been put into practice through the non-legislative measures that the Government has announced, and through the primary legislation that it has introduced in the bill?

Ken Barclay

I am not sure that I am in a position to respond to that. Over 14 months, we consulted many people and determined what we thought was in the best interests of the brief that we were given by the Scottish ministers. I have not been involved in the process for the past two years. It is up to the Scottish ministers to determine how many or how few of the recommendations that we made are brought to bear, and how much is done through primary legislation.

Andy Wightman

Fair enough. The Government decided not to take forward two of the group’s recommendations, one of which was recommendation 28, which said:

“All property should be entered on the valuation roll”.

We felt that a number of things could be improved, and we highlighted them in the report. I understood that some of those things are now in a consultation process involving the end users and the assessors. I am afraid that I really cannot add more than that, Mr Rowley.

The Convener

Graham Simpson has questions about schools.

Graham Simpson

I, too, thank Mr Barclay for coming to the meeting. I know that your attendance was confirmed at the very last minute, and I really appreciate your being here.

The committee has looked at the idea of removing rates relief for independent schools. That stemmed from one of your recommendations—it was your idea. Where did it come from?

Ken Barclay

The idea stemmed from the fact that we adopted the guiding principles of transparency and fairness and ensuring that people are on a level playing field with one another. It was quite apparent to us that, as state schools pay rates, it is entirely appropriate that independent schools should do so, too.

That is my point. I was trying to level the playing field between the state sector and the private sector, and that is the recommendation that we made. You could argue that there is an unlevel playing field at the present time, and I was endeavouring to level it.

Graham Simpson

Ken Barclay

I think that that is a reasonable characterisation of the process that we went through. We looked at all reliefs and had to determine whether they were providing an appropriate level of economic stimulus or whether they were fair.

11:30

Andy Wightman

Would it also be fair to say that you did not go into huge detail in your examination of the reliefs, presumably given the amount of work that that would have involved? For example, with the small business bonus scheme, you decided that, rather than tinker with it, you would recommend that it should be reviewed.

Ken Barclay

It depends on what you mean by “huge”. It might help if you could give me an example, so that I can respond to a specific question rather than a generalisation.

Andy Wightman

Take the empty property relief, for example. Did you gather a wide range of evidence, analyse the numbers and look at the relief over time? In other words, did you do all the analytical work that would be required to evaluate whether it was still a justified relief?

Ken Barclay

That is a fair point. In addition to the report that you have no doubt seen and read, a plethora of information is publicly available. There are reams of reports that you can review to establish what work has been undertaken.

Kenneth Gibson

I fully understand. Thank you very much.

Annabelle Ewing

Good morning, Mr Barclay. I have two relatively quick questions. One is about an issue that was raised in the Scottish Retail Consortium’s written submission to the committee but was not discussed today. Given your expertise, I though that it might be in order to pose the question. The consortium talked about the deposit return scheme and the consequent need for shops to have refits and possibly to purchase reverse vending machines. It said that it was

“concerned these ... changes could be classed as improvements and consequently affect the rateable value of ... premises”.

In broad-brush terms, is that a realistic concern, or does it overegg the situation?

Ken Barclay

I am not sure that I know the answer to that question, to be honest. The commission recommended that the Government review plant and machinery in considerable detail. I do not know whether anything has happened on that, but we felt that the issue of improvements was very complex and that expertise to determine the right way forward did not exist in our group. The last time a review of plant and machinery issues took place, it took the Government two or three years to reach the conclusions and recommendations that it did, so I did not think it appropriate for us to try to cram such an exercise into the time that we had available. That is why we made that recommendation. If the Government should decide that it wants to pursue that process, it seems entirely appropriate that the example that you have given should be included in the plant and machinery review for all businesses.

Annabelle Ewing

Thank you for that—it was very interesting.

My last question is about timescales. We have had your report with your recommendations and we are now going through the bill. I imagine that there might be some tweaks to the legislation—as is ever the case with the parliamentary process, as our aim is to achieve the best version of it that we can—and then it will be passed. How long will it be before we need to have a Barclay 2 review?

Ken Barclay

Taking your question in the spirit in which it was intended, I trust that it will not be Barclay at all. [Laughter.]

Annabelle Ewing

Thank you.

Graham Simpson

I want to go back to the issue of schools. In your review, you used the word “fairness” quite a lot. One of your recommendations, which I think became part of the bill, is that some independent schools, such as music schools, should retain relief. Why should that be the case for some schools and not others? Why should the relief not apply to schools that specialise in sport or science, for example?

Ken Barclay

That might be a question for the Government, Mr Simpson. I do not remember identifying a music school—or the only independent music school in Scotland—as deserving particularly different treatment. That might be something that you could ask the ministers when they speak to the committee.

Graham Simpson

Does it pass your fairness test?

Ken Barclay

I reiterate what I have just said. I made my recommendations to the Government at the time. Whatever it has decided to do or change in the intervening period is a matter for it. My brief was to deliver the review within 14 months, which I did. I am here today to answer questions about the recommendations that I made rather than about the opinions of others that have been expressed subsequently.

The Convener

Thank you very much for attending today’s session, Mr Barclay. Your evidence was very helpful indeed.

A further evidence session on the bill will take place at the committee’s next meeting on 4 September, when we will hear from representatives of the Scottish Government.

I now suspend the meeting briefly, to allow the witness to leave the table.

11:45 Meeting suspended.

11:47 On resuming—

26 June 2019

Fifth meeting transcript

The Convener

Agenda item 4 is the committee’s concluding evidence session with the Scottish Government, as part our scrutiny of the Non-Domestic Rates (Scotland) Bill. I welcome Kate Forbes, who is the Minister for Public Finance and Digital Economy. She is accompanied by Anouk Berthier, who is the NDR policy lead; Colin Brown, who is a senior principal legal officer; and Ian Storrie.

I believe that the minister would like to make a brief opening statement.

The Minister for Public Finance and Digital Economy (Kate Forbes)

It will be very brief. I thank you, convener, and the committee for allowing me to come and speak to you today.

The bill is an important stepping-stone on the way to implementing the recommendations of the Barclay review, which we have progressed as quickly as possible. The bill’s purpose is to establish a legislative framework to enable a number of those recommendations to be implemented. We are also making good progress on the other recommendations that have not required primary legislation.

With, I understand, more than 360 written submissions and six oral evidence sessions, plus a number of committee visits, committee members have, I am sure, been given much food for thought, so I look forward to the discussion later.

Before taking questions, I want to touch on what I believe to be the most critical aspect of the bill—the proposed changes to the appeals system. We are not the only ones who believe that it needs reform. We have looked at other places, including south of the border, where there have been significant difficulties that have resulted in few appeals being able to progress through the system, which has informed our consideration. We have learned from that in making every effort to get our reforms right.

Quite simply, convener, I believe that if we do not get reform of the appeals system right, that will negate the benefits of every other aspect of the proposed NDR changes. I appreciate that the appeals system is a complex area to reform and that there are no easy solutions, as the rating experts on the Barclay implementation appeals sub-group have discovered during their deliberations. I look forward to receiving soon their report containing recommendations on potential changes to the appeals system, which I will reflect on carefully. I am happy to arrange for a copy of that report to be sent to the committee.

Finally, my letter of 3 September to the convener outlined my proposed approach to consulting on illustrative appeal regulations, which I hope members found useful and helpful. I am happy to contribute to the debate by answering any questions that the committee deems are important.

The Convener

Thank you, minister. I will kick off. Could any additional measures have been included in the bill, such as changes to rates for out-of-town retailers? We have found that one of the big challenges for town centres is the fact that they are fighting against the out-of-town retailers. Kenny Gibson might want to go into that in more detail.

Kate Forbes

The bill’s purpose is to put in place the legislative framework for a number of recommendations, as I said earlier. Not all the recommendations are in the bill; some have been progressed already, others will be progressed through guidance, and others we have decided not to progress after listening to stakeholders. One of that last group is the out-of-town levy. We decided after careful consideration that it would have created greater complexity and uncertainty for business. An important remit of the Barclay review was to make Scotland as competitive as possible to support the economy, and it deemed that certainty for business was one of the most important aspects. That is why the levy recommendation did not make it to primary legislation.

The Convener

Kate Forbes

If we do not get the appeals system right, proposals such as the one to move to three-yearly revaluation will be nigh on impossible. That is how critical it is that we get the appeals system right.

As Kenneth Gibson said, most businesses and organisations automatically appeal. A lot will be fleshed out in guidelines and subordinate legislation after the appeals sub-group has published its recommendations, but we are proposing a two-step process in which there is a proposal and then an appeal. At the moment, businesses automatically appeal. The appeal goes into the system and there is a long drawn-out process, which is why it is so challenging to get through the volume of appeals.

We are suggesting that there should be a proposal first and then an appeal. A proposal will, in essence, be a discussion with the assessor. During that discussion, either the assessor will deny that the appealer has a case—if so, it can then move to a formal appeal—or the issue will be dealt with at that initial stage and there will be no need to go to an appeal.

10:00

We also suggest strengthening of assessors’ information-gathering powers. The Barclay review was clear that provision of information by ratepayers is relatively poor and that more information comes out during the appeals process. If assessors have much more information up front, they can get the valuation right initially and there will be no need to appeal.

The general principles of the bill—this was originally Barclay’s remit—are to improve the rates regime, to give more certainty to ratepayers and to make improvements where we recognise that there are current challenges, particularly to do with appeals, which are unsustainable.

Andy Wightman

So the general principles of the bill are about improving the system.

Kate Forbes

Yes.

Andy Wightman

Graham Simpson

I will come back to charity law.

You have said that you do not think that there will be much impact on the state sector, but there is nothing in the financial memorandum about the matter. When the bill was drafted, no analysis had been done on the possible effects on the state sector, such as kids being moved out of private schools into the state sector, and extra costs for councils, particularly in areas where there are large numbers of independent schools, including Edinburgh and Perthshire. No analysis was done whatsoever. Why was that? Given that no work was done, how can you sit there and say that there will not be much of an impact?

Kate Forbes

I dispute the assertion that no work was done. There was analysis of the potential impact in the business and regulatory impact assessment, which was published in June 2019. To take one example, it cited the fact that, in 2018, the Scottish state school sector had average spare working capacity of 30 per cent. That would be more than enough to absorb pupils. I am going off at a tangent here; we have analysed the impact. That is not to say that we do not recognise the important role that independent schools play in our education system.

Graham Simpson

Let us go back to the charity angle, on which we have had written and oral evidence from the Office of the Scottish Charity Regulator. In its submission, it said that

“Removal of charitable relief from non-domestic rates from the majority of independent schools has potential to undermine”

the statutory test of charitable status. It also said that

“a number of independent schools are in marginal financial positions.”

We heard that in evidence, too. In addition, OSCR stated:

“There is the possibility that some schools may wish to request removal from the Scottish Charity Register”.

In other words, those schools would no longer be charities and would not operate in the way that they do now.

We also heard from the Charity Law Association, which said:

“The key principle underpinning the tax treatment of charities is that charities should be treated equally by tax legislation.”

It is clear that your proposal would do away with that, because charities would not be treated equally. Do you recognise that there is a real issue here?

Kate Forbes

I go back to the comment that I made earlier: it is important to distinguish between charity law and rating law. We are not trying to interfere with independent schools’ charitable status through the back door, as some have suggested. The bill does not deal with charity law at all. Independent schools will retain their charitable status and all the benefits that flow from it, such as access to gift aid. The bill will not affect their charitable status.

I understand that Ken Barclay indicated that he had at least spoken to OSCR and others about his report.

Graham Simpson

Actually, he did not—unfortunately, he did not invite them in. That is not the case.

OSCR’s concern is that we will be left in a situation in which a small number of charities will be dealt with differently from the rest of the charity sector. Why on earth would you want to bring about such a situation?

Kate Forbes

We want to do it for the reason that Barclay set out—we want to create a level playing field among schools. Local authority schools currently pay rates; historically, independent schools have not done so. We are addressing that anomaly.

The Convener

I will let Kenny Gibson in, after which I will come back to Graham Simpson.

Kenneth Gibson

The minister has just made the key point. Graham Simpson talked about the impact on the viability of independent schools. According to evidence from Hutchesons’ grammar school, it understands that the requirement to pay rates would result in a 2.4 per cent increase in the school’s fees. Given that the fees are about £12,000 at the moment, I am not convinced that people would withdraw their children and pile them into the local state schools; I have certainly not seen any evidence that that would happen. I do not think that my old school, Bellahouston academy—where Hutchie used to dump its antisocial pupils when I was at school—or Shawlands academy would be inundated.

Is there any evidence that any independent schools would be financially threatened? When the committee was at George Watson’s college, we were told that the increase in teachers’ salary had more of an impact on the fees—a rise of around 6 per cent in a year was mentioned—than any potential increase relating to the payment of rates. George Watson’s is, of course, the school with the highest pupil roll in Scotland—it has more than 2,000 pupils. Many of the schools that we are talking about are doing very well.

Kate Forbes

The impact of our proposals would be equivalent to about 1.3 per cent of current average fees. We recognise that we need to support ratepayers through the process, but I find it difficult to accept that that magnitude of change would be sufficient to lead to a mass exodus of pupils, for example. I believe that it can be accommodated within the average cost increases.

Graham Simpson

I am grateful to Kenny Gibson for that line of questioning, which I will follow up on. At an evidence-taking session, I asked witnesses:

“Do any of you think that schools could go under as a result of”

what is proposed? Liam Harvey of St Mary’s school in Melrose said:

“Most certainly, and the increase in employer contributions is also going to put a dent in our budgets”.

In addition, John Edward said:

“One of the attendees from whom the committee heard last week was from Hamilton college in Hamilton, which is a school that goes back less than 40 years ... The school has said on public record, and it has been reported in the press, that it would close.”—[Official Report, Local Government and Communities Committee, 19 June 2019; c 17-18.]

I have visited Hamilton college, which is in the region that I represent. It is not a wealthy school. The proposal could have a real impact on some schools—perhaps the smaller schools in the sector—although I accept that it would not impact all schools. Would not it be best to drop the proposal altogether and commit to a full review of charity law?

Kate Forbes

10:30

Kate Forbes

If the committee recommends removing the requirement to pay rates from those public music schools, I will look at that. However, we are at grave risk of increasing complexity in a system with which assessors are already struggling. Wherever we might add reliefs would add to that element of complexity, which would create an administrative burden. Creating a level playing field, as far as possible, is important for administrative ease, but judgments have to be made about where we draw the line. Scotland’s independent music schools are assets that make an enormous contribution to our culture.

Alexander Stewart (Mid Scotland and Fife) (Con)

I want to continue on that theme. At the moment, relief is given to stand-alone nurseries. However, a number of nurseries are co-located with independent private schools. Do you intend on there being a level playing field for nurseries?

Kate Forbes

No distinction is currently made between private and public nurseries for the purposes of relief: day nursery relief is available for all such nurseries, whether they are in the private or the public sector and whether they are run for profit or not. The bill makes no change to that position, so independent nurseries would still be eligible for that relief.

Alexander Stewart

Thank you.

The Convener

Kenny, do you want to come in?

Kenneth Gibson

My question has been partially answered, convener. We might ask why music schools should be exempt. My old school has been designated as one of sporting excellence. Given the Scotland football team’s 4-0 home defeat by Belgium on Monday, one might argue that we should exempt that school from paying rates. Why should music schools receive special treatment? I appreciate music’s impact on our culture, which is, of course, positive, but many other aspects of Scottish life also have a beneficial effect, so I am just wondering why that specific anomaly exists.

Kate Forbes

Secondly, the proposed penalties are on a par with what is applied by the Valuation Office Agency in England.

Annabelle Ewing

I hear what the minister has said, but a point was made about the need to motivate and incentivise people to provide the required information promptly. For the big players, the ceiling of £500 is not really an incentive at all. That point was reasonably made to the committee. It will be for the committee to decide what to put in our report, but I hope that the matter will be reflected on further. The key thing is to improve the system, which means, inter alia, getting the requisite information in a timely manner. Surely we all want to do what we can to secure that end.

The time limits were also raised with us. There was recognition that the current provision of 14 days is unrealistic, but people consider that the proposed period of 56 days plus a further 28 days is far too long. As a compromise, they suggest that 28 days would be reasonable. Do you have any thoughts on that?

Kate Forbes

I am happy to hear what the committee has to say on that and will consider it. In all these aspects, we are trying to strike a balance. There will be large and small businesses for which a £100 or £500 fine would be significant and there are others for which that would not be significant. We are trying to balance access to justice with recognising that the provision of information is just not good enough at present. If the committee thinks that we could tighten up the timescale, in particular, I will look at that.

For my final question, I will take advantage of the minister’s dual portfolio and the fact that she has responsibility for the digital economy. We have discussed with a number of witnesses the current approach in which valuation notices must be issued on paper and the question of how we get to a 21st century process. The assessors and others seem to be up for a digital approach. In light of the minister’s work on the bill, where does that project stand? What needs to happen so that the process can go from a mixture of a bit of digital and a lot of paper to a streamlined digital approach, which would be of great assistance to all users?

Kate Forbes

I would like us to have a digital process with the occasional bit of paper where that is deemed to be appropriate. That is not just because we should be moving into the future; it is because, if we are to move to three-yearly revaluations, we need to work a lot smarter. I am aware that assessors are keen to use electronic means to gather and share information. As the member said, they currently send valuation notices by post. The bill provides that those notices could be sent electronically with the agreement of the ratepayer, but I am minded to consider stakeholder feedback and examine whether we can remove that requirement for prior agreement so that notices are issued electronically by default, unless a ratepayer does not have access to electronic means.

We are also looking at improved software, and the assessors are taking forward their plans for a portal. In conjunction with COSLA and the digital office for Scottish local government, we are looking at how we can move to a digital platform like the one in Northern Ireland. However, doing so relies on having accurate data, and there is a process to go through to gather all the data that would be required for the system to work well.

Annabelle Ewing

That is positive. I hope that it indicates that, in introducing the legislative provisions and the context in which they will operate, that aspect will be a priority for the Government and for the assessors working together, and that it will actually happen. My experience of information technology and digital is that we always talk about what we would like and have very good ideas, but the implementation is slow, tortuous and frequently fails. I hope that that will not be the case here.

The Convener

Thank you for that positive ending.

10:45

Alexander Stewart

You talked earlier about devolving powers to local authorities under the bill, and one area that you have already mentioned for which that might happen is empty property relief. What discretion might local authorities have in applying empty property relief? To what extent would they have the opportunity to extend that relief in the event of illness or repair work? What are your views on that?

Kate Forbes

Our commitment in the budget was to devolve empty property relief—there is a full stop there, as it were, because that is our commitment. However, there are on-going discussions with COSLA on that process and what local authorities want to see in relation to devolution of empty property relief. I am happy to say that those discussions will come to a conclusion relatively soon, as I mentioned in my letter to the committee of 14 June. I will be happy to provide the committee with an update once those conversations have completed.

Alexander Stewart

It would be very useful if we could have that update.

I want to move on to phoenix companies, which is an issue that has been identified in several locations. Individuals and organisations create phoenix companies to enjoy relief. Local authorities are dealing with that through anti-avoidance tactics. COSLA noted that increased costs from anti-avoidance procedures should be outweighed by the additional fees that are recovered. It welcomed the measures, but noted that it would be left to subordinate legislation to tackle some of the wider issues. What are your views on what needs to be done to resolve that?

Kate Forbes

I am very aware of the concerns that have been raised in relation to phoenix companies. However, it is a company law issue as opposed to a rating law issue, therefore there are challenges in it being reserved. That has not stopped us from liaising with rating colleagues in the Welsh Government and at Westminster to see what more we can do to deal with some of those concerns.

Kenneth Gibson

Last year we passed the Islands (Scotland) Act 2018. Has the Non-Domestic Rates (Scotland) Bill been island proofed and if so, in what way?

Anouk Berthier

I am happy to answer that. We considered the impact on islands, although I believe that the bill was introduced before the Islands (Scotland) Act 2018 was passed. One of the areas that we took on board from the consultation responses was local authority discretion over the definition of a self-catering accommodation. That might be superseded by the conclusions of the short-term lets working group. The group’s work is currently on-going and we will reflect on its conclusions. We identified that, on certain islands, where there are issues with ferries and people cannot get to self-catering accommodation, councils should, in some circumstances, have the power to vary the definition of self-catering accommodation.

Kenneth Gibson

I was contacted by an organisation from one of the islands in my constituency that expressed real concern about the hundreds of holiday homes that are pretending to be self-catering accommodation. There is a real issue there and the Scottish Government needs to look at that in detail.

Looking at the wider picture, only this week, Scottish ministers have talked about how fragile rural Scotland is. Rural depopulation, the lack of ability to attract migrants from other cities and towns in the UK and overseas, and the low birth rate in those communities are leading to increased fragility. Given that fragility, has the Scottish Government given any thought to looking again at the value of properties in rural areas relative to those in urban areas? I know that there are rural reliefs, but businesses in rural areas have a limit to how much they can grow in relation to those in towns and cities. It is an important issue in the minister’s constituency.

Kate Forbes

Kate Forbes

Yes. If the committee wants to help inform and shape that, I look forward to reading its report.

Andy Wightman

Various strands impact on the issue of tax avoidance, and we have been handling some of those. For example, we have passed an instrument on the repairing standard, which contains, for the first time, a statutory definition of a short-term let. That was surprising, because that was not core to the instrument. We need to pull together all those strands, so that the policy is consistent. Obviously, tax policy is a very important driver of and influence on how people use properties, so it is fair to say that this committee would be very interested in engaging in the necessary follow-up work to implement that Barclay review recommendation.

What was I going to ask about, convener? Was it finance?

The Convener

Yes, it was finance—that was first mentioned such a long time ago.

Andy Wightman

In our evidence-taking sessions, we asked the assessors, COSLA and others quite a bit about the financial memorandum and the numbers behind the legislation. It is clear that COSLA and the assessors have been very involved with you in advance of the bill in assessing the likely implications. Nevertheless, there still appear to be uncertainties.

The financial memorandum states that the administrative cost of the bill to assessors, the Government and local authorities—in other words, to the public sector—is £32 million and that the income assessed to be derived from ratepayers as a result of the changes is £68 million. Given the state of public finances and local government, which obviously funds and runs the assessment service, are you keeping a close eye on those figures? There is a lot of work to be done by assessors, and they are not directly accountable to you; they are accountable to local government. Any challenges that they face in terms of budgets will be critical in meeting some of the timescales that you envisage. Where are you with the numbers and the costs, and do you still regard them as accurate?

Kate Forbes

As you say, we have kept quite close to the assessors through this whole process, as has COSLA. Local authorities have helped to shape and provide information about the figures.

You make a good point, because it makes the case for ensuring that we reduce complexity as much as possible and that the administrative burden is as light as possible. However, I often speak to the assessors, and they face two challenges, one of which you identify, which is funding. That is why we provided them directly with an extra £2.5 million in last year’s budget. The second challenge is around the number of assessors who are employed in the system. That is as much to do with encouraging young people to choose a career as an assessor as it is to do with anything financial.

That was a long-winded way of saying that I am keeping an eye on the figures. We want to make sure that the costs are as low as possible, but we recognise that there will be a need to support the assessors through this process, and I am staying close to them to understand the challenges that they face, which can be financial but, more than that, can be about the number of assessors out there.

Andy Wightman

It is clear that the intention of the bill is to try to streamline the system, and that the system should operate more efficiently when it is fully implemented. The question is whether there should be a transition in order to implement this. It will be implemented in a relatively short space of time against the time pressures of a new revaluation and many other changes happening at the same time. It is a question of making sure that there is the flexibility to support assessors to do the job that they need to do and to deal with any unexpected hurdles that they encounter.

I am wondering particularly about the digital transformation. The public sector does not have an outstanding record on implementing digital transformation. Are you confident that the kind of changes that you would like to see are going to be implemented smoothly, to cost and on time?

Kate Forbes

That is an example of a cost to save in the long run.

COSLA, the Government and the digital office for Scottish local government are pursuing a joint scoping study to explore the opportunities to improve existing IT infrastructure. That is separate to what the Scottish assessors are doing in developing their own online portal to incorporate a mapping element to improve accessibility.

My understanding is that that work should conclude by the end of the year. In the work that we are doing with COSLA, we will take the point about costs into account. We have tried to do as much as possible of that work in-house.

The Convener

A number of comments from the business sector were about bringing the large business supplement and revaluation years into line with those in England and Wales. What is your response to that?

Kate Forbes

The Convener

Section 11 is apparently intended to apply only to sports clubs. If that is the case, might the draft legislation be amended to make the policy intention clearer? Culture Counts wrote to the committee to raise its concerns that that section is not clear enough.

Kate Forbes

Section 11 would apply only to sports clubs, as it covers properties that are used only

“for the purposes of a club, society or other organisation not established or conducted for profit and used wholly or mainly for the purposes of recreation.”

Section 11 would give ministers the power to issue guidance to rating authorities. It would not apply to properties that are occupied by organisations that are not established or conducted for profit and whose main objectives are charitable or otherwise philanthropic, religious or concerned with education, social welfare, science, literature or the fine arts.

I do not see any need to amend the draft provision, but I would be happy to ensure that the proposed guidance made that point clear. I hope that I have made the position as clear as possible in my response.

The Convener

Yes, that is helpful. Will you outline the proposed commencement policy for all the main parts of the bill?

Kate Forbes

Section 30 sets out the Government’s thinking on commencement. As drafted, there would be early commencement for a number of provisions, which would come into force the day after royal assent. In essence, those relate to the assessors’ information-gathering powers, and they require early commencement on 1 April 2020, which would be the tone date for the 2022 revaluation. It is obvious why that would be the case. One could not have assessors operating to two different standards when gathering information over the revaluation period.

Reforms to the appeal system and the entering of parks in the valuation roll would be elements that we intend to commence on 1 April 2022, which is the next revaluation. I have not come to a concluding view on the other remaining provisions.

The Convener

As no one has any final questions, I thank the minister and her officials for attending today’s session. As I mentioned, this is our concluding evidence session on the bill, and the committee will consider a draft report to Parliament at a later meeting.

11:06 Meeting suspended until 11:10 and continued in private thereafter until 11:45.

11 September 2019

22 May 2019

29 May 2019

19 June 2019

26 June 2019

11 September 2019

Local Government and Communities Committee Stage 1 report

This report was published on 26 June 2019.

Find out what else the Local Government and Communities Committee is doing.

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.

Find out what else the Delegated Powers and Law Reform Committee is doing.

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.

15:54

The 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.

16:01

James 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.

16:07

Murdo 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.

16:14

Sarah 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.

16:21

Andy 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.

16:27

Liam 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.

16:32

Kenneth 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.

16:36

Liz 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.

16:41

Alex 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.

16:45

Joan 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.

16:50

Alexander 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.

16:55

Rhoda 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.”

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.

17:07

Kate 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

MSPs agreed that this Bill could continue

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 Marshalled List of Amendments for Stage 2

First Groupings of Amendments for Stage 2

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.

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.

08:45

To 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

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.

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?

09:00

Andy 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.

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.

09:15

Graham 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.

09:30

Andy Wightman

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.

09:45

After 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.

10:00

Kenneth 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.

10:15

Kate 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

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 have completed my comments, so I am happy to take an intervention.

“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.

10:45

Andy 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.

11:00

Notwithstanding 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

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.

11:15

We 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

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 Marshalled List of Amendments for Stage 2

Second Groupings of Amendments for Stage 2

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.

09:15

We 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

Cookies

Non-Domestic Rates (Scotland) Bill

Overview

Changes to discounts

Stronger tax avoidance measures

Why the Bill was created

Becomes an Act

Introduced

Non-Domestic Rates (Scotland) Bill as introduced

Related information from the Scottish Government on the Bill

Scottish Parliament research on the Bill

Stage 1 - General principles

Have your say

Committees involved in this Bill

Who examined the Bill

Who spoke to the lead committee about the Bill

First meeting transcript

The Convener

Alex Rowley (Mid Scotland and Fife) (Lab)

Jonathan Sharma (Convention of Scottish Local Authorities)

Morag Johnston (Society of Local Authority Chief Executives)

Alex Rowley

Jonathan Sharma

Andy Wightman (Lothian) (Green)

Jonathan Sharma

Andy Wightman

Eileen Rowand (Convention of Scottish Local Authorities)

Andy Wightman

Eileen Rowand

The Convener

Eileen Rowand

Kenneth Gibson (Cunninghame North) (SNP)

Andy Wightman

Kevin Fraser (Institute of Revenues Rating and Valuation Scotland)

Andy Wightman

Kevin Fraser

Andy Wightman

Kevin Fraser

Alex Rowley

Kevin Fraser

Alex Rowley

Kevin Fraser

Graham Simpson (Central Scotland) (Con)

Jonathan Sharma

Graham Simpson

Jonathan Sharma

Graham Simpson

Jonathan Sharma

Kenneth Gibson

Jonathan Sharma

Kenneth Gibson

Jonathan Sharma

The Convener

Kenneth Gibson

The Convener

Kenneth Gibson

Graham Simpson

Morag Johnston

Eileen Rowand

Kevin Fraser

The Convener

Graham Simpson

Andy Wightman

Morag Johnston

Alex Rowley

The Convener

Alex Rowley

Morag Johnston

The Convener

Graham Simpson

Morag Johnston

Kenneth Gibson

Jonathan Sharma

The Convener

Graham Simpson

Jonathan Sharma

Eileen Rowand

Graham Simpson

Eileen Rowand

Graham Simpson