Finance and Constitution Committee

Meeting date: Wednesday, June 26, 2019

Official Report 596KB pdf

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Non-Domestic Rates (Scotland) Bill: Financial Memorandum

Under item 3, we will take evidence from Scottish Government officials on the Non-Domestic Rates (Scotland) Bill. I welcome Carol Sibbald, the bill team leader, and Anouk Berthier, from the bill team.

I invite Carol Sibbald to make an opening statement, if she wishes.

I am very happy to move straight to questions.

The information that we received in response to the financial memorandum shows that a considerable number of individuals are opposed to the removal of charitable relief from independent schools. They claim that that would result in more children moving to state schools, because parents would not be able to afford increased fees, which would increase the burden on local authorities. How do you respond to those claims?

The recommendation was made in the Barclay review, and ministers decided to implement it. The Scottish Government has done analysis and has looked at various sources of information that are available to the public in relation to rateable values and the amount of charity relief that each of the affected schools receive. Across the board, charitable relief totals 2.9 per cent of income. I am aware that, as with any business, schools have to take on board a variety of costs, of which rates are just one element.

I will pursue that issue a little further. When I saw the financial memorandum, I was somewhat surprised that there was no information on the allocation of additional costs to local government following the introduction of non-domestic rates on independent schools. The bill proposes a £7 million annual tax take from independent schools. In Perth and Kinross, which is part of the region that I represent, there are a large number of independent school places—I think that there are several thousand. All those independent schools are charities and do not run at a profit; they operate on quite a marginal financial basis. Therefore, the only way in which such schools would be able to meet the additional rates charges would be by increasing fees for parents, reducing the availability of bursaries or perhaps a combination of both.

A simple law of economics is that increasing the cost of something will reduce demand. As a result of fee increases or a reduction in the number of bursaries, a number of people who currently choose to send their children to an independent school will not make that choice in future. That means that children will go back into the state sector, and there will be an increase in costs to the local authority—in this case, Perth and Kinross Council. Why does the financial memorandum not reflect the increased costs to local authorities that cover areas in which there is a high number of independent schools, such as Perth and Kinross and Edinburgh?

The figures in the financial memorandum on the impact on local authorities were provided by the Convention of Scottish Local Authorities. A number of people, mainly those from independent schools, have made the point that you made about the impact not being reflected. In relation to estimating how many children will be affected, I point out that parents might choose to have their child leave one independent school and go to another or to a local authority school. Local authority moneys are sorted out on a needs basis. The education element of the money is based on the number of pupils so, if there were to be additional costs, that would be reflected.

However, we are alert to the fact that people have commented on the issue, and the Scottish Government and COSLA will explore it further in their discussions. If it is appropriate, we can make a change to the financial memorandum for stage 2.

You say that, if there were additional costs to local authorities, that would be reflected. That is a perfectly fair point to make, but such costs are not in the financial memorandum at the moment. If the objective of the change is to raise £7 million from the sector in non-domestic rates, we can easily foresee a scenario in which the additional costs to the public sector exceed £7 million. In that sense, the policy could end up costing money, rather than reducing costs. For example, in general terms, if 10 per cent of the pupils who currently attend independent schools in Perth and Kinross were to choose to attend a local authority school instead, that would add about £2 million in additional revenue costs to the local authority. That figure does not take into account any additional capital costs that would be required from building new capacity. That is only one council, and the figures for Edinburgh would be much more substantial.

Carol Sibbald said that the Government might want to look at the financial memorandum. I suggest that the issue needs to be addressed if there is to be proper parliamentary scrutiny of the bill and the financial memorandum.

We are prepared to take that point on board.

Thank you.

Whenever we talk about taxation, there is some pleading from people who would quite like to pay less tax, thank you very much. Does the Government have an evidence base that would allow it to predict or model the demand for private fee-paying education if the change were to be introduced? Are we just plucking numbers—for example, one in 10 or one in 30—out of the air, or is there a basis for them?

We do not know, because that is down to what parents choose to do. As Mr Fraser has indicated, it depends on how the schools deal with the situation. They could use any reserves that they might have, they could increase the fees or reduce bursaries, or they could absorb the cost. I am not quite sure how the unknowns could be modelled.

So, at the moment, the Government does not have any evidence base for saying what the extra cost would be, based on lower take-up of private, fee-paying education.

No.

According to the financial memorandum, the total cost of the bill will be £100 million over a number of years. The bulk of that—about two thirds of it, or £67 million—will come from ratepayers. Could you describe the thinking behind that and how the calculation breaks down?

Absolutely. The increase in the non-domestic rates tax bill, which is focused on the independent schools and the cost of adding commercial activity on parks, is set out in detail in table 1 in the financial memorandum. In terms of revenue, the cost to independent schools will be £7 million in 2020-21. Over five years, the total will be £37 million. Commercial activity on parks will be legislated for from 1 April 2020, so that cost is reflected from that year onwards—it will cost a total of £5 million over the three years post 2020.

There are also the additional costs—the civil penalties—that will become payable only if ratepayers do not comply with the requirement to provide information to the local authorities or to the Scottish assessors.

We make it quite clear in the financial memorandum that the costs for the penalties can only be illustrative at this point. We are having on-going discussions with councils and assessors on the use that they could make of those penalties, but that will depend on ratepayers’ compliance and what councils and assessors decide to do with those powers.

As no other member has indicated that they wish to ask a question, I thank our witnesses for being here. It has been a short session, but we are grateful to them for their participation.

11:27 Meeting continued in private until 11:39.