The second item of business is evidence from the Scottish Government as part of our post-legislative scrutiny of the financial memorandum to the Local Government Finance (Unoccupied Properties etc) (Scotland) Bill. I welcome the Minister for Local Government and Community Empowerment and the Minister for Housing and Welfare. The ministers are joined by their officials, Stuart Law and Douglas McLaren. Members have copies of all the written submissions that have been received, along with a Scottish Parliament information centre briefing.
Before committee members ask questions, I invite both ministers to make brief opening statements. Who would like to go first? Is it ladies first?
I will go first, convener. Thank you for allowing me the opportunity to give evidence to the committee today.
The council tax increase for long-term empty homes was introduced as an additional tool for councils to use to encourage owners to bring homes back into use. Councils have significant flexibility in how they can apply the increase, and 16 councils are now applying that power in 2015-16. It is too soon to measure the full effect of implementation because 2014-15 was the first year in which a significant number of councils applied the increase, having used the previous year to prepare for it.
The legislative change is one of a number of measures that the Scottish Government is taking to encourage owners to bring homes back into use. We continue to fund the Scottish empty homes partnership, which includes part-funding a number of empty homes officers who work directly with home owners. We also provide capital funding programmes. Collectively, the measures are having a positive effect in Scotland’s communities: it is reported that 278 homes were brought back into use in 2013-14, and we expect more than 500 to be brought back into use in 2014-15.
Some owners have reported that the council tax increase is what encouraged them to take action. We expect that by the end of the next three-year period we will have reached the point at which 1,200 homes will be being brought back into use each year. That is a significant number, as more than 16,500 homes are empty for one year or more.
I, too, thank you for giving me the opportunity to come here. I hope that it is as enjoyable as my last appearance before the committee.
Our non-domestic rates regime must support businesses to flourish, and it must raise revenue to help to deliver the essential local services on which businesses depend. As part of that, the rates relief—which is worth about £618 million in total this year—must be targeted to provide the right incentives for growth. The Local Government Finance (Unoccupied Properties etc) (Scotland) Act 2012 enabled ministers to vary more widely the relief that is available for empty properties in order to incentivise their return to use.
The changes that we subsequently made by regulations were, as notified at the bill’s introduction, to reduce relief for certain empty properties from 50 per cent to 10 per cent following the initial three-month rates-free period. The financial memorandum estimated that that would save about £18 million. However, the actual drop from the previous year that was recorded in the cost of empty property relief for the first year of reform, 2013-14, was £22.6 million. Other factors bear on the year-to-year cost of that relief, but that figure seems to be in reasonable agreement with the original estimate. The reform did not apply to industrial and listed properties, and the cost of empty property relief in 2013-14 was still £146 million—which is a considerable subsidy to support ratepayers.
Members will be aware that we responded to feedback from stakeholders and, in the same year, introduced the fresh start and new start reliefs, which relate to long-term empty properties and to new build, respectively.
During the passage of the bill, Derek Mackay committed to reviewing the effect of the changes once they started to bed in: I confirm that the Scottish Government will undertake that exercise this year.
I welcome the committee’s initiative to undertake post-legislative scrutiny, and I am grateful for the chance to contribute and take questions.
Thank you very much, minister. Those statements were helpful, as was the documentation that has been provided.
We are doing this because when we considered the financial memorandum, the various stakeholders gave us different opinions as to what the impact would be, so it is time to see how the legislation has worked. This is the first post-legislative scrutiny exercise that we have done; we might do more in the future.
I will open up with some questions and will, in due course, allow other committee members to come in. Either minister can answer—it is up to you who answers—but I will put the first question to Margaret Burgess first. You said that it is too soon to measure the impact of the legislation, given how long it has been in existence, but the SPICe briefing that we received says:
“in relation to non-domestic rates, there are no systems in place aimed at monitoring the impact of the legislative changes.”
How can we measure the impact if there are no monitoring systems in place?
The council tax monitoring on empty homes was changed to take into account the number of houses that are empty and the number of local authorities that are reclassifying properties between long-term empty homes and second homes. Some of the empty homes officers are doing that, so that information and the difference between the two is now recorded and is much more accurate.
Also, the local authorities report on whether they are applying the additional council tax on the long-term empty homes. That allows us to monitor that and how much local authorities collect from doing it.
I think that about nine local authorities are implementing the increase in full.
Nine local authorities are implementing the full increase, three are doing a staged increase and another one will do it halfway through the year. That information is all recorded and can be monitored, so the legislation is being monitored.
Right. Is the Scottish Government encouraging local authorities to impose the full increase or is it allowing them to do their own thing?
It is very much up to the local authorities; there is a lot of flexibility in the legislation. It is down to whether local authorities feel that they should implement the increase in their areas. Argyll and Bute Council was very supportive of the legislation from the outset because it has so many empty homes. Its priority was to bring them back into use, not to get additional resources. Through the empty homes partnerships, a number of other local authorities are also working on that. However, there are some areas where it would not be appropriate for the local authority to apply the legislation—for example, areas in which there are hard-to-let properties.
Thank you.
Do you want to add anything, Marco?
I will comment on NDR and monitoring. A lot of data are collected: we have the valuation rolls and council returns. The trend line for the number of unoccupied properties took a noticeable dip in the first year of effect. We also have the figures for relief, which I have already related.
When we try to monitor and separate out the effects of the legislation, the important thing to consider is that there are a lot of reliefs at play. There is £618 million-worth of reliefs and, in some cases, a property might be brought back into use, but then trigger a small business bonus or a charity relief, so it can be hard to disentangle exactly what the change arises from.
However, the trend is pretty firm and obvious. It is an evident one-year change, so we believe that it fits with the estimates in the financial memorandum, and that what we predicted is happening.
The Finance Committee sent a number of questions to local authorities about what the legislation tries to achieve. I am looking at the responses from North Ayrshire Council because Margaret Burgess and I are MSPs for that area, but we also have responses from other councils. We asked to what extent changes could be attributed to the empty property relief reforms as distinct from wider economic factors. North Ayrshire Council said:
“There is no evidence to suggest that the change in the empty charge from 50% to 90% has encouraged owners to sell or lease their empty commercial properties.”
Aberdeenshire Council also said that there is no evidence, as did Angus Council. Most of the local authorities that we contacted said that there is no evidence.
We asked another, similar question:
“Is there any evidence to suggest that the reforms have had an impact on speculative development and/or regeneration activity? ”
Again, North Ayrshire Council said:
“There is no evidence to suggest that the reforms have had an impact on speculative development and/or regeneration activity.”
Angus Council and Aberdeenshire Council also said that there is no such evidence.
I realise that the legislation has not been in force for long, but is the Scottish Government concerned that the legislation has not made much impact? It seems to be a general restoration of economic fortunes that has reduced the number of empty properties.
The objective of the bill was partly to target relief better and partly to deal with the issue of empty properties. It may well be that individual local authorities, which are looking at a small piece of the overall cake, are not seeing the overall effect. The long-term trend line—I have a graph that I would be happy to provide to the committee—shows a significant dip in the percentage of properties on the valuation roll that are unoccupied. That is collected by looking at data from across Scotland.
One can question how much any one local authority is dealing with the whole range of businesses and considerations that are involved. The legislation was not a great sweeping measure that would wipe out empty property relief and fill every property overnight; rather, it was an incremental step to target more accurately the reliefs that we provide. As a result, we have lower contributions in empty property relief and there are signs across the country that property is moving back into use.
In response to question 3, North Ayrshire Council highlighted the fact that it had 26 commercial properties brought back into use. It might not be able to give the exact reason for that based on its own analytical resources and contacts, but when the picture is replicated across the country, we see incremental but positive change.
Yes—but the question is whether the change is due to the legislation or just to the pick-up in the economy. That is what we are trying to pin down.
Another issue that SPICe has brought to our attention is that there was no real baseline for the number of vacancy rates in the first place, so it is hard to see where there has been an impact.
I want to let my colleagues come in, and there are time constraints, but I will ask another question so that we can move on a wee bit. Highland Council referred to an increase in the number of pop-up shops, which it felt may be in response to changes in empty property relief. North Ayrshire Council—again—told us that the ratepayer for one property says that it
“is being used for storage purposes for six weeks then claims a further 3 month 100% period in accordance with Legislation.”
Are you concerned that people will develop ways around the legislation and if so, what proposals does the Scottish Government have to counter that?
Whenever the Government tries to raise revenue, people will find ways to get round the system or to make it more advantageous for them. Let us not rule out pop-up shops by suggesting that they are a terrible thing; the protections for three-month leases were introduced with fine intentions. If there are expansions of that practice and the provision is being misused, we would consider that as part of our own post-legislative scrutiny. Any evidence that the committee finds in its process would help inform our work. It is something that we would keep under review.
Finally, one or two local authorities have concerns about additional costs. West Dunbartonshire Council—I have to say that that council, more than other local authorities, has often in evidence expressed concerns about additional costs on a wide range of legislation—has said that it has additional costs of approximately £45,000 year on year. That council does not suggest that there has been much of a positive impact, but that its cost base has increased. What do you say to such local authorities? Will your review look at the impact of the legislation on local authorities in terms of additional costs?
09:45
There is a varied picture. Argyll and Bute Council quantified its costs as being lower than those in the financial memorandum, so there is a broad range of views out there. I do not know exactly what West Dunbartonshire Council has done that has caused its costs to go up while other authorities have done things that have caused costs to go down. That would be worthy of review. There are local authorities that have managed the legislation efficiently, so local authorities should be looking at each other to find good practice in collection.
Thank you for that.
I will follow on from questions that we have had already. The point has been made that in relation to council tax only one authority—Western Isles Council—brought in the full powers immediately. Was that disappointing or was that to be expected—and does it matter?
That was not disappointing from the Government’s point of view. The legislation was something new that local authorities had been looking for. The Government never meant it to be prescriptive for councils. The legislation is about encouraging local authorities to consider how empty homes could be brought back into use and it gave local authorities that want to use it another tool to do that. There is now much greater focus on bringing empty homes back into use.
I do not know whether I would have anticipated their doing so, but some local authorities are taking a bit of time to think about it before introducing the measure and some are introducing it gradually, which seems to make sense. When would be a good time to look back? My ultimate question is this: are we looking at this too soon? Should we wait for five years to look back and get a better picture, or would that be too late because we might want to tweak things before then?
The policy should be looked at in stages; it is useful to look now to see what local authorities are doing, and to see the benefits and projections. However, it is certainly too early to see real indications of the legislation’s impact, given that only 16 local authorities are currently applying it. Last year 14 were doing so and the year before that only one was. We have to look over a longer period to see the impact. For councils, the policy is not about raising revenue but about bringing back into use homes for people who need them.
I presume that that is a bigger problem in some local authorities than in others. You are not anticipating that all 32 authorities will act, are you?
Not necessarily all 32 authorities will act. More and more councils are using the tool. As they and the empty homes partnerships work together and good practice is shared, a local authority that had previously thought that it would not want to implement the legislation, or that doing so would not necessarily be of benefit, may see benefit from what is happening in other local authority areas. It is about sharing what is happening and getting the message out there; I think that that is happening through the empty homes partnerships.
That is helpful. Thank you. Some of us feel that it is quite early to be looking at whether we can get a good view of implementation. You said that there was a dip in the trend, but other things are happening that might explain that—for example, the economy might be growing a little bit. When can we get a really good view of what is happening?
There is the old saying about the French revolution—about how we are still trying to work out now what its consequences are. You can take any point in the future and look back from it with ever greater information. At the moment we have just a mid-year estimate for 2014-15, whereas we have the full figures for 2013-14. When we have at least two proper data points, we will better understand trends and we can work with that rather than just with estimates. That is why we will do our post-legislative scrutiny on NDR this year when data are available. However, we could wait two more years and get two more data points and continue to analyse from an even more informed position. It is really about when to draw the line and say, “This is the appropriate time.”
I think that now is a little on the early side, but it is certainly valuable to canvass opinion and to gather and look at data. We certainly welcome post-legislative scrutiny in general.
This committee and others will do post-legislative scrutiny, although one of the challenges is about when the right time is to do it.
The convener mentioned West Dunbartonshire Council. I, too, was interested by its submission. Although it does not go into huge detail, it seems that the council is deliberately holding on to some empty properties because it wants to put a few together for redevelopment. Has it been caught unexpectedly by the legislation because it is sitting with empty properties for a good reason, or is that just one of the things that we would have expected to happen?
Is that an NDR measure? I am not familiar with West Dunbartonshire Council’s submission.
Yes, I think that it is. The council says that it has, for example, a medical centre that is difficult for it to let as anything else, so it is taking time over that. Obviously, there is pressure on the council to immediately pay rates.
West Dunbartonshire has particular issues with regard to occupancy. It is noted for having a relatively large proportion of properties that are hard to let in both the non-domestic and domestic sectors. That is clearly an issue for the council. However, the purpose of the legislation is to incentivise people and to get them thinking about alternative uses so that we get as much property as possible back on the market. We have to ask where councils go too far and what is the right level of pressure and use of the stick. I do not know the local circumstances in West Dunbartonshire—there are 32 sets of local circumstances—so I cannot comment on the exact issues that face the council. However, the aim is to come up with alternative uses and to bring buildings back into use. I hope that there are ways to do that.
That is fair enough. Can you assure us that you will listen to local authorities and that if anything is being caught that we had not intended to catch, you would be open to looking at that?
Yes, we would be open to doing that in our review and in general dialogue with local authorities. I have met West Dunbartonshire Council on other general and introductory issues, and I have corresponded with it on a range of financial issues, but it has not raised the point that John Mason mentioned, so it might not be at the top of the council’s list of concerns.
The convener mentioned the lack of evidence on the impact on speculative development of the changes to non-domestic rates. I seem to remember that one concern that was raised during the evidence taking on the bill was that it would act as a deterrent to speculative development. Is it a bit early for us to say categorically whether that has been the case, or is there evidence from the year and a bit for which you have information on whether speculative developments that were likely to take place have done so?
That information is collected more at local authority level. We have been in dialogue with local authorities, and the fresh start and new start schemes have been put in place to try to deal with the innovative, risk-taking and entrepreneurial side of property development to allow new development to continue. I represent Edinburgh Central, and I remember that, when the bill was being discussed, business centres had issues because they had a lot of people coming in and out. The Government listened to that and, by putting those two measures in place, we have addressed the issue. Our approach of using regulations rather than acting straight away means that we have been able to adapt the measures in the light of evidence that has come forward.
On the broad picture, speculative development tends to have very long horizons for planning and substantial numbers of considerations tend to be at play. I would definitely say that it is too early to tell the overall impact, but we have been happy to take steps to try to address issues and to forestall that happening.
During the evidence taking and debate on the proposed legislation, I took the view that we could not see the measures in themselves as some sort of magic bullet, and that there would be interaction with other circumstances, such as the wider economic situation. Is it possible to completely disaggregate the impact of the measures from other factors, or is it the case that the measures are complementary to other factors in bringing properties back into use more quickly?
There is a multiplicity of factors pulling mostly in the same direction now. If this had happened four years ago, the committee might have been faced with a flat situation whereby the removal of relief would be pushing towards filling the properties and the economic circumstances would be pushing in the opposite direction, so the committee might have ended up looking at the situation and saying, “Well, nothing’s happening.” We now broadly have two factors that are pushing in the same direction, so it is always going to be hard through a simple look at the numbers to see exactly what that difference is. There has been a £22.6 million drop in the relief, whereas our original estimate was £18 million. When we factor in some of the things that we can assess quantitatively in terms of other reliefs and changes in poundages, there is still a fairly large chunk that is in the vicinity of the £18 million that was the objective.
We could perform interviews with every owner of property across the country and go into all kinds of research to a possibly disproportionate scale to try to tease out the mental processes in the decision making; if we took everybody at their word and they did not regard the information as commercially sensitive or confidential, we might have something. Alternatively, we can look at the numbers and say that there has been a drop and that, on the principle that the fairly obvious factor that has come into play in that period is the removal of the empty property relief, that is by far the likeliest suspect. Anybody who wants to try to prove otherwise really has a case to make.
Turning to the issue of long-term empty dwellings, there is a table in annex C of a letter to the convener from Mr Swinney that shows the number of empty dwellings per local authority. Some local authorities that have quite high levels of empty dwellings do not appear to have taken any action at this stage to implement the changes to the reliefs that the Government has put in place. Has there been any indication as to why Glasgow City Council, for example, has not taken those steps although, according to the table in annex C, it has in excess of 2,000 long-term empty dwellings?
The Government has not looked at that at this point. It would depend on, in some instances, whether such properties were spread around the city. If they were in one area, for example, the council could exempt that particular area from the additional charge. However, if they are spread around the city and among hard-to-let areas and areas of regeneration where people are being moved from one property to another, it may not be appropriate to apply the charge.
We are now working in partnership with Glasgow City Council through the empty homes process to look at what can be done. Local authorities can use discretion and ask, “Is this appropriate just now at this place?” If there are pockets of empty properties throughout and they are hard-to-let properties, how does the council exempt areas where there are clearly issues that mean that it might not be appropriate to apply the charge?
However, if the committee wishes, we could follow up on that issue as the legislation progresses if some authorities are not picking it up at all and look at the reasons why local authorities are doing that. There could be a variety of reasons, though, and it is about flexibility.
In terms of the headline figures, it looks as if the financial memorandum was more accurate in its predictions in relation to non-domestic rates and council tax. To start with the council tax, the SPICe briefing states:
“The costings in the FM assumed that all local authorities would apply the maximum (100%) increase for eligible empty properties.”
However, that has not happened. Did the Government ask local authorities about that at the time? If not, what was the assumption based on?
As you rightly point out, the financial memorandum was based on the assumption that every local authority would apply the 100 per cent charge. I think that that was based on the very limited information that we had at the time that around 70 per cent of properties would be empty for a year or more—that has not been the case, though—and on local authorities putting in the flexibilities. Maybe the Government officials can say whether local authorities were asked about the issue for the financial memorandum. However, we had to make an estimate in the financial memorandum and it seemed appropriate to take it to that level of possible additional resources in local authorities.
I recollect that, at the time, Alex Neil made it very clear that the focus of the legislation was not on councils raising additional resources but on bringing homes back into use. Councils, too, have made that clear and have been very supportive of having this tool, should they wish to use it.
10:00
At the time, councils were asked whether they would use the power, but they said—quite rightly—that they wanted to see what was proposed in regulations before they would make any such commitment. The primary legislation was primarily an enabling power, with the regulations setting out how things would work in practice, and that was factored into councils’ business planning.
The minister said that the key issue was the reduction in the number of long-term empty homes. The financial memorandum assumed a 10 per cent reduction, but your written evidence suggests that there has been a reduction of only 5 per cent. It is almost as if the financial memorandum contains two overestimates—namely, on saving more money and on releasing more homes—and it seems to be very significantly out on both counts.
I think that I am correct in saying that there has been 5 per cent reduction in the number of empty homes across the local authorities that are applying the increase. As I have said, this is a tool, and we are still early on in the process. It is being used in conjunction with the empty homes partnership and empty homes officers and, together, we estimate that 1,200 empty homes a year will be brought back into use. That is a significant number, and we hope to see that happening very soon.
Local authorities are looking at the matter and have spent the first couple of years reclassifying properties as empty homes and second homes. In fact, that is what empty homes officers have been doing; they have been looking at whether a property is a long-term empty home, which would incur the charge if the local authority in question is applying it, or a second home. That is part of the work that is being carried out.
As I have said, it is still early in the process. As you have rightly pointed out, the estimates in the financial memorandum were based on every local authority applying the charge at 100 per cent. That has not happened; local authorities have had to look at the flexibility that they need, at the particular circumstances and at whether, in areas where properties are hard to let anyway, it is appropriate to apply a charge if it leads to properties lying empty for longer than they might want.
Marco Biagi said that the savings in non-domestic rates were in reasonable agreement with the original estimates. We have already been over this territory to a certain extent, but to what extent has that been as a result of chance or as a result of some causal relationship?
I always like to think that the estimates are good. If the numbers add up, I do not immediately seek nefarious reasons for that or try to find out whether someone was at fault.
Coming back to the question whether it is still too early to carry out post-legislative scrutiny, I note that there are lessons to be learned in that respect in the financial memorandum, where the 2012-13 estimates for the cost of empty property non-domestic rates relief proved to be a little bit different to the actual figures. The financial memorandum estimated the figure at £152 million, but the actual figure was £169 million. However, we have brought that £169 million down to £146 million, which, in terms of scale, broadly brings us to the position set out in the financial memorandum. Of course, because this provision was imposed on the same terms across the country instead of being introduced on an authority-by-authority basis, the projections were probably always going to be a little bit firmer.
I noted your reference to Mao Zedong’s thoughts on the French revolution, but do you think that, years down the line, it will be easier to see a causal relationship in this respect? Is it always going to be a bit uncertain, because it is related to economic circumstances and so on, or could things become clearer as the economy becomes more stable?
The more data points we have, the easier it is for us to model the different factors that are active. Any economist or accountant would tell you that. As I said, I see that what we predicted is happening, and I am fairly relaxed about that.
Is there any causal relationship with other reliefs? The reliefs associated with the small business bonus scheme seem to have increased quite a lot over a two-year period, while the unoccupied property relief has gone in the opposite direction. Is there any relationship there, in your opinion?
We have estimated that there is an additional £4 million in the small business bonus relief as a result of small business properties coming back into use. Other changes will be down to other factors.
Empty homes must be just about the worst thing to have in a country where housing is such a priority. The SPICe briefing notes that, without information on much larger conurbations such as Glasgow and Edinburgh, where the population is, it is difficult to use the evidence that we have on where the largest number of properties are. Are there still incentives for councils to help to bring some of those homes into use? Some of them are in really poor condition. How do we measure that? Do you have information on how many of the 2,000 empty properties in Glasgow are viable? Is work being done to reduce the number of empty properties?
I do not have that exact information off the top of my head. There is work going on in every local authority area to reduce the number of empty homes. I would have to go back and check whether some of the empty homes in Glasgow are due for demolition as part of the transformational regeneration work that is going on in the city; there may be empty homes that are not intended to be filled. The Scottish Government has a number of incentives for local authorities to bring empty homes back into use. Those include empty homes partnerships and empty homes officers, and we are about to launch the town centre empty homes fund. We had a loan fund that brought a number of homes back into use.
I am certainly willing to take away and look at the points that were raised earlier about empty homes in Glasgow, and to consider whether the Scottish Government can do something more to assist or to get more detail on why those homes are empty. I am sure that the information will be somewhere in the Scottish Government statistics, but it will not necessarily be found in the council tax information, because there are a number of factors relating to empty properties. The priority for us all is to have them brought back into use, because they are a blight on communities as well as providing no help for anyone who is homeless.
Absolutely.
On the point about Glasgow, Shelter Scotland, through the empty homes partnership with Glasgow City Council, is looking at some preparatory work for a joined-up effort between the council and Glasgow Housing Association to consider the possibility of a shared empty homes officer, potentially with funding from the Scottish Government.
The City of Edinburgh Council has an empty homes officer in place and is making great strides in trying to target those problem empty homes. The City of Edinburgh Council operates an empty homes loan fund; Glasgow City Council, through GHA and another registered social landlord, had a share of that fund and brought more than 23 homes back into use through the funding. Behind the scenes there is significant work going on in Edinburgh and Glasgow.
Good.
As I remember it, in the debate in the chamber the Conservatives got very excited about property owners being outraged that they would have to pay such an amount of money in non-domestic rates in a period of recession. They said that we were being very hard on the owners of property. Have you received a lot of representation from individuals or companies in that respect?
There was certainly a strong representation during the passage of the bill, but I will defer to my official on that. Have there been representations since then?
No, not particularly. When we come to do a review this year, we will engage with stakeholders and seek their views on that point, but the issue has not been particularly prominent since the bill was passed.
Thank you. We appear to have exhausted questions from colleagues round the table. Would the ministers like to make any further points to the committee at this stage?
No.
No.
I thank you for your contributions this morning, and I thank my committee colleagues.
10:10 Meeting suspended.Next
Fiscal Framework