The next item is evidence on the Land Reform (Scotland) Bill’s financial memorandum from the Scottish Government bill team. I welcome Fiona Taylor, Helen Jones, Douglas McLaren and Fiona Leslie. Members have received copies of a briefing note and all written evidence that has been submitted, so we will go straight to questions. We will try not to be too brutal.
First, I want to touch on the submission from the Convention of Scottish Local Authorities, which states:
“A report by SOLACE has highlighted the potential costs involved in requiring local authorities to register all their land and buildings within the next five years. Initial investigation by the Improvement service estimates that the total cost to Scottish local government is likely to exceed £150m.”
It goes on to say that
“the cost of preparation ... includes locating the deeds, accessing market values and providing plans for each title to be registered.”
Do you have any comments on that?
The completion of the land register is a separate part of the wider land reform programme that is not immediately relevant to the bill, so our Registers of Scotland colleagues would be best placed to address that point and comment on the costs that the Society of Local Authority Chief Executives and Senior Managers refers to. I am happy to get them to feed into the committee if it would be helpful.
I would appreciate that, because I realise that it was not in the financial memorandum but it is clearly related to it, so more information would be useful.
Certainly. We will take that away.
As for what is in the financial memorandum, you will obviously be well aware that one or two organisations have specific concerns, so you will not be surprised that I am going to touch on the submission from the British Association for Shooting and Conservation, which states:
“we do not feel that the FM accurately reflects the costs that will be borne by Local Authorities with respect to ‘billing, collection, enforcement and determination of rates relief’.”
It also refers to
“Negative unintended consequences of the non-domestic tax rate for shoots”.
It says that the statement on page 73 of the financial memorandum is “misleading” in respect of part 6, which is:
“Application of non-domestic rates to shootings and deer forests—to remove the exemption from business rates for shootings and deer forests, in order to help fund local services and to place shooting and deerstalking businesses on a level playing field with other rate paying businesses.”
The latter part of that might be true but does the BASC not have a point about the funding of local services? As its submission points out, the financial memorandum goes on to say:
“The additional receipts from ratepayers will accrue to local authorities”
and will then go
“to the Scottish Consolidated Fund. The effect will be a corresponding reduction to the general revenue grant”.
Is it not slightly misleading for the financial memorandum to say that those moneys will go to local services, the implication being that there will be additional funding for the area where the shoots are, when in fact it will just go to the Scottish consolidated fund for potential redistribution?
I will pass that across to Dougie McLaren to answer.
We have read the BASC’s points and I will address the ones that you have raised in reverse order. On where the money goes, the rates revenue accrues to local authorities. It is pooled via the Scottish consolidated fund and then effectively returned to local authorities, so in following the public pound, the rates revenue goes to the local authorities and will be spent by them.
Under the way in which the local government finance settlement is agreed, the two main components of the revenue settlement are rates revenue and the general revenue grant. If one component such as the rates revenue rises by X per cent, the general revenue grant from the Scottish Government will, all else being equal, fall by X per cent. That effectively eases pressure on the wider Scottish Government budget and allows equivalent funding to be directed not to the general revenue grant but to something else. It is not directly the same money because the rates revenue goes to the local authority, but the effect that it has on the Scottish Government budget enables us to direct equivalent funding to something else, which the First Minister has said will be the Scottish land fund.
I think that every member of the committee will be fully aware of the process, but it does not tie in with what the financial memorandum says about the revenue going
“to help fund local services”.
Surely the wording could have been rephrased to make things clearer. The implication in the financial memorandum is that the money will go to assist in the areas in which it is raised, but that is not really the case.
You could be raising money on the island of Arran, where there are shooting estates, and the money could be spent in Aberdeen or Edinburgh on something completely different. Is that the case?
We have tried to set out factually what happens with the money and the effect that it has on the Scottish Government budget. We have not tried to say that the rates revenue will, in terms of following the public pound, go to something like the Scottish land fund, but there will be an impact on the wider Scottish Government budget because of the local government finance arrangements.
I will stick with that issue and the impact on country sports tourism. The British Association for Shooting and Conservation states in its submission:
“Recent independent research into Scottish country sports tourism revealed that 88% of shooting and stalking providers said either that their shoot roughly broke even or ran at a loss.”
Is there any concern that the removal of rates relief will have an adverse impact on employment—as the Scottish Gamekeepers Association has also suggested—and that it might put some of the shoots out of business? Has any work been done to see whether that will be the case?
We will certainly listen to all the stakeholder evidence. We accept absolutely that taxes can have impacts on taxpayers and, in some cases they will be adverse impacts that can affect their employment decisions. It is very hard to model the way in which a change in property tax cumulatively affects employment decisions because that will be just one factor in a business’s decision. It would be difficult enough if we knew accurately the rates liability.
At present we have still to go through the process of having the assessors value the tax base. As we have acknowledged, therefore, we cannot accurately predict rates liability; we can give only a broad estimate at this stage. Even if we had accurate knowledge of the rates revenue—as we do for other sectors that pay non-domestic rates—it would be very hard to model accurately the effects on employment, such as rural job losses, because property tax is just one factor in a business’s decision. However, we accept that there are impacts.
Negative impacts.
In some cases, yes. That is tax, I am afraid. If you pay out money, of course—
Of course, but what would be the positive impacts? I am not talking about the Scottish consolidated fund but about local communities where the measure will be implemented.
It is a revenue-raising measure. Business rates are obviously a revenue-raising measure. As I said, the money will be used to help to fund local services, and the indirect benefits will allow the Government to direct funding to other things such as the Scottish land fund.
I will quote from a submission from my own local authority, North Ayrshire Council. I often quote the council because it sends in a submission in response to almost every call for evidence; I wish that more local authorities would do the same. It states:
“this Bill will have limited financial consequences for local government. However in some areas this is dependent on the definitions applied to key terms within the Bill and how these will be implemented. An example of this is within Access and Core Paths which places a responsibility on local authorities to make reasonable enquiries into land ownership when ownership information is not readily available.”
That takes me back to what I said initially.
The council goes on to state that
“Enquiries into land ownership can be expensive and the cost implications of ... the Bill will be dependent on what Ministers define as reasonable”,
and it refers to savings being
“dependent on the definitions applied to key terms within the Bill.”
Has there been any real analysis of what the impact of that will be on individual local authorities?
In terms of the core paths specifically?
Yes.
Helen Jones will address that point.
12:00
This part of the bill is concerned with new core paths. At the moment, Scotland has complete coverage of core path plans. This section addresses what happens when a local authority carries out a review of a core path plan and decides to add a new core path. In that situation, a local authority would be required to serve notification on the owner. We expect the local authority to make an inquiry through the registers of Scotland in the first instance and, if that proves to be difficult, the bill envisages that the council will put a notice or notification on the land in question. It is designed to make the process a little bit fairer to the landowner so that they know that a core path is proposed to cross their land. Under the current procedure there is wide consultation with local access authorities and other people, through public events, as local authorities think fit. We hoped that local landowners would be among those people, but this provision makes that more explicit.
We do not know the costs because we do not know which local authorities will make major revisions to their core path plans in the future. It might be only one or two extra paths. We will issue guidance to local authorities. We already have guidance on part 1 of the Land Reform (Scotland) Act 2003 and we will update the guidance on the type of inquiries that need to be made.
I understand that you do not know what the costs will be, but do you have any ballpark figures? Do you have a minimum and maximum?
We do not because we do not know how many paths the local authorities will want to add and we cannot gaze into a crystal ball to find that out.
If you are bringing in legislation that will have an impact, surely you have some idea what sort of financial impact it will have on local authorities, especially if they will have to pay for it out of existing budgets, as I imagine they will?
Three of the local authorities that gave evidence said that there might be a cost but they did not really know how much that would be. One local authority—Stirling—said that the cost can
“be easily subsumed into current service provision.”
Our job is to interrogate the bill on behalf of people who have concerns. In the submission from South Ayrshire Council, the word “Yes” is the answer to every question apart from the final one on future costs, to which it says,
“Not anticipated at this stage.”
I fully appreciate that there is a balance in the submissions, but we have to ask on behalf of those who have particular concerns.
South Lanarkshire is concerned about financial costs. It says,
“in the current climate there is no spare capacity within the budgets of local authorities to meet any additional burdens as a result of new legislation.”
Surely if additional burdens are to be imposed by the Scottish Government they should be funded by the Scottish Government?
Let us assume, for example, that South Lanarkshire Council decides to review its core path plan and put in two or three extra paths—I do not know what the plans are, so I am making this up. If the council went to the registers of Scotland, my understanding is that it would cost about £20 to carry out a search for the landowner. If that search failed to find the owner, the council could do as the bill suggests and post a notice on the land. That does not suggest that the costs would be huge.
That is no doubt why some local authorities have said that there will be no financial implications.
I will now open out the session to my colleagues around the table.
Pages 74 to 77 of the financial memorandum have charts of the likely costs. Is it possible to get a chart that sets out the total cost of the bill to the Scottish Government, to local government and to other organisations? You have set out some of those costs individually, but I had to do a lot of calculating to ensure that I was getting the total costs. I do not need the chart right now, but do you have one with you or can you send it to the committee? I would like to have something in black and white that sets out the total cost of the bill under each of those three headings.
In drawing up the financial memorandum, we filled in the pro forma. It might be difficult to separate the costs across the three sectors in some places, because of the ranges in some of the areas within the 10 parts of the bill and the uncertainties over some of the costs. If it would help, we can certainly attempt to put something together for the committee’s consideration.
Most financial memoranda that I have dealt with have done what you have done but have also given the cumulative total, and that has not happened here. Can it be done for the sake of completeness?
We can certainly look at supplying that to the committee.
My second question is about the Scottish land commission, which will have running costs of £1.321 million a year. Should we view those costs as new and additional costs? In policy terms, is the commission replacing some work that is already being done, which will mean that the net cost is not quite so high? Or is it all new work and effectively all new money?
My understanding is that it is new money in principle, but it will be accommodated within existing budgets.
I emphasise that the costs are very much illustrative at this point. We made some assumptions in order to come up with the cost headings to get to the £1.321 million.
We now have in place a small project team that is starting to look at the critical milestones when decisions will have to be made on public appointments, location, the set-up of the office and those sorts of things. There may well be some movement between the cost areas.
I understand that it is a best estimate. I want to be clear about whether the commission is replacing anything else. If it is carrying out some functions that government already does, the net cost could be said to be a bit less. You are saying that it is all new functions.
It is all new functions.
Thank you. The convener asked you a few questions about the valuation roll for shootings and deer forests. The financial memorandum says that you estimate costs at £4 million “subject to rates relief.” I would like to be clear whether that is officials covering all bases, or there are firm policy commitments to create rates reliefs for that area. The main rates reliefs now are charities and the small business bonus and it appears that they do not apply.
Are you thinking about other rates reliefs specifically, are there new policy options, or have you just put that phrase in to cover yourselves?
We are proposing that shootings and deer forests will be eligible for the prevailing rates reliefs, in the same way as other non-domestic properties. We are not proposing a new rates relief in this area. We are open to suggestions, but after our considerations so far we are not planning a new relief. Quite a few of the smaller-scale shootings, such as those on farms, for example, would be likely to get the small business bonus rates relief and that is why we have set out the memorandum in that way.
You think that some would be eligible but you have not worked out how many would be covered. Do you have rough estimates?
That is the crux of the question about valuation and being able to protect revenue. The assessors value the tax base so that is what the bill does: it is a valuation provision.
In the absence of a valuation of the tax base, our best estimate at the macro level is the £2 million from 20 years ago projected forward. There was not much rates relief 20 years ago. Projecting the £2 million forward and saying that, as total Scottish rates revenue has broadly doubled, the figure might be £4 million, subject to rates relief, is about the best that we can do.
You have agreed to look at what the total costs of the bill would be across the three categories of Scottish Government, local government and other organisations, businesses and individuals. That would be standard practice for a financial memorandum.
On the third category, is there any way in which you could provide a bit more information? I am looking at the 10 or 12 categories in the table that starts on page 74. We have
“Part 3 – Right of access to information on persons in control of land”
and
“£129.80 for disclosure of information for businesses”.
Is that a one-off, or might businesses have to meet that cost several times over?
There is then
“Engaging communities in decisions relating to land ... preparation of guidance ... Costs will depend on the scale of landownership”.
For right to buy, there is a host of potential costs but no figures. Other examples are:
“deer management measures, but these cannot be quantified”
and
“Agricultural Holdings ... not quantifiable”.
Most of the boxes for the third category in the table either say that costs cannot be quantified or outline what the costs might involve but do not give figures. Is there any way of being more specific than that?
When we draw up the table that you have requested to show the costs across the sectors, it will look a little bit messy; some of the costs are up front and some are on-going but might initially be quite high and then drop off. It is not an exact science and there are difficulties in doing it across the board across the 10 parts of the bill. However, we could certainly attempt to do it.
I have a bit of a sense of what the costs will be to the Scottish Government and to local government but, when I look at the totality of the boxes for the third category, I have a sense that you are basically saying that the cost cannot be quantified. I accept that that is sometimes the case, but are you saying that the cost cannot be quantified but that you are pretty sure that the number is low, or are you just making a blanket statement that the cost cannot be quantified? That is where I am struggling a bit with the bill.
The financial memorandum explains as best we could for the different parts—maybe it could be a bit clearer in some parts—what sectors the costs may impact on, and how and when the costs may bite. Maybe it would be helpful to clarify within the third category what sectors we are driving at. Would that be helpful? I do not know.
What is important to me as a parliamentarian is whether anyone will be clobbered by the bill. Sometimes we might say that although the cost cannot be quantified, we can say categorically that the number is pretty low so it will have minimal impact. The most important thing to tease out is whether there are potential big losers, and if so who they are and to what extent. That does not come through in the financial memorandum. Maybe there are no big losers and that is why it does not come through, but I would want some security that that is the case.
I do not think that there are any big losers that we have not identified in the financial memorandum. I am not sure exactly what else we can provide to reassure the committee. Where we have said that costs cannot really be quantified, we think that the impact will usually be reasonably minimal. However, the bill has 10 parts and if the committee feels that the financial memorandum is not specific enough in certain parts—in terms of the sector that we identify as being affected or the range of costs that we give—we could try to address that. However, to do that we would have to tease out in a little more detail the specific parts that are being referred to and what the issues are. As I said, it is not an exact science.
You have said to the committee that you have looked at this in depth and that, in the view of the bill team, there are no big losers. Although there are bits that you cannot quantify, in financial terms you have not identified any big losers. Is that a fair summary of your position?
That is a fair assessment of our overall position. Obviously, where there are potentially bigger losers, we have been a bit more specific about the detail of the impact that we have been able to establish.
Rule 9.3.2 of standing orders refers to
“a Financial Memorandum which shall set out the best estimates of the administrative, compliance and other costs to which the provisions of the Bill would give rise, best estimates of the timescales over which such costs would be expected to arise, and an indication of the margins of uncertainty in such estimates.”
Do you think that the financial memorandum achieves that? In many bits of the memorandum, it seems to be like asking how long is a piece of string.
On the whole, we feel that we have done our very best to try to meet the requirement in standing orders, so if the committee has concerns about specific aspects of the financial memorandum, we would be very keen to address them. Clearly, with a bill as big and disparate as this one—it contains 10 distinct policy areas—there may be some inconsistencies in how much detail is in the financial memorandum. If the committee feels that particular bits do not fully address the requirement in standing orders, we would be only too happy to look at them and address the issue.
12:15
The committee is concerned about potential elephant traps, such as the £150 million potential cost to Scottish local government, which is what the Improvement Service estimates that it will cost local authorities to register all their land and buildings. You say that the financial memorandum does not look at that directly, but it is part of the bill. It is a concern if all aspects of the cost of the bill have not been covered in the FM.
I reiterate to the committee that the completion of the land register is very much a separate, free-standing project.
But the point is that it leads on from the bill.
Yes, it is part of our wider programme and we would be happy to come back to the committee to address SOLACE’s point, but it would not be appropriate to address it in the financial memorandum by providing the costs for the completion of the land register, because the FM is very much about what is contained in the bill. There are no provisions in the bill that directly facilitate the completion of the land register.
COSLA might disagree on that.
I agree with you, convener. I think that that information would certainly be helpful.
The Scottish Gamekeepers Association and the British Association for Shooting and Conservation are not normally organisations that I have much to do with, but they have raised serious points about the robustness of the estimates. You said to the convener that you had simply rolled forward the data from 1994 and doubled the amount, based on what has happened elsewhere. Apparently, the Scottish Government’s first estimate was £7 million. I am curious about where that came from. What happened to reduce that estimate to £4 million? If we accept that estimates will not be absolutely accurate, what will happen if you have got this badly wrong?
In response to your first question, as far as I am aware we did not produce an estimate of £7 million. I think that that was inferred by some stakeholders from wider comments that were made about the rates revenue enabling funding to be directed to helping to increase the Scottish land fund from £3 million to £10 million. I do not think that we said that that £7 million would come from the rates revenue. I suspect that that is how some stakeholders might have inferred that the figure was £7 million.
Where is the money coming from if it is not coming from the rates revenue?
As I understand it, ministers made a proposal to increase the Scottish land fund from £3 million to £10 million. Ministers had said that the increased rates revenue would help to make possible that increase from £3 million to £10 million, so I think that some stakeholders might have inferred that that £7 million was going to come from the additional rates revenue, but we have not said that. I hope that that clarifies that.
I want to press you on where the balance will come from.
That is part of the budget decision-making process. That will have to be found from within the Scottish Government’s budget.
In response to your second question, as the committee probably knows, most non-domestic rates legislation is either valuation legislation or rating legislation. It is valuation legislation that we are proposing in the bill. The assessors will value the tax base and record it in the roll. The bill does not provide for the rating; other legislation does that—I think that section 7 of the Local Government (Scotland) Act 1975 is the relevant provision. Ahead of implementation in 2017-18, ministers will have information from the assessors on the emerging valuations of the shootings and deer forests, which they will take into account when they set the poundage. At that stage, they will have options.
You asked what will happen if the estimate is wrong. The bill is only part of the equation. It simply provides for the tax base to be valued and for that to be recorded in the valuation roll. Once the draft valuations have started to emerge, we will have a clearer idea of the tax base and ministers will have options when it comes to setting the poundage. They will also be able to consider whether a new rates relief scheme, which Mr Brown asked about, would be appropriate.
So there is no evidence that you could have brought to bear bar the evidence of what happened in 1994—20 years ago. Is there nothing that you can offer people by way of reassurance in that regard?
The assessors are asked by legislation to value non-domestic properties, which can be quite complex. In other instances, it is more complex than valuing shootings and deer forests. For us to attempt a kind of proxy exercise now would be very difficult. There are probably thousands of possible entries out there and the assessors would have to identify them, decide on the valuation methodology and value them. Anything that we try to do at this stage could compromise the assessors’ independence. It could also be problematic if we came to a value that was lower than one that the assessors subsequently make when they carry out a formal valuation, as it could be cited in an appeal hearing.
We should just try to get the best estimate. We have cited our evidence sources. If anybody has other proposals, we will of course look at them. Some stakeholders have called for better, more robust estimates, but I am not aware of any actual proposals on how to get them.
I have a final question. I do not know whether it is an appropriate question for the witnesses before us, but let me ask anyway. A number of claims have been made about the loss of jobs; I do not know whether they are real. Has an economic impact assessment been completed?
We have published a business and regulatory impact assessment, but as I said in remarks to the convener it is very difficult, even when we know the revenue from property tax, to model and analyse its effects on jobs.
We accept the point that stakeholders are making, and we will assess the evidence and make a judgment on whether the reintroduced rates liability is sustainable. However, the bill is only one part of the equation. Ministers will have options to set the tax liability further down the line, including through the non-domestic rate order, which will go through Parliament.
The final paragraph in the BASC submission highlights recent independent research about the job losses in shooting estates and the fact that some estates currently run at a loss. Have you had access to that research? Has the BASC made it public?
We read the reports by the Public and Corporate Economic Consultants. They are very informative and we certainly take them into account, but they can help us only so far in understanding and judging the effects that a rating liability would have on the sector.
That is fine, but I wondered whether the research had been made available and, if it is available, whether it is in the public domain.
I think that the PACEC reports are published. I have seen numerous PACEC reports, including that one.
To what extent do you take those reports into account? Has there been any change in policy following receipt of a report? How have they been taken into account?
I am in the local government finance unit, and I work closely with wildlife management colleagues who work closely with the deer management sector. It is hard to analyse the effects quantitatively, so it becomes more of a qualitative assessment and a judgment, in dialogue with the industry.
An important step in understanding and in making that call is getting the tax base valued, and that is what the bill does. As things stand, and all other things being equal, other legislation will start to bite once those things are on the valuation roll in 2017. However, as I said, ministers have options, so a better appraisal and assessment will be made once the tax base is valued.
That is clear. Thank you very much. That concludes questions from the committee. Does the bill team have any further points to make before we wind up?
No, thank you.
Thank you for your contributions.
Meeting closed at 12:23.Previous
Draft Budget Scrutiny 2016-17