Official Report 443KB pdf
15:03
Delivering increased economic growth will be at the very heart of this Government’s agenda in the next five years. We want to ensure that Scotland is full of vibrant communities where it is easy to start and grow a business, where the ambition and creativity of Scottish society are embraced and where the Government acts to create the right conditions to attract the inward investment that is needed.
A key part of making intensified economic growth a reality will be getting the right framework for non-domestic rates, because we know that businesses all across Scotland are struggling. As is the case with family finances, businesses are having to respond to inflation and are struggling with energy bills, increased staffing costs, food prices and VAT. In that context, it is important to remember that this Government has already taken action to help to alleviate the pressures that our businesses currently face. This year’s rates relief package is worth close to £1 billion, and we know that that is helping to provide relief to tens of thousands of businesses all over Scotland. They also continue to welcome support such as the small business bonus and targeted retail, hospitality and leisure relief. We responded directly to calls from the self-catering sector for a dedicated transitional relief, which the Association of Scotland’s Self-Caterers has welcomed.
However, it is important that all Governments listen and that we continue to focus our efforts on alleviating the pressures that our businesses face. That is why I am pleased today to set out our plans for reform of the non-domestic rates system in Scotland.
Our current system is built on many strengths. Earlier this year, 1 April marked the first three-yearly revaluation in Scotland and the start of the second revaluation cycle based on rental values one year earlier. This year’s Scottish budget reduced all three tax rates during this financial year in order to ensure a broadly revenue-neutral revaluation cycle in real terms—one that is redistributive and not tax raising. Alongside those tax rate reductions, the budget delivered the largest relief package in cash terms since devolution, excluding the temporary support that we provided during the pandemic.
We do not want to lose the positive elements of the existing system. Nonetheless, I know that there are real concerns about the accountability of assessors and the consistency and transparency of valuations. Many ratepayers have found the rates system and property valuations to be complex and uncertain, and we are also seeing delays in accurate bills being issued. We know that businesses are already dealing with the fallout from international conflicts alongside the on-going damage of Brexit, which has been compounded by the UK Government’s increase in employer national insurance contributions. That is why we committed to working with the business community to strengthen our rates system and accountability.
I turn to the ratepayer experience. To ensure clarity, we will deliver change in how the non-domestic rates billing system works. It is an unfortunate consequence of our current fiscal arrangements that our tax decisions are confirmed only in the Scottish budget, which follows the United Kingdom budget. That leaves an incredibly tight period of time in which the Scottish Government is expected to set our budget. Notwithstanding that, however, it is unacceptable that delays in software updates have prevented ratepayers from receiving accurate bills ahead of the financial year, with bills often arriving only late into the summer months. Such delays create unnecessary challenges for businesses, making it harder to plan ahead and manage cash flow.
That is why we will take two actions in that space. We will provide improved self-service information for ratepayers to assess their likely liabilities through our online rates calculator. Alongside that, we will work with the Convention of Scottish Local Authorities and the Improvement Service to ensure that the non-domestic rates billing system works as it should. Specifically, I want to reach agreement, working with local government, on an NDR billing system that will deliver accurate bills on time, all the time.
In relation to accountability, I will address three matters: the short-term issues arising from the revaluation; improvements to the appeals process; and consideration of more significant structural change to our current model.
First, this Government has heard clearly the concerns about apparent anomalies in the 2026 revaluation. A number of examples have been raised with ministers. Although an appeals system to consider such cases through the Scottish tribunals exists, we want to be sure that there is not a systemic issue of inconsistent valuations. We are mindful that, due to the one-year tone date—something that England has thus far considered unworkable—assessors are producing draft valuations in less than eight months. I therefore announce today that the Government will establish an independent panel to undertake a rapid review of the outcomes of the 2026 revaluation. Specifically, it will be tasked with examining and reporting to ministers, within three months of its appointment, on allegedly anomalous valuations and their overall impact. Ministers will ask the panel to make recommendations on how those might be addressed.
Secondly, alongside that immediate review, we must ensure that business owners who consider their rates to be inaccurate have access to timely recourse. The appeals system is intended to allow ratepayers to request changes to a property valuation from the assessor in the first instance, with the possibility of appeal to the independent First-tier Tribunal for Scotland. It is important that the judiciary is independent in how it organises its work, but I commit today to examining how the Government can support increasing the capacity of the local tax chamber to support that process.
Thirdly, ministers have listened to the concerns about the valuation system, and I commit today to a general review of the assessor function. The review will ensure that assessors’ independence in valuation is maintained, but it will also seek to ensure that there is confidence in the system for all. Over the summer, we will begin engaging with stakeholders to develop options for reform to the structure of assessors and establish how those options could deliver improvements in accountability and transparency. I intend to explore further the potential role for a national assessor and the option of placing the Scottish Assessors Association on a statutory footing, with reporting obligations to Parliament. Such changes would require full system redesign and legislation, but I acknowledge that assurance is needed now, which is exactly why I have committed to an independent rapid review of the 2026 revaluation.
The Government is providing a package of relief, which, I remind members, is forecast to be worth more than £870 million in 2026-27. That includes the business growth accelerator and fresh start reliefs, which are the most generous schemes of their type across the United Kingdom.
However, I am mindful of concerns that capital investments can translate directly into increased rates liabilities, which can act as a disincentive to growth. Similarly, cliff edges in relief eligibility can encourage the turnover of properties or constrain expansion. We have heard that concern in the campaign led by The Courier and others, which calls for an expansion in eligibility for fresh start relief. We have already committed to a comprehensive review of non-domestic rates, which will examine the impacts and configuration of our reliefs. However, recognising the benefit to businesses of having certainty on rates and reliefs for the duration of the three-year valuation period, we have provided that certainty on some of our most significant reliefs over the next three years. As a result, our comprehensive review will start this summer, in order for any fundamental changes to be in place for the next round of revaluation.
Alongside that comprehensive review, we will identify early changes that can be made at the next Scottish budget to enhance and better target our existing package. The final decisions on such changes will be confirmed at the Scottish budget, but I can announce today that, from 1 April 2027, vape shops will be excluded from eligibility for relief.
I place on record my thanks to The Courier, The Press and Journal and the Sunday Post for their campaigning to support Scotland’s businesses. Campaigning journalism can deliver real results, and those publications should be commended for their role in that.
The Government was returned to office with a strong mandate from the people of Scotland. We must all reflect that that includes Scottish businesses, which recognise the support that the Government has been able to put in place during extraordinarily challenging times for our businesses. In returning to office, ministers are mindful of the need for greater action and impetus, to acknowledge the ongoing economic uncertainty of our times.
The Government has committed to a comprehensive review of non-domestic rates to support our businesses across the country. In addition, I have confirmed today that we will act to deliver increased transparency, accountability and clarity. On billing, we will improve access to self-service information, and we will work with local government on a billing system that works on time, first time. We will establish an independent panel to undertake a rapid review of revaluation, and we will ensure that the appeals process has the capacity to deliver timely outcomes. The assessor function will be reviewed, with options being developed over the summer. Of course, we will continue to enhance incentives for investment.
Our comprehensive review will consider fundamental changes but, in the short term, the Government will respond positively and openly to constructive ideas. Crucially, we will work in partnership with business to drive the inclusive economic growth that our nation requires in order to meet the challenges of our time.
The cabinet secretary will now take questions on the issues that were raised in her statement. I intend to allow around 20 minutes for questions, after which we will move to the next item of business. It would be helpful if members who wished to ask a question were to press their request-to-speak buttons now. Questions and answers should be brief.
I thank the Cabinet Secretary for advance sight of her statement. Although the changes will, no doubt, be welcome, I think that there will be disappointment that more fundamental reform is not being considered. On transparency, businesses want not access to their bills online but to understand how calculations are arrived at. On accountability, they want consideration of a single assessor. They also want sectoral equity. Right now, business rates can change as much as threefold between use classes. Why has the Scottish Government rejected a more fundamental review and reform of non-domestic rates?
What I have set out to the Parliament today amounts to significant change in relation to the way in which we currently support our businesses. I heard the word “welcome” from Daniel Johnson, so I will cling to that, because I am trying to listen to positivity. I hope that he listened to the tone of my statement, which asked for positive contributions, across parties, to engage with the Government on the reviews that will now take place.
It is important that we improve access to billing because of the challenges that businesses have set out to ministers in relation to the evidence that they are presented with. It is also important that that is worked on with local government and the Improvement Service, which is why I have engaged directly with COSLA on two occasions already. The Minister for Public Finance and I look forward to taking part in a number of engagements with business to inform the review that we will undertake across the summer months. It is hugely important that we undertake that.
Some of the challenge that Mr Johnson set out is fair. I have set out a number of actions, particularly in relation to the general review of the assessor function, which has not ruled out a potential role for a national assessor, which was the other point that Mr Johnson mentioned. It is important to place that on the record. I see Daniel Johnson nodding; I hope that we have some agreement, finally, on that point.
I thank the cabinet secretary for advance sight of her statement. The statement made frequent mention of the fact that the rates relief this year is worth near £1 billion. However, this would not appear to be the full picture. The intermediate and higher rates have been reduced by 2p for this year, yet they are still 2.5p higher than they were two years ago. Hundreds of businesses went bust as a direct result of those massive hikes, and this so-called cut still keeps in place the majority of that unaffordable increase. Will the cabinet secretary set out a timeline of meaningful non-domestic rates cuts and not just tinker around the edges?
It is the case that, in 2026-27, the basic properties rate is the lowest that it has been since 2018-19, and reliefs are forecast to save ratepayers more than £870 million. As I set out in my statement, we also have the small business bonus scheme, which is the most generous of its kind in the United Kingdom. It is hugely important, because we estimate that more than 100,000 properties will be eligible for that support this year.
I set out a number of different actions in my statement to Parliament. I mentioned previously, in response to Mr Johnson, the general review of the assessor function. However, I think that the comprehensive review of non-domestic rates will be welcomed in general by businesses. The work of looking at the configuration of all our reliefs will start this summer, as I set out in my statement. In response to the member’s point in relation to timescales, the review will deliver real change in time for the next re-evaluation.
I note that the Deputy First Minister has confirmed that vape shops will be excluded from eligibility for relief from 1 April 2027, and I welcome that commitment. How will that contribute to the Scottish Government’s public health commitments and build on the progress that has been made on reducing the harm that vapes can cause?
As Clare Haughey will be aware, in recent years, we have seen an increase in vaping in Scotland, and it is highest among those aged 16 to 24 years old. We have also seen an increase in the number of vaping shops opening on our high streets all over the country, selling products that cause addiction to nicotine and other health harms. That is exactly why we are taking action to ensure that vape shops contribute to the high street, recognising the growth of the sector in recent years, and also to ensure that rates relief aligns with our public health commitments, to answer the member’s point.
That will sit alongside a range of other actions to prevent a new generation from becoming addicted to vaping and other nicotine products, including the commitment to consult on the retail display of vapes and nicotine products within our first 100 days in government.
I welcome the fact that vape shops will now be paying full rates. However, that shows how poorly designed the small business bonus scheme was in the first place. The Government spends more than £200 million a year on untargeted reliefs, despite its own review finding no economic benefit to the scheme. That is part of the almost £1 billion in reliefs that goes into the system every year, but the system is still not working. Small businesses are struggling and an ever larger share of our economy is in the hands of multinationals. Profits disappear from Scotland.
The fundamental issue is that non-domestic rates bear no relation to a business’s ability to pay. Will the review consider adopting a system that takes profit or turnover into account alongside property value? In the short term, will the Government introduce measures such as the Scottish Greens’ proposed Amazon tax—a higher rate of NDR for large online retailers—to help even the playing field for small businesses and local high streets?
I thank Mr Greer for his question and for his welcoming of the Government’s position in relation to vape shops set out today. I do not think that he and I will agree on the small business bonus scheme in the short term. It has been hugely successful in supporting a number of businesses across the country.
I hope that Mr Greer was encouraged by the comprehensive review of NDR, which I set out in the statement. Of course, as we approach the budget ahead of 2027-28, we will engage on a cross-party basis on all those issues across the chamber. I would be more than happy to engage with him more substantively on that point.
If kicking the can down the road was a competitive sport, this Government would win gold every single time. Many Scottish businesses now continue to face some of the highest rates liabilities in the UK, and many have seen eye-watering increases as a result of the most recent revaluation. Businesses were told that the Barclay review would fix the system. Hospitality businesses are awaiting the Gill review.
Today, the cabinet secretary announced a further review and an independent and urgent panel to assess the revaluation. Does she not understand that businesses that are going to the wall at a rate of knots in Scotland today do not want more reviews? They want urgent action to reduce their bills and to have a greater understanding of how the system operates.
Perhaps it was a bit too much to expect some positivity about these announcements from Mr Hoy. However, I hope that he recognises that the Government has significantly adapted our position on support for businesses in relation to some of the outputs that I have set out today. For example, the independent panel is going to provide a rapid review of the 2026 revaluation, in relation to which I understand—and very much recognise—that there have been issues. The Government has heard that challenge from businesses and we have already engaged with them directly. The Minister for Public Finance will engage with them again tomorrow. Throughout the summer recess period, we will engage with businesses on how we can improve that approach. Of course, the independent panel will report directly to ministers.
I extend to Mr Hoy the same invitation that I extended to Mr Greer. If Mr Hoy wants to come forward with some more ambitious proposals ahead of the budget, my door is open—
I am seeing you tomorrow.
We will be meeting tomorrow—I look forward to that engagement.
I, too, thank the cabinet secretary for early sight of her statement, which obviously comes on the back of eye-watering rises in business rates earlier this year. Those rises have posed an existential threat to many businesses, including many in my Orkney constituency, which also face additional challenges from being based in the islands. The cabinet secretary will be aware that the Liberal Democrats worked with the Government on transitional reliefs, but there was a recognition that a wider review was necessary. Can she confirm that any review will look at how the rental-only value methodology can be revised for self-catering properties to enable a more proportionate approach in future?
The Liberal Democrats engaged with us throughout the budget process last year and they were able to extract a number of things from the Government. I hope that other Opposition parties will learn from their good behaviour.
We have put in place additional support in relation to the transitional relief, which we know is benefiting approximately 60,000 properties. Those properties are paying lower amounts than they would otherwise have done in 2026-27. That funding is having a huge impact in that regard. We know that 96 per cent of businesses in retail, hospitality and leisure will benefit from some kind of relief in 2026-27.
There are strengths in the current system but I accept that there are inherent challenges in relation to the issues presented by revaluation, for example, and the wider challenges that businesses are facing. It is imperative that the Government does all that it can to help alleviate those challenges and I am more than happy to engage with Mr McArthur on the substantive options that we will consider as part of the review.
Can the cabinet secretary provide an assurance that the review will not include the small business bonus scheme, which is so vital for our local communities and has been touched on already in the questions?
In the budget, we committed to maintaining the small business bonus scheme rates and thresholds for three years, to 2028-29. We estimate that more than 100,000 properties will remain eligible for the small business bonus scheme in 2026-27—which, as I set out in my statement, remains the most generous scheme of its kind in the United Kingdom.
We are very much committed to considering seriously how we can improve reliefs at the next budget, but we have to protect the small business bonus scheme to support those businesses that we know are really in need at the current time, so I give the commitment that that scheme will continue. However, we need to look more broadly at support for our businesses, which is exactly why I have set out a number of changes in that space today.
Since the rates revaluation, one hospitality business in Glasgow has had a rateable value increase of 250 per cent, from £0.5 million to over £1.3 million. That is obviously ludicrous, and the business is now shelving a plan for a £25 million expansion, with more than 100 job opportunities lost.
This particular case shows that the sharp rates increase has led to the stalling of capital investment and the pausing of new hires—all things that Glasgow needs if it is to remain competitive with other major UK cities. Despite backing Labour’s amendment in the taxation debate just a few weeks ago, the Government has, at best, kicked fresh start relief for new businesses into touch. That is not the fundamental reform that we were promised and which we need.
In her statement, the Deputy First Minister also promised an improvement to the appeals process. What reassurance and support will she give businesses affected by these extreme rate rises that their appeals will be held in a timely manner before they go under?
One of the points that Paul Sweeney set out in his question is that there are anomalies in the current system. Ministers recognise and understand that, which is exactly why we have committed to the review that I set out today. I am sorry if he does not feel that that goes far enough, but I set out in my statement to Parliament that we are going to look at options to enhance fresh start relief, which is a direct ask of the campaign. That is exactly why we worked to support the Labour amendment three weeks ago.
As for the delays in relation to the appeals system, I set out a number of actions that we will take in that space. We need to work with businesses and listen to them about their experiences, and the engagement led by the Minister for Public Finance, which will continue tomorrow, has been instructive.
We need to be mindful not to create a cliff edge—and that relates to some of the challenge that Paul Sweeney has set out in his question today. I am more than happy to give that commitment today. If Paul Sweeney has the specifics of the business in question, I would be more than happy to consider the matter and to pass it to my officials for a more detailed response.
Students rightly do not pay council tax, and purpose-built student accommodation is therefore exempt. However, we can argue that PBSA is a business, as people are making profit from commercial activity—for example, there are staff working there. Councils are effectively collecting waste and providing other services for free, so there is currently a subsidy for that business model. Taking that subsidy away could result in incentivising developers to build mainstream residential housing, so would the Scottish Government consider making purpose-built student accommodation liable for non-domestic rates?
I very much recognise the point that Kate Campbell is making. There is a level of complexity here, because most universities receive charity relief, and we currently have no plans to change that. However, many charities undertake some sort of commercial activity, and it can be challenging to distinguish between commercial and non-commercial use. I very much welcome views on the topic as part of our stakeholder engagement for the review of rates, and I will be happy to discuss Ms Campbell’s proposal with her in more detail in the coming weeks.
I recently met the chief executive of the Scottish Hospitality Group, who raised concerns about the ongoing impact of the way in which rates are currently assessed on hospitality businesses and will be in the foreseeable future. Although the announcement of 40 per cent relief on businesses with a value of up to £100,000 was welcome, many hospitality venues receive no meaningful support at all. A rateable value above £100,000 does not necessarily imply a large venue. The Scottish Hospitality Group represents many smaller venues rated at around £135,000. Given that Scotland is losing around three licensed premises per week, will the Scottish Government consider increasing the relief threshold to £200,000, which many in hospitality feel would be more cost-effective than the selective tapering system that is already in place?
Further, as the minister has indicated that she may be receptive to engaging with the hospitality community, would she be prepared to visit some of the sector venues in Glasgow?
As far as a rapid review is concerned—
Please conclude.
This is my final question, Presiding Officer.
As far as a rapid review is concerned, exactly what stage did the Gill review reach before counsel’s recent appointment?
There were a number of points in Kim Schmulian’s question, which I want to come to. First, I am more than happy to accept her invitation to visit properties in Glasgow. The Minister for Public Finance and I have planned a summer of engagements with businesses, to hear from them directly about their experiences. It is hugely important that their experiences form part of the review and ultimately lead to improvement in how businesses experience the support that they should be entitled to.
More specifically, on retail, hospitality and leisure, the Government’s shift in the budget was welcomed in relation to the additional funding and relief that we were able to provide in that space. As I have set out previously, around half the properties in retail, hospitality and leisure continue to be eligible for the small business bonus, which is hugely important and is making a real difference.
We will continue to engage with business throughout the summer recess, and I would be more than happy to give Parliament an update on that following our return.
I have to commend our ministers on the statement. There will be businesses across Stirling and Scotland breathing a sigh of relief that the matter is finally being dealt with seriously. I particularly welcome the rapid review of the 2026 revaluation. Some valuations have been wild, and there has been a lot of unease, particularly in the hospitality sector.
Noting everything that the minister has said today, does the Gill review, which will report at the end of this year, still guarantee that hospitality businesses will be getting a special consideration in NDR, as all of those very welcome changes are made?
I thank Alyn Smith for his welcoming of this work, in particular his mention of the rapid review and the revaluations, which I know have caused concern to a number of businesses—not all businesses, but a number of businesses. It is important that we learn from those instances and that those anomalous valuations are considered. We will receive further advice from the independent panel to that end.
The Gill review is continuing to give confirmation to that end, but the member will be aware that BJ Gill, the chair of the review, was appointed Solicitor General. I congratulate him on that appointment, but he has tendered his resignation as chair of the review, and arrangements will be made as soon as possible to appoint his successor. It is really important that the new chair of the review has the expertise and grasp of the legal framework that applies to valuation for rating and objectivity. We expect the review to complete as previously intimated to Parliament.
I refer members to my entry in the register of members’ interests, as a member of Orkney Islands Council.
Scottish Greens do not oppose the review, but it is hard to have confidence when many recommendations of the decade-old Barclay review were never acted on. I welcome the Deputy First Minister’s commitment to working with COSLA and local boards to improve the billing system and ensure greater consistency for businesses. That is particularly important for smaller valuation offices, such as that of Orkney and Shetland, which is one of Scotland’s smallest, but deals with a complex and large workload in proportion to its staffing capacity and funding.
Looking more broadly, does the Deputy First Minister accept that the non-domestic rates system is intended to be a local tax? The review should therefore look at how councils can be given real discretion over the operation of the system in their area, in line with the Government’s community wealth-building agenda.
I welcome Kristopher Leask’s points about engagement with COSLA. We know that there is inconsistency across the country at the current time, with different systems being used. Some of that has informed software challenges that businesses have experienced. We need greater consistency for business across the country, so that we can resolve some of the matters that businesses have flagged directly to ministers.
In April 2023, the Government devolved empty property relief. That power has gone to councils, along with additional funding in the region of £105 million, to reflect the devolution of that power. That also empowers local authorities to take decisions about how they put in place that relief for local needs, reflecting the needs of businesses in their local areas. There is a level of devolution that already exists in the current system, and it is important to recognise that.
I draw members’ attention to my entry in the register of members’ interests, which states that I am a councillor in Dumfries and Galloway Council.
This point has been touched on several times this afternoon, but I note the importance of non-domestic rates to local councils. I am aware that local government was keen to ensure that it would be a key partner in work on reform, and there was a previous ambition to ensure that NDR would sit within the local government fiscal framework.
I welcome the statement and the confirmation that the Scottish Government will work with local government, COSLA and the Improvement Service, but can the cabinet secretary say what dialogue there has been with local government so far, and how the Scottish Government will ensure that a collaborative approach is taken in recognising the importance of that funding?
Local government is inherently important to how we drive the improvements that we need in non-domestic rates, and local government was the first stakeholder that I met in my new role. Mr McKee and I met representatives last week to talk about public service reform, in which local government will play a really important role in the coming months. Kristopher Leask asked previously about local government’s role, and I gave an answer that talked about some of the software challenges that we have seen across the country.
There has been recent progress from local government to establish the strategic case for change around the collection of non-domestic rates, which is important. I am very supportive of progress in that area more broadly. We need an NDR billing system that delivers accurate bills on time, all the time, and I am very clear that we cannot do that without local government.
In its manifesto, the Scottish National Party promised reforms to non-domestic rates that would ensure that
“online giants … pay their fair share”.
Today’s statement does not point towards the fundamental changes that would be necessary to do that. How will the Government ensure that that promise will be delivered?
We have not yet set out detail in relation to that manifesto commitment. I would be more than happy to write to the member in due course once I have received advice on that commitment.
Time is running out, and some of Scotland’s businesses are being worn to the bone by rising rates. High streets are also being hollowed out.
Will the Scottish Government consider a pause on the collection of non-domestic rates while it sorts out the glitch in the software system? What is the definition of “rapid”?
I did not hear Rachael Hamilton draw members’ attention to her entry in the register of members’ interests; although I am given to understand that she is a business owner. Nevertheless, it is important that the Government sets out a rapid review—that is exactly the timescale that I have associated with this issue—to report to ministers as soon as possible following the summer recess. We will then look to give a further update to the Parliament on all those issues. It is imperative that we outline that, and it is also imperative that members appropriately record interests where they have them.
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