Chamber and committees

Amendments 37 and 19 relate to exemptions. An important point has been raised about exemptions during the bill’s passage. The Government considers that it is best for local authorities to decide on and put in place arrangements that reflect local circumstances. Where there is strong consensus between local authorities, businesses and Parliament, the Government is open to putting in place national exemptions, which can be done through regulations under section 10. COSLA, in its recent briefing for members, and the expert group, in its letter to me that was copied to the convener, have been clear that they do not support specific national exemptions being established at this point. I cannot ignore the clear message from both local government and the tourism industry that national exemptions would be unwelcome and should be avoided at this time.

I would also highlight that, under the bill, local authorities will be able to create local exemptions that are developed together with communities and businesses. That approach is in line with the Verity house agreement and the overarching policy intent behind the bill of seeking to empower local government with a new fiscal measure.

However, I have sympathy with the motivation behind amendments 37 and 19, so I offer to meet Miles Briggs and Jeremy Balfour to discuss the issue further between stages 2 and 3 and to work to see whether I can facilitate agreement between all the stakeholders that are involved in this important issue.

On that basis, I ask that Miles Briggs does not press amendment 37 and that Jeremy Balfour does not move amendment 19.

Amendments 4 and 7 flow from the helpful scrutiny of the Delegated Powers and Law Reform Committee at stage 1 and fulfil a Government commitment to amend the bill in light of the DPLR Committee’s comments.

Amendment 4 would amend the bill so that, before making any affirmative procedure regulations that would change the list of accommodation types in the bill, ministers would be required to consult local authorities and tourism organisations. That is a sensible change, which would mean that the bill would reflect good practice and would ensure that local government and the tourism industry are suitably involved in any potential changes to the list of accommodation types covered by the bill.

Likewise, amendment 7 requires consultation with local authorities and tourism organisations before any affirmative procedure regulations are made to set national exemptions from a visitor levy. That is another change that means that the bill would reflect good practice and it is one that I hope the committee will support.

I turn to Neil Bibby’s amendments, which all address a similar issue. Amendments 40 and 41 adjust the definition of “local tourism strategy” in section 11 of the bill. That is also relevant to amendment 49, which alters section 17 of the bill so that, when using the proceeds of a visitor levy scheme, a local authority would have to have regard to any local culture and tourism strategy that it had created.

Amendments 43, 44, 47 and 48 propose similar changes and would require culture and tourism organisations and businesses, rather than just tourism ones, to be consulted under section 12 when an authority proposes a visitor levy scheme, and under section 17 when it decides how to use the proceeds of a levy.

Scotland has a vibrant cultural sector and visitors enjoy our many cultural offerings, whether those are formal festivals, museums and galleries or someone playing the fiddle in a village pub. I have concerns about the effects of those amendments. Section 12 of the bill already requires a local authority to consult people who are

“likely to be affected by the proposal”

for a visitor levy, and therefore provides a suitable basis for cultural organisations to have their say and to be involved in decisions on any visitor levy.

The use of funding raised by a levy is also an important issue. On that, I note that section 17 of the bill currently requires proceeds to be spent on

“facilities and services which are substantially for or used by”

visitors. Although there will be a strong overlap between cultural spending and the facilities and services that visitors use, those things will not always be the same. I am therefore wary of making any changes to the bill that would take the focus away from spending that is related to visitors.

I value the role of culture in our society and in the tourism economy. However, the bill already has specific provisions in place on funding and the current consultation requirements cover community representatives, businesses engaged in tourism and tourism organisations. The Government would prefer to keep the focus on tourism businesses, organisations and strategies, while still allowing authorities to consult with such others as they consider to be appropriate. Adding a specific reference to culture would, in our view, move too far away from the tourism focus that reflects the industry feedback that we have had. I therefore ask Neil Bibby not to move his amendments and ask the committee not to support them if he does move them.

My amendment 8 amends section 12 of the bill so that a local authority proposing to introduce or modify a visitor levy scheme, where the scheme area will include all or part of a national park, must consult the park authority for that national park. The amendment reflects evidence heard during stage 1 that the bill should ensure that national parks are engaged and should have a status in the bill that reflects both their statutory basis and their important role in the visitor economy. Amendment 8 ensures that the views of a national park authority—alongside those of the current statutory consultees of community representatives, tourism businesses and tourism organisations listed in section 12—would be sought by local authorities at that stage.

My amendments 12 and 13 make similar changes to section 17. The amendments would require a local authority to consult the relevant national park, from time to time, on the use of visitor levy funds, where any visitor levy scheme area overlaps the area of a national park. That reflects both evidence heard during stage 1 and the legal status of national parks. It creates a proportionate duty on a local authority to engage with any relevant national park authority. I ask committee members to support those amendments.

My amendment 14 also relates to national parks and would mean that, in using the net proceeds of a visitor levy scheme, where the scheme area includes all or part of a national park, a local authority must

“have regard to the National Park Plan”.

Such plans have a statutory basis under the National Parks (Scotland) Act 2000. Making reference to those plans here ensures that a local authority must take account of them when it uses the net proceeds of a visitor levy scheme.

I move amendment 4.

I thank Neil Bibby for lodging the amendments and giving us an opportunity to discuss the issue. I agree with him whole-heartedly on the vital role that culture plays in all our lives in Scotland and particularly in making Scotland a world-class tourist destination. I appreciate that he will not move his amendments and I would be happy to meet Mr Bibby ahead of stage 3 to discuss his proposals in more detail.

In the definition of tourism organisations, we want to ensure that we encapsulate the broadest range of stakeholders who are impacted by the visitor economy. It is self-evident to us all that the cultural sector would be a key part of that, but I recognise Mr Bibby’s point about providing assurance on that.

Touching on the points that Mr Johnson made with regard to guidance, I note that an amendment in a later group will seek to put the guidance on a statutory footing. VisitScotland, as a convening body, will have the role of working to produce guidance. That can help to address a lot of the concerns. The guidance being on a statutory footing will highlight what best practice would be.

What is crucial, of course, is what happens on the ground. The bill as introduced provides a strong series of mechanisms for engagement ahead of the introduction of the visitor levy, such as the requirements around consultation and the transparency requirements around reporting and review. I recognise, with particular regard to the point that Mr Johnson raised, the asks from industry about how we can strengthen the engagement process. As I touched on when I spoke to an earlier group of amendments, I am actively considering what options we have to enhance the process of consultation, engagement and involvement, and I am very happy to engage with members ahead of stage 3 to explore those options.

We recognise that the levy is a tool that will fiscally empower local government and that locally elected members are democratically accountable to their electors as decision makers. We also recognise the strong desire from business to have involvement that goes beyond consultation prior to the introduction of a visitor levy and that can be sustained throughout the period. We also recognise that the continued involvement of businesses, tourism stakeholders or communities will be a major asset in helping to ensure that a visitor levy can deliver its full potential.

Fundamentally, I agree that the provision should be viewed as an economic development tool that can boost our local visitor economies. It will be at the discretion of local authorities as to whether they introduce it, and that will be done through a process of collaboration. Ahead of stage 3, I am happy to discuss further how we can provide reassurance around the engagement of the cultural sector—there will be opportunities and avenues to do that through guidance—and around more sustained engagement beyond consultation and what that may look like.

The case for the action that we are taking is underlined by the point that I made about the need to be proactive. I touched on the situation in which some local authorities in England have found themselves, and I am sure that no one at this table would want that to befall our local authorities. It is important to ensure that accounting practices are consistent with the standards that we all expect. The Scottish Government and the Scottish ministers have an important role, as stewards of the public finances, in ensuring that there is an appropriate regulatory environment to facilitate the standards that we seek.

As I touched on, the issue has been given careful consideration over a considerable period. That goes back to 2019, when some practices that caused concern became evident. In the resource spending review, we signposted our intention to take this action. We have consulted and, where valid points and concerns were raised, we have not taken forward the relevant measures in the amendment regulations.

We recognise that we have a responsibility to ensure that accounting practices are consistent with what is required to provide long-term stability and transparency in the public finances. Ultimately, that is the reason that underpins introduction of the amendment regulations.

As I touched on in my earlier remarks, there are differences between the circumstances in Scotland and those in England. I sought to be clear about that, as I did not want to suggest that there is full equivalence. However, on the specific point around the accounting practices, that is an area of concern that we can address.

We recognise that, across the public sector, public finances are creating significant challenges and pressures. We have embarked on broader process of engagement with local government through the Verity house agreement and the commitment to developing a fiscal framework. The local government budget settlement for 2024-25 represents a greater percentage of ministers’ discretionary spend than there was in previous years’ budgets.

Elanor Davies might wish to comment on the specific aspects of the health of local government finance compared with what we have seen in England.

As has been touched on, we have consulted. The regulations are published subject to parliamentary scrutiny, and we will continue to engage with local government and monitor the situation. Should any particular unanticipated issues arise, we would, of course, want to engage with local government constructively to remedy those.

I ask Elanor Davies to come in on those specific points and provide some additional information.

The regulations are a product of engagement and will help to provide clarity and certainty going forward, as well as the consistency with accounting standards that we want.

Elanor might want to provide some more detail on the process and consideration regarding potential retrospectivity.

Specific roles and responsibilities are exercised by the Accounts Commission, for example, in assessing the performance and financial management of local authorities. We recognise the challenges that local authorities are facing, but we are in a different set of circumstances than certain local authorities in England were in because of some of the decisions that were taken by individual local authorities. However, as I highlighted in my earlier remarks, a contributing factor was the particular approaches around accounting that we are discussing, and the way in which they were taken in England. The United Kingdom Government reacted to that; we are getting ahead of the situation by being proactive. We are ensuring that we are not creating a situation in which, over time, the level of risk increases and starts to present long-term sustainability challenges.

On this particular point, we are taking proactive action to align with the situation in England and Wales. Indeed, the action is prospective—to answer Mr Coffey’s question, there will be no retrospective effect.

Thank you, convener, and good morning, committee. With your permission, convener, I will just take a bit of time to explain what I appreciate is potentially a complex set of regulations.

In 2016, regulations were introduced to provide greater flexibility to local authorities to ensure that both current and future taxpayers are charged for their share of the capital expenditure costs of public assets that are used to deliver services.

Perhaps I can briefly explain the nature of statutory accounting arrangements. Accounting standards require depreciation to be charged against revenue to reflect the cost of the capital expenditure for an asset, such as a school, as it is used over the term that it will be used for—in other words, its useful life. The 2016 regulations replaced the requirements of accounting standards with an annual charge against revenue in the form of loans fund repayments, to recognise the costs of capital expenditure to be financed from borrowing over the term for which the expenditure is expected to provide benefit to the community.

The aim of both accounting standards and statutory arrangements is to accurately and transparently reflect the costs of capital expenditure to acquire an asset over the period during which the asset will be used. The 2016 regulations permit local authorities greater freedom to choose the term over which to charge the costs of capital expenditure against revenue, known as the repayment of loans fund advances, and to vary the period and pattern of such charges. The intention is to allow local authorities to more accurately align the period of loans fund repayment—and therefore recourse to taxpayers—with the period over which the asset will benefit the community.

However, a review of local authority financial data shows that, since 2019, local authorities have been significantly reducing their on-going annual revenue provision to meet long-term borrowing costs, despite increasing external debt, and have been deferring a substantial proportion of capital financing costs to future years. That approach has been taken as a solution to meet affordability challenges and address budget gaps instead of allocating more fairly the cost of the capital expenditure to taxpayers. That is not in keeping with the spirit of the statutory accounting arrangements, which are intended to ensure adequate provision from revenue to meet debt financing costs and an equitable charge to taxpayers for the use of the asset for which the capital expenditure has been incurred.

Furthermore, such an approach creates financial risk, as deferred repayments will have to be met in the future. Rising demand for public services and the prolonged impact of UK Government austerity on the public finances, along with economic and inflationary pressures, increase the risks that local authorities might find it difficult to service their increasing capital financing commitments. Deferring provisions to meet such commitments further exacerbates an already challenging longer-term financial outlook. The committee will not need me to draw its attention to the situation in England and the stark evidence of the outcome of such accounting practices in English councils.

We agree entirely with the evidence that I know you will have heard from local authorities that authorities in Scotland are neither borrowing excessively nor borrowing for the purposes of commercial investment, but the fact is that the practice of reversing debt financing costs and deferring those costs to future years, which has contributed significantly to the financial collapse of a number of local authorities in England, is being adopted in Scotland. I point out for information and context a House of Commons research briefing that was published last month that states that the financial collapse of Thurrock Borough Council stemmed from “two principal causes”: not only the loss of value of its assets, but a failure to make “sufficient ... revenue provision” to meet its debt repayments.

The briefing also states:

“a major cause of Slough’s financial difficulties was its failure to make sufficient ... revenue provision in its accounts to repay”

its debts. Moreover,

“Woking issued a section 114 notice”

in

“June 2023”,

highlighting inadequate minimum revenue provision since 2007-08 as a key contributor to the local authority’s significant financial challenges.

In 2020, the UK Government took steps to amend equivalent statutory arrangements for England and Wales to prohibit exactly those accounting practices that continue to be adopted in Scotland—namely to prevent local authorities from reversing costs incurred in previous years as a means of increasing reserves, and to prevent the deferral of debt repayments to future years as an affordability measure.

Although our situation and the situation in England are not identical, the amendment regulations simply align Scotland with the improvements that have been made to the statutory framework for England and Wales. Contrary to the suggestion that the regulations have been rushed through in some way, the need for a review of statutory capital financing and accounting was identified in 2019 and confirmed in the resource spending review in 2022. Despite that, local government has resisted any such review and has requested successive delays over the past two years. The committee might be aware that we consulted on a number of other reforms in late 2023, but in the light of the valid feedback from respondents, we wish to take more time to consider the implications of those reforms before bringing them forward.

No specific concerns were raised over the amendments that are being taken forward at this time, and although the UK Government intervened reactively, we are intervening proactively to protect Scotland’s public finances from risks such as the outcomes that we have seen in England. I therefore consider it to be important to deliver that alignment as soon as possible.

In summary, the amendment regulations will more clearly articulate the policy intent of the 2016 regulations and will harmonise statutory arrangements not only with accounting standards but with England and Wales, to better ensure an equitable charge to current and future taxpayers over a period that is commensurate with the benefit that an asset provides to the community.

With that, convener, I conclude. Thank you.