Chamber and committees

Thank you very much, convener, and good morning to the committee.

The draft instrument under consideration has a twofold purpose. First, it is intended to provide councils with discretion over the council tax treatment of second homes. If introduced, it will enable councils to charge up to a 100 per cent premium on second homes. The instrument also seeks to allow councils to grant a six-month grace period from the 100 per cent empty homes council tax premium, which is aimed at incentivising the reoccupation of empty homes. The regulations seek to deliver both changes with effect from 1 April 2024.

In the spirit of the Verity house agreement, both of the policies contained in the instrument have been developed in partnership with local government. Last year, I convened the joint working group on sources of local government funding and council tax reform, which was co-chaired by Scottish ministers and the Convention of Scottish Local Authorities. That group has considered and endorsed the final policies in the instrument.

In April 2023, we published a consultation in partnership with COSLA on the council tax treatment of second and long-term empty homes. That consultation sought views on giving discretionary powers to local authorities to increase the rate of council tax on second and empty homes, and the 100 per cent council tax premium on second homes received majority support from respondents to the consultation.

The discretion to apply to second homes a discount of up to 50 per cent or a premium of up to 100 per cent ensures parity with the treatment of long-term empty properties. If implemented, the discretionary power would put councils front and centre in deciding how to achieve the right balance in the use of housing to meet local needs, enabling them, where necessary, to encourage more residential accommodation to be in occupation and used as homes for living in. That is consistent with our intention, set out in the Verity house agreement, to provide greater flexibilities to local government. It also dovetails with the Scottish Government’s “Housing to 2040” strategy, which commits to providing local authorities with greater discretion to encourage greater occupancy of second homes. It should also be noted that the UK Government has very recently legislated to provide councils in England with the same power to apply a 100 per cent council tax premium on empty homes.

Let me turn to the empty homes grace period that is contained in the instrument. The issue was considered by the joint working group following the publication of an independent audit report on the effectiveness of Scotland’s long-term empty homes policy that was produced by Indigo House. That report recommended that the council tax premium on empty homes could better incentivise bringing empty homes back into use. Reflecting on that recommendation, in partnership with COSLA, we agreed that the council tax premium on empty homes could be a disincentive to bringing empty homes back into use when a long-term empty property changes hands after a sale.

Therefore, the regulations provide for a six-month exclusion from the 100 per cent council tax premium when a long-term empty property is purchased by a new owner and renovations or repairs are being undertaken, and local authorities will have discretion to extend that six-month grace period. The measure will prevent the empty homes council tax premium from becoming a deterrent to new ownership.

The draft regulations that have been laid before Parliament deliver on our commitment to a fairer housing and taxation system. They empower local authorities to make decisions about the council tax treatment of second homes in determining the balance in the use of housing to meet local needs. They recognise that local areas differ across the country and that what may cause pressure in some communities could equally provide a benefit to others.

Convener, I will conclude there. I hope that members will agree to support the instrument today.

We want the discretion and flexibility of the existing premium on empty homes to apply to this measure. As I say, we are committed to engaging with COSLA in dialogue on joint guidance. We recognise that it is a discretionary power for local authorities, so we want the approach to how the revenue is used to be consistent with that discretion.

That is demonstrative of our commitment to address the issues. We are utilising all the powers at our disposal in the progression of our wider ambitions around housing to 2040. It was identified via the housing audit report, which I referred to in my opening statement, that the 100 per cent premium on empty homes could act as a disincentive for those who are purchasing empty homes. The regulations help to address that through the six-month grace period. Individual local authorities also have the discretion to extend that period, but that is a matter for them.

I understand the premise of the question. It is inherent in our empowering local authorities to have that discretion that variation will be part of it, but it will be a matter for local authorities to determine. It is a shared ambition with local authorities to ensure that we bring as many empty homes back into use as possible, and I am sure that that will inform the decision-making process that local authorities follow. The discretionary elements across the board that we have discussed today are, however, matters for local authorities to take into account. Ultimately, they reflect the fact that local authorities are democratically accountable to their electorates. James, do you want to make any further points?

As, I am sure, the committee appreciates, the changes in Wales were relatively recent. As you would expect, we continue to have dialogue at official level with the Welsh Government and, indeed, with our colleagues in the UK Government. We will, of course, monitor with interest developments in Wales as more evidence becomes available. As you highlighted, in our consultation we posed the question whether there should be the option to go beyond a 100 per cent premium, and we are reflecting further on that in the on-going work of the joint working group.

In a broader sense, we will continue to monitor that and keep it under review. I appreciate that I am coming back to this point, but it will be for local authorities to consider what monitoring of any behavioural response takes place and, in doing so, to reassess whether any policy decision that they take in utilising the power has had the desired effect.

More broadly, we considered the existing thresholds for non-domestic rates in the consultation, but we recognise that the existing thresholds are relatively new. Therefore, we propose not to make any changes at this stage; rather, we will allow those to bed in further.

The consultation focused specifically on the provisions that we are considering today, the other matters to which I have referred and potential ancillary issues around non-domestic rates, of which you will be aware. That is the overall package of proposals that was considered in the consultation.

Clearly, a range of work is under way across local and national Government to increase the supply of housing. I recognise that no single policy will act as a solution to all the challenges that we currently face, but this is one tool that will become available, should Parliament agree to it, as a discretionary power for local authorities. It will be for local authorities to consider the utilisation of this discretionary power in the broader context of the policy tools that they have at their disposal.

The joint working group is considering that as part of its broader programme of work. Moving beyond what is in the regulations would require primary legislation. At this point, the joint working group is carefully reflecting on what emerged through the consultation and its analysis.

We continue to engage with local authorities. Should Parliament agree to pass the regulations, local authorities will have the option to introduce the measure from 1 April next year. I recognise that some local authorities are actively considering it. A period of time would need to pass before we would be in a position to assess the impact of such a policy intervention on a particular local authority and to consider the impact in the various geographies of a local authority and on different local authorities. We would consider those impacts over time.

Local authorities would, of course, monitor the efficacy of the policy. Our continued engagement in dialogue, as per the Verity house agreement and, for that matter, the joint working group, would provide a forum for that. We all recognise that, if any local authority were to introduce the measure in April next year, we would need to allow it some time before making any initial assessments. Of course, there will be on-going engagement and dialogue throughout that process.

On the latter point, through the joint working group, we are engaging with COSLA to produce joint guidance in that space. More broadly, the relative number of second homes in different local authorities will be a factor in the disparity that exists between councils. It will also come down to whether a local authority chooses to utilise this power, and a number of different factors will bear upon that decision for a local authority. As I touched on in my previous answer, we will continue to engage with local authorities to monitor and understand any impacts of the policy that are observed and how they relate to the revenue that individual local authorities raise.