Chamber and committees

Specifically on LBTT, as I referred to earlier and as one would expect, monitoring will be done by Revenue Scotland and data will be published. In addition, LBTT revenue can accrue following the end of the exemption period, given that development that takes place now can enable and facilitate future development. You could almost say that LBTT could wash its own face in that regard, before we consider the broader impact of tax.

The monitoring and engagement of each of the freeports will assist us in identifying the level and type of job creation and the type of economic activity that is taking place. Laura, do you want to add anything about the economic impact?

The rationale that I have sought to set out, specifically on LBTT, is that they are sites that would otherwise not be developed. They would remain as they are, or underdeveloped. The intention of the incentive, beyond the points that I made about parity with the UK freeport model, is to incentivise investment in sites where development would otherwise not take place.

A trickle-down approach relates to things that would otherwise take place through alternative models or vehicles. It is also predicated on the notion that people on high incomes will spend their money in ways that are economically, socially and environmentally impactful rather than hoard it in assets or offshore.

It is about getting investment on the ground and development of land in Scotland that would otherwise not be developed or not be developed to its full potential.

The tax designation sites are very specifically drawn, with clearly defined boundaries. Clearly, overall, green freeport sites are chosen for a number of reasons, against criteria, but place is an important part of that. Those sites in particular parts of Scotland will have comparative advantages, but we are seeking to remove barriers to investment that would perhaps not take place elsewhere but that can take place at those sites if those barriers are removed. Again, on the point about displacement, there is potential investment that would not necessarily take place were the reliefs not in place.

I am not going to try to outthink the SFC on this and say exactly that. The point that I am making is that, if we adduce the evidence that is available—the past revenue from leases as a proportion of overall LBTT, and the assessment in the SFC’s May 2023 “Scotland’s Economic and Fiscal Forecasts” that the relief would fall below the materiality threshold—we find that we are talking about a relatively small amount of money compared to overall LBTT revenue, never mind the whole of devolved and semi-devolved tax revenue. However, that is not to say that the relief does not translate into a meaningful impact on individual transactions that can positively influence commercial and investment decisions.

No, we do not, which is why I referred to the general avoidance principles that Laura Parker touched on when she commented on that area. Today, we are considering the LBTT order, which seeks to incentivise development that would not otherwise have taken place—

I would point to our broader programme of infrastructure investment, which has been set out. The committee will recognise the challenges that we face with regard to our capital budget and the challenges of delivering projects due to cost inflation, which is an issue that is not unique to Scotland; it is having an impact right across the UK and in many countries. Therefore, there is that broader framework. Our capital spending will be kept under review with regard to timing and the phasing of what is feasible within the capital that is at our disposal and the cost of projects. Parliament is well versed in that from engaging with specific capital project issues.

With regard to the particular sites of the green freeports, clearly there will be interaction with broader projects such as the example that you cited of the A9. I have already touched on the point about specific local impacts and we will continue to have that dialogue and engagement to understand any issues as they emerge.

I should also note that, for each of the two sites, there is the seed capital funding that I referred to earlier, which will be available once the sites are active and online.

I cannot speak to the commercial decisions or operating arrangements of companies. If companies are operating in a way that is compliant with overall UK tax law and are in a position where they are making an investment, they would be treated just as any other company, depending on how it is constituted—

The important point about the control period is that if development does not take place within three years the relief can be withdrawn. Ultimately, the relief will take place and be utilised only if development takes place on the ground. It is about attracting investment into specific sites and seeking to incentivise and unlock development in sites that would not otherwise see development or—as I said previously—would not be developed to their full potential.

We do not have specific plans to extend the period beyond five years. Part of the logic of five years is to have parity with freeports in other parts of the UK. If the Parliament approves the regulations, the permissive environment for the LBTT relief to come into effect will begin on 1 October, but the relief can be claimed only following tax site designation, which is a process that involves HM Revenue and Customs and HM Treasury. The period is five years to ensure that there is parity with the offer that is being made elsewhere in the UK.

We anticipate that there will be early investment and we recognise that some investment will take place to enable further investment to take place at a later date within the five-year window. Of course, we will keep the overall five-year period under review should there be any delays or unanticipated problems regarding tax site designation. I stress that the five-year timeframe is to ensure that there is consistency and parity with the offer that is available with freeports elsewhere in the UK.

There is “underdeveloped” and there is “undeveloped”. I think that there is also obviously going to be a relation between the two. For some sites to reach their development potential, it will require other developments to take place around that—not to give too convoluted an answer. This is about helping to allow areas to realise their full economic potential. The LBTT relief is designed to support those developments to take place which, as I stated earlier, would not otherwise take place.

As regards what we would define as “underdeveloped”, there will, of course, be variations from place to place. This is a place-based approach, so there will clearly be some latitude in what “underdeveloped” means in specific instances and circumstances, based on the context. Laura Duffy might be able to add something about the terminology more broadly.