Chamber and committees

Unfortunately, I am not in a position to give you that information, but I will endeavour to write to the committee on that.

I have not had any direct discussions with ministerial colleagues or officials on any potential release of funding due to a rephasing of the timing of the stages of the National Care Service (Scotland) Bill. However, I am happy to explore whether colleagues have had such discussions and, if they have, to ensure that the committee is kept informed of the details.

We have to operate within accounting standards, which means operating within and being consistent with the UK fiscal framework. Perhaps Niall Caldwell can explain some of the detail.

I think that the most recent review is taking place right now. This is an on-going learning process. The cabinet secretary, Kate Forbes, and I, in my role as public finance minister, have both been strongly committed to seeking to provide as much information as possible to the finance committee and to Parliament to assist in scrutiny and understanding.

However, this is an iterative process. I recognise that having these twice-yearly budget revision events might be insufficient to progress the type of change that we want to see in presentation as quickly as we would like. It might be useful for dialogue to take place with the finance committee, perhaps along with one of the budget review sessions, to consider that more formally.

I appreciate that it is for the committee to determine its own work programme, but if the committee has any more general reflections on having something beyond a specific presentation of a specific spring or autumn budget revision, I would be keen to hear them. Transparency and engagement are at the heart of not just our framework for tax but how we want to go about the business of ensuring that Parliament can come to decisions based upon the most accurate information possible, which is as easy to grasp as possible. A priority for me is trying to ensure that members of the public have the fullest understanding without having to wade through dozens and dozens of pages of dense, technical language and a lot of numbers.

It is an open invitation—I am keen to have that engagement, because it is very important. There are a lot of things that we have drawn out in this session. I recognise that members take a keen interest in specific budget lines and it can be difficult to give the authoritative answers that I would like to be able to give, given the breadth of possible questions that may arise.

I recognise the points that the convener, Mr Gibson, has made with regard to different aspects of the budget—discretionary and non-discretionary—and the points that Mr Johnson has raised with regard to presentation relative to the last budget revision, compared with the budget as passed by Parliament.

We can draw a number of things from this meeting. I would be keen to have an on-going dialogue about how we can improve the presentation.

This may sound as if I am shifting that position, which I do not mean it to, but the Government has to decide how much information to provide. We do not want to overload you, because we appreciate that you have many other things to consider. We could give you 50, 100 or 150 pages, but that would become more challenging and would probably raise suspicion about what is in there that might be missed.

I am keen to have that dialogue to understand what would be best for the committee and what would assist you as custodians of the Parliament’s responsibility for financial scrutiny, and I am keen to work collaboratively to deliver a better product for you, Parliament and the public to utilise.

I have two points. First, the forecasts that we operate within are a matter for the Scottish Fiscal Commission, which is directly accountable to Parliament. I understand, Ms Thomson, that you are asking about the processes and methodology that inform our in-year budget monitoring and how we go about that. This is axiomatic: if there are new and novel spending lines, or if new taxes are devolved, it will take some time to get a sense of how any estimates and forecasts are borne out by reality. That is something for the SFC to consider when new taxes are devolved.

Internal processes for in-year budget monitoring are led by officials. Niall Caldwell can give an overview of how continuous learning takes place.

Good morning. My sincere apologies for my delay in arriving, and my sincere thanks to the committee for being so accommodating.

The spring budget revision provides the final opportunity to formally amend the Scottish budget for 2022-23. It contains the usual four categories of changes. The funding changes increase the budget by £502.3 million. They include the provision of £427 million to health and £200 million to Ukrainian resettlement.

As usual, there are a number of technical adjustments, Whitehall transfers and transfer of funds between portfolios. The supporting document to the spring budget revision, and the finance update that was prepared by my officials, provide background on the net changes. It is necessary to reflect those adjustments to ensure that the budget is consistent with the accounting requirements and with the final outturn that will be reported in our annual accounts.

However, there are a number of differences between how expenditure is classified for the Scottish budget and how it is classified by HM Treasury—which, ultimately, governs how we deploy our discretionary resources. The finance update provides some more detail on those differences, on the movements in funding since the spring budget revision was laid in the Parliament, and on the wider fiscal context in which we have to operate. It includes an annex that details how our resource borrowing limits are calculated.

I will be happy to answer any questions that the committee may have.

I ask James Messis to provide background on that.

I think that the dispute mechanism is robust and that it provides sufficient flexibility. It is also important to recognise the impact on ratepayers. Avoidance measures are fundamentally unfair and disadvantage people who engage in legitimate practice.

I ask James Messis to address your specific points about the dispute mechanism and what recourse there is in the event that an occupier disagrees with a local authority.

Good afternoon. The draft instrument under consideration is quite technical, but simply put, its intention is to assist councils from 1 April 2023 in tackling known non-domestic rates avoidance arrangements.

The measures that are set out in the regulations are unique in the UK. Tax avoidance in non-domestic rates takes place when a ratepayer seeks to reduce or avoid the liability on their property through activity that, although permissible within the existing legal framework, is not in keeping with the spirit of non-domestic rates law.

In 2017, the independent Barclay review of non-domestic rates recommended that a general anti-avoidance rule be created to make it harder for loopholes to be exploited. Subsequently, the Non-Domestic Rates (Scotland) Act 2020 provided powers that enable Scottish ministers to make regulations

“with a view to preventing or minimising advantages arising from non-domestic rates avoidance arrangements that are artificial”.

The relevant terms are defined in the 2020 act.

We committed to utilising those powers, including in the programme for government 2021-22 and the Bute house agreement. The draft regulations that are before the committee deliver on those commitments. They aim to strike the right balance between empowering councils to tackle rates avoidance and allowing property owners and occupiers to engage in business practices that are carried out for a reason other than simply tax avoidance.

The first target of the regulations is the artificial use of insolvency, particular leasing arrangements and shell companies. Within prescribed circumstances, councils will be able to make the owners, rather than the occupiers, of non-domestic properties liable for the payment of rates. In those circumstances, non-domestic rates relief awarded to the property would cease.

The regulations have a number of built-in safeguards to protect legitimate operators. First, the triggers for the transfer of rates liability are not actionable unless it is a non-domestic rates advantage, such as an outstanding non-domestic rates liability. Further, the circumstances in which a council may transfer the rates liability from the occupier to the owner of the property are carefully defined and include tenancies that are not on a commercial basis, insolvency in conjunction with other artificial indicators, and specific characteristics and behaviours of the occupier.

Councils must notify the property owner of any intention to transfer the rates liability to them and must provide an opportunity for the owner to make representations before a final determination is made. Only if there has been a similar offence within the past five years can there be a retroactive transfer of liability from the start of a given artificial lease agreement.

The second target of the draft regulations is rates avoidance through a reduction in rateable value by making deliberate physical changes to the state of a property solely for the purpose of reducing the rates liability. That can include intentional property destruction. The conditions for the use of the relevant power are set out in the regulations and are necessary to support the devolution to councils of the responsibility for empty property relief.

As is the case with the other provisions in the regulations, it is not intended to target legitimate enterprise. In all instances in which the council questions the appropriateness of any arrangement, the owner will have the opportunity to demonstrate its commercial rationale.

The draft regulations were subject to consultation with industry experts and practitioners, including assessors and local authorities, through the Institute of Revenues Rating and Revaluation. I thank everyone who engaged with Government officials on that.

Tax avoidance reduces public revenues and is unfair to the majority of ratepayers, who do not engage in such practices. The presence of avoidance behaviours can also undermine public confidence in the non-domestic rates system and lead to reduced rates of compliance. It is not just appropriate but necessary that we bring forward regulations to tackle tax avoidance where we can and ensure greater fairness and transparency in the non-domestic rates system. As such, the regulations support the principles of the Scottish Government’s “Framework for Tax” and align with the strategic objectives that the framework contains.

I hope that members agree with me and will support the draft instrument.

Sufficient flexibility is built into the regulations so that the local authority, as the effective tax authority, can engage with owners, and there is an opportunity for owners to engage following a local authority’s giving of a notice. I ask James Messis to expand on that slightly.