Meeting of the Parliament

Meeting date: Tuesday, September 12, 2017

Official Report 880KB pdf

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Barclay Review of Non-domestic Rates

The next item of business is a statement by Derek Mackay on the response to the report of the Barclay review of non-domestic rates. The cabinet secretary will take questions at the end of his statement, so there should be no interventions or interruptions.

16:01  

Three weeks ago today, Ken Barclay published his report on non-domestic rates in Scotland. He and his team of Professor Russel Griggs OBE, Isobel d’Inverno, Nora Senior CBE and David Henderson produced a thorough report and I take the opportunity to thank them again and commend them on their contribution.

As members will recall, I said that when I received the report, I would respond quickly. Last week, in the programme for government, the First Minister set out that we would immediately take forward four of the recommendations from the Barclay review: holding more regular revaluations; introducing a new relief for day nurseries; expanding fresh start relief to create a greater incentive to bring empty properties back into economic use; and reviewing plant and machinery valuations.

A key matter is the frequency of revaluations. I agree with Barclay about the need for more regular revaluations and, as the review suggests, after the 2022 revaluation, they will take place every three years. Crucially, we will also ensure that the tone date is brought forward from two years prior to one year prior. In combination, those measures will help to ensure that our ratings system is more flexible in the changing economic circumstances that businesses face, and they will reduce large shocks, such as those that some experienced earlier this year.

I propose that the new relief for day nurseries will commence on 1 April 2018 and will be a full 100 per cent relief. Scotland has always been a leader in education and childcare, and this is the first relief of its kind anywhere in the United Kingdom.

Fresh start relief, which I introduced in 2013, will also be expanded from 1 April. I accept the Barclay proposal that the relief should increase from 50 to 100 per cent for the first year of new occupation and that it should be available after a property has been empty for six months rather than the current 12. Those changes are suggested to help to bring empty town centre properties back into use. However, to stimulate the whole economy and reduce the number of properties that are sitting vacant, I will go further still and make relief available for all types of property, including industrial property.

The Barclay review of plant and machinery will commence shortly, and I will ensure that it fast tracks the valuation of hydro schemes, as an early look at that is essential to secure inward investment in Scotland.

Following on from our swift acceptance last week of those four recommendations, I will now outline my fuller response to members. My response has been informed by a number of meetings that I have held with a range of organisations since publication to discuss the report and how it should be implemented.

It is a measure of the importance that we place on the economy that we commissioned the Barclay review in the first place. The report made 30 recommendations to boost economic growth, improve administration and increase transparency and fairness. It did so within its remit of revenue neutrality.

Of the recommendations that the programme for government did not cover, I confirm that I intend to move now to implement the vast majority, subject to any legal or regulatory considerations, the budget process and, of course, the will of Parliament. We will consult further on some before taking a final decision before the end of this year.

The first recommendation in the report—the flagship recommendation—is the business growth accelerator. Of all the recommendations, Barclay felt that that would give Scotland the edge in attracting investment and growing the economy, and I agree. Developing our economy and supporting business to invest and grow is central to the Government’s activity. I accept the recommendation and I will include the accelerator in the draft budget for 2018-19. My firm view is that it will give Scotland’s businesses a competitive advantage and provide the economy with a welcome boost.

However, on this crucial recommendation, I will go beyond Barclay. From 1 April next year, I will ensure that no new-build property pays a single penny in rates until it is occupied for the first time. I have met the assessors and they have agreed to the principle of delaying the entry of new property on to the valuation roll. I will also withdraw the 2009 completion notice guidance that is issued to finance directors. I urge the business community and developers alike to consider precisely what that means. A new-build property will not pay rates until it is occupied, and its tenants will then benefit from one year without rates through the growth accelerator. Combined with the more favourable rates of land and buildings transaction tax on commercial transactions, that will mark Scotland as the most competitive place in the United Kingdom for businesses to grow and invest.

I will set out our position on each of the other 19 recommendations. I note that Barclay concluded that the large business supplement should be reduced to 1.3p and, over this session of Parliament, I will do that should it become affordable. I will consider that for future years’ budgets.

Barclay made a number of recommendations about the provision of information and standardised billing, and today I issued invitations to stakeholders to sit on an advisory group to inform some of the administrative reforms. In the longer term, that group will also feed into the development of online billing. I agree with Barclay that transparency over how relief is awarded will also help to improve understanding, so I accept recommendations to publish data on which properties are in receipt of relief.

The Government is committed to the small business bonus scheme. However, as Barclay recommended, a review will be undertaken to ensure that we maximise the scheme’s economic and social benefits.

Barclay recommended that assessors need to improve their service in a number of areas and, having met the Scottish Assessors Association last week, I can confirm that action to address that is already under way. I have asked the association to present me with its implementation action plan by the end of this month.

Ratepayers must also play their part in improving the system; ratepayers need to provide assessors and councils with the information that they need to do their job, so I accept recommendations on creating new civil penalties. If the information that goes into the system is better, that should mean that valuations are more accurate and that reliance on appeals is reduced. I agree with the principles that should underpin the appeal system as it moves into the Scottish tribunals in 2022, and I agree that the appeal system should allow rateable values to be corrected upwards as well as downwards from that point onwards.

Councils also need to improve the service that they offer. I remind them of the need to issue prompt repayments to ratepayers. Debt recovery for both local taxes—council tax and non-domestic rates—needs to be brought into line, so the time for rates debt recovery will be brought forward.

The Government is committed to reducing tax avoidance and, where we have control, we have taken steps to do just that. I welcome the Barclay recommendations on closing off specific known avoidance tactics and on the creation of a general anti-avoidance rule to help to future proof the rates system by closing loopholes and addressing avoidance tactics that may emerge over time.

In the shorter term, a commercial rateable value finder product will help to ensure that all property that should pay rates does pay rates. Errors may also occur in the award of relief and, with immediate effect, the Scottish Government will initiate administrative checks of the various data that it receives for errors.

After engaging with stakeholders, I believe that a small number of recommendations merit further thought and engagement. That is entirely in keeping with Barclay’s recommendation 8 that, wherever possible, the Scottish Government should consult on changes to the rates system in advance of their implementation. The recommendations that require further consideration and engagement are those on removing charity relief for certain recipients, including arm’s-length external organisations, independent schools and university accommodation; on reforming relief for sports clubs, empty properties and properties in active occupation; and on the levying of rates on parks.

On each of those areas, I will continue engagement to fully understand the impact and any wider implications and possible unintended consequences, before outlining my position in the implementation plan that I propose to publish later this year. The issues will be considered individually and the most appropriate route forward will be taken for each.

Finally, I have decided not to take forward two recommendations at this time. I will not progress the option to put farms on the valuation roll or the option to levy rates on commercial agricultural processing. Those recommendations would create a significant administrative burden on the assessors at a time when their focus must be on improvements to the service that they provide and the move to more frequent revaluations. More important, in not taking forward those recommendations, I want it to be clear to the sector that the Government recognises the invaluable contribution that it makes to our economy.

My message to business after announcing this package is clear: come to Scotland, invest in Scotland and grow your business in Scotland. Today, I publish a full response to the Barclay report and I commit to producing a full implementation plan before the end of 2017. As members will be aware, a range of actions are required to enact the recommendations that I have accepted.

Before I close, I take the opportunity to announce that the cap for offices in Aberdeen city and Aberdeenshire and for all but the largest hospitality properties will continue next year, with an additional 12.5 per cent cap in real terms. I encourage the sector and assessors to work together to explore alternative methods of valuation. Additionally, until the review of hydro plant and machinery valuations has concluded and until any recommendations are implemented, I will offer a new relief of 60 per cent for hydro schemes from 1 April 2018, subject to an upper value threshold.

The Government leads and innovates in using the limited economic powers that are at our disposal. Today, I am using those powers to create a fairer and more transparent rates system that better supports economic growth.

This statement outlines the Government’s position on the Barclay review. The recommendations that we will take forward and the additional measures beyond Barclay that I have announced demonstrate our ambition for the economy and our desire to work with the business community to deliver on that ambition. Once the measures are implemented, we will have a rates system that is fairer, more responsive and geared for growth.

I commend the statement to the Parliament.

The cabinet secretary will now take questions on the issues that his statement raised. I intend to allow 30 minutes or so for questions, after which we must move to the next item of business.

I thank the cabinet secretary for his statement and for providing advance sight of it. I join him in thanking Ken Barclay and his team for producing their report, which gives us all much to consider.

We agree with a great deal of what the cabinet secretary announced. In particular, I welcome the move to three-yearly revaluations, the standardisation of bills, the new relief for day nurseries and the new exemption for hydro schemes. I also welcome the proposals to exempt from rates empty new-build properties and the indication that there will be a reduction in the large business supplement, although I gently point out to the cabinet secretary that, in both those cases, he is simply reversing damaging policy choices of his predecessor, Mr Swinney.

I have two questions for the cabinet secretary. First, the cap on increases for hospitality premises and offices in the north-east is stated to be an additional 12.5 per cent in real terms for next year. For the avoidance of doubt, will he confirm that that figure is cumulative with this year’s cap, which will mean that the affected businesses will face increases of up to 30 per cent or so over two years?

Secondly, I note that the cabinet secretary is keeping alive the possibility of ending rates relief for sports clubs and local authority arm’s-length organisations that run swimming pools, gyms and leisure centres. As I have pointed out before, that measure would undermine Scottish Government policy on encouraging active lifestyles and tackling obesity. Why will he not join us in ruling out that damaging Scottish National Party swim tax?

I am now not surprised that the Conservatives did not submit evidence to the Barclay review and that, when they were challenged after the report was published, they did not submit any thoughts for me to consider in advance of the statement. In fact, the only political party in the chamber that took the review seriously was the Scottish Green Party, which offered suggestions. It appears again that, other than welcoming a range of actions to which I have committed the Government—I welcome Murdo Fraser welcoming much of what I propose—the Tory party is bereft of ideas for how to improve the rates system. I can only imagine how depressed Murdo Fraser was when he read my statement and realised what a fantastic package we were proposing for Scotland.

On the two questions that he asked, there are areas that I have said require further consideration and engagement. The recommendation on ALEOs and sports clubs is in that category. In keeping with the Barclay review’s recommendation to engage further, that is what I will do. The Government has moved swiftly on the issue, but it is appropriate to take the time to get it right. The Conservatives are again arguing for more spending and tax cuts at the same time, which shows the economic mess that they are in and shows that they do not understand what is before them.

The member made a request in relation to the cap that I propose for the hospitality sector and offices in the north-east. I have had correspondence from that sector and from businesses in the north-east. When asked what would feel like a fair increase, given the recommendations of the assessors—who are independent of the Scottish Government, although the Government intervened to place a cap on the increases in the hospitality sector and on properties in the north-east—they welcomed the 12.5 per cent real-terms cap. The Aberdeen and Grampian Chamber of Commerce and the British Hospitality Association felt that an additional cap of 12.5 per cent would be fair, and that is exactly what I propose.

I welcome much in the cabinet secretary’s statement and the Barclay recommendations, particularly the exemption for children’s nurseries, which my Labour colleague Daniel Johnson suggested. I also welcome the relief for hydro schemes, which will potentially help projects in my constituency.

At the start of the review, the cabinet secretary said that it needed to be revenue neutral. Today, he announced measures that I believe are well in excess of £55 million but gave no indication of revenue-raising measures. Is the review still revenue neutral and, therefore, does he anticipate the gap being taken up by sports clubs, local authority arm’s-length organisations and others?

I welcome the extension of the 12.5 per cent cap, but businesses are still struggling. Business organisations tell me that local authorities are managing the cap in very different ways. Some manually adjust the bills so that the cap applies immediately. Others insist that businesses apply for a rebate. That takes time and, in the meantime, businesses have to pay in full. That is also true for businesses that are caught up in the appeals system. Will the cabinet secretary take practical action now so that businesses can benefit fully from the 12.5 per cent cap?

That could be characterised as quite a generous contribution from Jackie Baillie, but I would point out that the Labour Party also failed to submit anything to the Barclay review and failed to give me anything in terms of priorities.

Come on.

The Barclay review was commissioned before Daniel Johnson was a member of Parliament, so it is some feat if he was able to influence it then. That said, I think that the new relief for nurseries will be warmly welcomed. It is very much in keeping with this Government’s policy of supporting nurseries and the expansion of childcare provision.

It is good going for the Government to receive a request from particular sectors—by that, I mean specifically a request for a 12.5 per cent real-terms cap—and for the Government to agree to that. That is why we have been able to take a range of actions before, during and after revaluation to support businesses. I look forward to the response of the business community to the recommendations that I have accepted today. Indeed, I have gone beyond Barclay in terms of ensuring that our strategy is geared for growth.

On the issue of revenue neutrality, it is correct to say that the remit of the Barclay panel was to be revenue neutral in its recommendations. However, the decisions that the Government takes will be taken in accordance with the budget and the negotiations that I have, and it will ultimately be for Parliament to approve the budget. Today, I am announcing the Government’s intentions, and that will of course require parliamentary support. I look forward to the positive engagement of all parties in this chamber in working with me to deliver a budget that delivers the recommendations that the Opposition parties tell me that they support. In that sense, it is a wee bit harder to do all the good stuff and not tackle some issues for revenue raising. However, on those areas that I am not progressing with today, as I have said before and will say again, I want to explore them thoroughly and ensure that I engage with and consult stakeholders and take into account their views. That is what I have been doing since the publication of the Barclay report.

Fifteen members want to ask questions—the clue is in the word “questions”. I ask for concise questions, and concise responses would be helpful.

I welcome that the Scottish Government will consult before any reforms of rates relief to ALEOs. I ask the cabinet secretary to approach any change with great caution to ensure that people using leisure facilities such as those that are run by Glasgow Life do not suffer any unintended or detrimental consequences. I also ask him to be similarly wary of any blanket exclusion of ALEOs applying for sports club relief, which might have similar unintended consequences.

I think that that was a question.

It was two!

I will take the time to engage with people to ensure that we have a balanced approach on that and other matters.

The cabinet secretary will be aware that a number of organisations have raised concerns about the methodology that is used to calculate rates in the hospitality sector; I reminded him about that in writing only yesterday. Rates in this sector are calculated—

No, I want a question.

What substantive measures will the cabinet secretary take to change the methodology that is used in the hospitality sector to calculate rates, because the temporary sticking plaster of a cap does not address the underlying concerns that have been raised by the Scottish Licensed Trade Association—

No, you are going on too long.

First, let us see what the hospitality sector says about the package that I have announced today. I am beginning to wonder whether Dean Lockhart has read the report or, indeed, understands that I cannot direct the assessors in the fashion that he has described. It is a matter for the assessors to judge what methodology they use. However, I agree—I have said this to assessors—that they should consider issues of methodology. Further, no matter what, I am proposing a cap for that sector, in order to support it as the issues of methodology are considered in the interests of finding out whether there is a better way to value those particular premises. I know that that will be warmly received by the sector and that assessors will engage in the process in a constructive manner.

As a north-east MSP representing Aberdeenshire, I am pleased to hear that the transitional relief for the north-east will be continued by the Government. The cabinet secretary will know that Aberdeenshire Council and Aberdeen City Council—

Question, please.

—have implemented local relief schemes. Will he join me in calling on both councils’ administrations to match the Scottish Government’s commitment to the region with the continuation of these local relief schemes?

Yes, I concur with that point. Under the Community Empowerment (Scotland) Act 2015, any council can devise any scheme that is appropriate to reflect local circumstances. Three councils have chosen to use those powers, and I encourage all councils to look at those powers to see what else is appropriate to local circumstances. I encourage those areas that have delivered a local scheme to continue, especially in view of the commitment by the Scottish Government to continue with the support that we have announced today.

Given the remit of the Barclay review and the fact that it asked only one question, does the cabinet secretary agree that such a narrow remit and one solitary question is not the thorough and comprehensive review of the whole system that was promised by him in 2013?

In his statement, the cabinet secretary claimed that adding farms would be a “significant administrative burden”. As most farms will soon be on the roll anyway, because of the reintroduction of sporting rates, will he therefore reconsider his opposition?

On agricultural matters, if there is no intention to tax those properties, I do not see the value in adding them to the roll.

On the matter of the wider consideration of alternatives to a property tax, it is not true to say that Barclay did not consider that matter. It did, and it said in the report why it ruled it out and came to the conclusion that, while a property tax is not perfect—it did not find a perfect property tax anywhere in the world—with refinement, it can absolutely deliver.

As the Cabinet Secretary for Finance and the Constitution has effectively admitted that the proposals will not be revenue neutral, how much will the measures cost?

That is an absolutely sparkling question—you taught them all that, Mr Rennie.

My estimation of the cost of the announcements today is approximately £80 million.

Given that some nurseries in my constituency were facing a doubling of their bills, I welcome the fact that the cabinet secretary has listened to my calls and advice on nurseries—I am very appreciative of it. However, that raises the question about how the revaluations were arrived at. I note the moves on data collection, but what reform will the cabinet secretary take forward to improve the transparency of the calculation on revaluation, so that all businesses can understand how their rates bill was arrived at and not just how much it is?

That was a nice try by Mr Johnson to take credit for my announcements, but I am afraid that my announcements are my announcements. In the spirit of consensus, if the Labour Party has any further ideas that it would like me to consider, I ask it please to do so constructively within the budget process.

On the specific question of how the assessors arrived at their values, maybe Mr Johnson, like many other members in the chamber, should realise that it was not me who undertook the revaluation; it was the assessors, who are independent of Government. Mr Johnson would be well advised to direct his question to them.

The cabinet secretary rightly focused on growth and investment to make Scotland more competitive. What impact does he anticipate that those changes will have on economic growth on an annualised basis, once they are fully implemented?

That is a very good question. It is difficult to quantify at this stage what the changes will mean by way of growth. I am convinced that the recommendations that I am progressing with today will generate growth, support our economy and allow for a fairer and more transparent rates system. With regard to showcasing what Scotland can do, that will give us a competitive advantage on non-domestic rates and will set up, in a number of areas, advantages that do not exist elsewhere that should deliver on our economic strategy.

What assessment has been carried out on the affordability of reducing the large business supplement in this year’s budget?

It may be news to Mr Bowman, but I have not produced this year’s budget. I understand from announcements that the United Kingdom budget may well be on the 22 November, so I look forward to constructive dialogue with all the parties on what may be in this year’s budget. I hope that the Conservatives will take a far more constructive approach than they did last year.

I warmly welcome the cabinet secretary’s statement, in particular the on-going 12.5 per cent cap for hospitality businesses and exemption for nurseries in my constituency, which I too called for, very loudly. Is the cabinet secretary aware that the rates revaluation had a disproportionately negative impact on Moray businesses, which was out of sync with local economic factors? His reference to the sector and assessors having to work together to explore alternative methods of valuation is extremely important if we are to avoid that in the future. Will he attach a timescale of when he expects to hear back from that work?

The question in there was: is the cabinet secretary aware? That was a cute way to do it.

Mr Lochhead has been proactive and vocal on those matters, including on the implementation of the reliefs that were announced, if memory serves me correctly, in March this year. I agree with the points that Mr Lochhead made.

Given that the Barclay review states that unfair advantage has been gained by private schools due to charitable rates relief and that it should be removed by 2020, with which I agree, when will the further report on that come forward? What opportunity will there be to scrutinise the Government’s decision on that specific issue?

By any standard, the Government’s response has been swift. We received the report some three weeks ago and the First Minister responded on the first day back in Parliament. I am addressing matters now and will publish a statement of intent on our policy position on the recommendations. Further, as I have said, there will be an implementation plan, because some of the recommendations will require statutory legislation, some will require secondary legislation, and others will require guidance or directions. Therefore, I propose to come back with a position on the implementation plan, which will concluded by the end of the year, and on all remaining matters.

Will the cabinet secretary expand on the measures that he is taking forward on the back of the Barclay review to ensure that more vacant property—such as in my constituency of Coatbridge and Chryston, particularly in the town centre—is brought back into use?

The Barclay review specifically suggested looking at empty property rates relief and further incentives for occupying empty properties. As one example of that, I will expand the fresh start relief that I introduced in 2013, which I hope will be a further stimulant for the reoccupation of empty properties.

What assessment has the Scottish Government taken in conjunction with local authorities about the likely economic impact on small independent special schools, which look after some of our most vulnerable children? Should those schools no longer be eligible for charitable relief?

I want to get the detail absolutely right on that, so I will write to the member. However, from the review’s recommendations and the proposals that I made today, it is my understanding that there is no change to the status of those schools. I will confirm that in writing.

Will the cabinet secretary outline what measures he is taking in response to the Barclay review to support the development of the renewable energy sector?

The support that we will expand includes the small business bonus and other things that renewables can benefit from. The expansion of the hydro relief will certainly be welcomed by the renewables sector.

Will the cabinet secretary guarantee that the £80 million funding measures that he announced today will not result in a consequential £80 million cut to the local government funding settlement?

The funding package is a matter for the budget, but it would be a misdirection to suggest that today’s announced measures will be funded through a reduction in the local government settlement. That will all be part of the budget negotiations that I undertake with parties when I present the draft budget in due course.

Following the publication of the report of the Barclay review of non-domestic rates, how will the Scottish Government support small and medium-sized enterprises in the hospitality sector, such as those in Leith in my constituency?

Generally, we have lowered the poundage for all ratepayers and we have expanded the thresholds for the small business bonus and the large business supplement. Specifically, the cap for hospitality businesses will continue in the fashion that I described, which will be welcomed around the country.

To return to Liz Smith’s question on special schools, she said “independent special schools”, if I heard her correctly, and I want to give her clarity on that point. I think that there is no change for schools that provide a service of that specialist nature, but that is different from the overall category of independent schools. I will ensure that the member gets that detail.

I suspend the meeting for a few minutes to allow those on the front benches to take their place for the next item of business.

16:34 Meeting suspended.  

16:40 On resuming—