Official Report 841KB pdf
Under the next item on our agenda, we will take evidence from two panels of witnesses as part of our stage 1 scrutiny of the Building Safety Levy (Scotland) Bill. For the first panel, we are joined by Natasha Douglas, land and planning manager, Bancon Homes; Fionna Kell, director of policy, Homes for Scotland; and Julie Jackson, general counsel and company secretary, Miller Homes. I welcome you all to the meeting.
We intend to have about one hour for this evidence session, which will be followed by a session with our second panel. I will move straight to questions, and the first is for Julie Jackson.
In your submission, you said:
“evidence shows a site will not be viable if subjected to the levy”.
In your submission, you were talking about smaller sites. One of the issues with the bill is whether the sites that it will apply to should include every house or just those of a certain size. Will you talk us through your views on that?
I would like to widen the question a bit further than just being about the viability of smaller sites. It might be helpful to the committee if I explain what we mean when we talk about viability from a house building perspective. If we were looking at a site to develop in Scotland or anywhere else, the first thing that we would consider is what the revenue would be. We do that by asking, “What prices can we sell the houses for?” A lot of that depends on the location and the ability of the people who live in the locale to afford that type of house.
We start with revenue, then we consider costs. In many ways, build costs are the easy bit. We know how much a build will cost in relation to bricks, blocks, roofs and so on—we are able to attribute a cost to the build quite easily. What we cannot consider so easily is what we call “abnormals”—the cost of what is in the ground. Is a house being built in an ex-mining area and will there therefore need to be a lot of grouting? Will we need to move services? Are there access problems? Do we need to build roads outside the house? Will we need to build roundabouts? Those are the big variable costs for a house build. We then need to consider the section 75 cost, which relates to the planning gain. That is largely set in local policy and can vary depending on the viability of a site. Again, that is another big cost.
We then add a margin to the costs—we are house builders and we make a profit—and out pops a land value at the end. Natasha Douglas will be able to explain how she produces a land value, but that is how we do it. Land value is what makes a site viable or not. In Scotland, on average, land values are roughly 10 to 14 per cent of revenues. The sites that are in less desirable secondary and tertiary locations will have land values that are sub-10 per cent of revenues. Land values go down in the more post-industrial type of land.
If more costs are added to the build, which is what would happen with a building safety levy, the land value will decrease again, because the levy will be added to the cost element of the build. Sites will therefore become unviable. There are already sites, particularly on the west coast of Scotland, that are unviable because the cost of remediating them and the abnormal costs are too high. Such things hit the delivery of affordable housing, because the cost of affordable housing cannot be factored into the land value—it would just make sites unviable. There has already been a decrease in the delivery of those types of sites in Scotland. Those sites are in the very places where the delivery of homes is needed, which is in the more affordable parts of the country.
Adding more costs into the build will make more sites unviable, because landowners will just not sell their land. There will be no point, because the land will not have a value that is worthwhile. They might as well sit on the land and wait until land values increase or there is a different policy in place.
I cannot really talk about the rural perspective because Miller Homes does not build in rural places; we are more builders of suburban family homes. However, I am certain that the levy will have the same impact on rural house building as it will on sites that are in the more secondary and tertiary locations.
That is one of the issues that you have raised in your submission, Natasha Douglas, so Bancon is concerned about that.
In Bancon’s submission, you have also asked why the company is subject to the legislation—it has not been involved in or had any issues with cladding, but it might be adversely impacted. Fionna Kell said something more or less identical in her submission.
The legislation will not include islands, for example, so there is an issue there. Can you talk more about your frustration with that issue?
11:15
We feel that it is severely unfair that we are being penalised because, as you have said, convener, we have not delivered buildings with unsafe cladding, yet we are being asked to provide contributions to help remedy the cladding issue.
We are gravely concerned about the impact that the legislation will have on our business and its expansion plans. Based on an assumed cost of around £3,000 per home, it could have an impact of between 17 and 20 per cent on our profit margins. That might not seem like a lot, but for a smaller business such as ours—we generally build around 130 homes per year—it will impact on our expansion plans and our ability to invest in our people and continue with recruitment.
We have predominantly operated in Aberdeenshire, and the cladding remediation update from quarter 3 of this year shows no expression of interest for the cladding remediation programme in Aberdeenshire. We also operate in Aberdeen city, where I think that the number of expressions of interest is around 60, but, again, we have not delivered any buildings with unsafe cladding in Aberdeen city.
In 2020, Bancon Homes expanded into the central belt with the purchase of its first site in Strathaven, which was predominantly for family homes. We expanded further in 2023, again delivering family homes in West Lothian.
We feel that it is unfair to ask a company to pay if it has not delivered any building with unsafe cladding. Julie Jackson might be able to expand on this, but we are aware of the Supreme Court decision in the case of URS Corporation Ltd v BDW Trading Ltd, which found that developers, even if they no longer owned the property or had decided to remedy the cladding of their own accord, could seek contributions towards the remedy cost from consultants and designers who were involved in the design of the building. If you are looking for contributions towards the cladding remediation programme, it would seem fair to us that that should go further than just the house building industry.
As Julie Jackson said, we generally build family homes. Bancon Homes certainly does not build flatted properties of more than four storeys.
The Supreme Court ruling is also mentioned in paragraph 9 of your submission.
Fionna Kell, you said in your submission that the Government is pursuing
“a £30m funding target that is not based on accurate estimate of the work required or funding gap.”
To date, we have certainly not seen robust evidence from the Government about the extent of the problem in Scotland. We understand that there have been various expressions of interest. There was a call previously for a mapping exercise of all the buildings, but we have not seen that yet. We remain concerned that the Government is intent on setting a target for remediation—the levy—without actually knowing how much needs to be raised.
My understanding is that, at today’s prices, it will be about £3.1 billion over 15 years. The £30 million a year that the Government hopes to raise through the levy will be about 15 per cent of the cost, while the rest will be paid by general taxation.
I know that they are all different sizes and shapes, but what is the average price of a new house in Scotland?
I do not have the exact figure for a new-build property in front of me, but it is somewhere in the region of the high £200,000s.
The figures that you quoted were in the business regulatory impact assessment and the subsequent financial memorandum that accompanies the bill, and they are based on assumptions of assumptions. A lot of this is taken from figures that relate to a proportion of the buildings in England, because it is slightly further ahead and there is a better understanding of the extent of the programme there. Some proportionality has been applied back to Scotland, and assumptions are being based on assumptions instead of on detailed evidence about the actual position in Scotland. That is our concern.
You mentioned the £30 million, which is in addition to the receipts that will be coming to the Scottish Government from the residential property development tax, which a number of home builders in Scotland are paying towards. It is also in addition to the remediation of their own properties in scope that many home builders are undertaking. We are concerned that some builders are remediating their own properties voluntarily and paying the residential property development tax, which means that they are, in effect, facing a triple hit and are paying for remediation three times over. Meanwhile, at the other end of the spectrum, some businesses, such as Bancon, have not built anything in scope but are being hit, too.
I have just been advised that the average price of a new-build house in Scotland is £335,447, so the levy would be about 1 per cent of the sale price. Would that not just get passed on to buyers?
When someone buys a property, the mortgage lender will look at its value. A four-bedroom house in a certain street might be worth £300,000. Whether that is a new-build property or an existing property, the valuer will say that that four-bedroom house will sell for £300,000. However, if, for example, the cost of building a new-build house is £320,000 but the mortgage valuer says that its value is only £300,000, that £20,000 difference cannot be passed on to the consumer because the mortgage lender will say that the property is worth only £300,000. In effect, the home builder and its wider chain have to absorb the additional £20,000 cost, which cannot be passed on to the home owner.
I looked this up and found an example from 2021, which is not exactly recent, when the average cost of constructing a house in Edinburgh was £126,400 but the average sale price was £375,870. That is more than three times the construction cost. I am well aware that other costs are involved, but those figures show a 197 per cent profit. I do not for a minute accept that that is the real profit, but we are looking at £3,500 out of a price that was £375,000 in Edinburgh four years ago. Developers will pass that on to buyers, and the reality is that no one will put a house up for sale for less than the cost of building it.
You sent a really detailed and excellent 26-page submission full of facts and figures. What impact do you see on the elasticity of demand? Do you think that the levy will reduce demand by 5 or 10 per cent, or will it have no impact? What is your view of the impact on actual demand?
I am not an economist, but the Scottish Government was very clear in its recent housing emergency action plan. The cabinet secretary set out an ambition for year-on-year growth of 10 per cent in the number of starts and completions in Scotland, and she has been very clear that that is what Scotland needs to get itself out of a housing emergency. We have that on one side.
On the other side, you have heard very clearly from Julie Jackson and Natasha Douglas that the levy will have an impact on the number of new homes that are built in Scotland and that we will see a reduction in that number. So, one part of Government has a very clear ambition to increase the number of new homes, while there is a very clear impact from the other side that will decrease the number of homes being built.
When you say “homes”, you are talking about homes for sale. All the submissions talk about the fact that 44 per cent of housing in Scotland is classed as affordable, compared to 19 per cent in England. Should affordable housing be included if the levy is implemented? That seems to be the implication of what you have said.
Ms Kell, in your submission, you state:
“The exemption of affordable housing, which is more than twice the size of that in England, in terms of its proportion of the market, does not reflect the reality of the make-up of the Scottish market which differs from England. This also ignores that UK Government seeks to substantially grow the tax base in England, through its ambition to deliver 1.5m homes.”
Over five years, that would require 75,000 houses to be built each quarter in England. In fact, however, 43,030 houses were built in quarter 2 last year in England, and the figure has fallen to 36,180 in quarter 1 this year, which is less than half of the target. That is not really much of an example to follow.
That is the point: the more you continue to add costs and levies on to the cost of the build, the fewer homes will be built—and the future tax base will reduce rather than increase.
I am assuming that the Scottish Government wants more homes to be built in order to get more revenue to meet the £30 million annual target. However, the extent of the levy will reduce the number of homes being built and reduce the tax base. You are not doing what you want to do, which is to build more homes, house more people, get out of the housing emergency and increase the tax base.
Indeed, the people who build those homes will be paying income tax, council tax and all the rest of it. Therefore, if they are not building houses, they will not be paying those taxes, which will also have an impact.
I am really keen to get fired into your submissions and go through them all in great detail. However, because of our time restrictions and the fact that I am dead keen to let my colleagues come in, I shall leave it at that.
The convener asked you about the problems with having the levy, and you have explained some of them. However, if we do not have the levy, where should the money come from for the cladding repairs?
Is that question for me?
I am happy for anyone to come in, but you can start.
I am happy to do so.
Before you do, I would just say that your submission was so long that I was not able to read it in detail. For future committee meetings, you might want to make submissions a bit shorter.
Okay—we will try to do that. As you can see, we are very passionate about the issue.
You asked where else the money would come from. There are a number of issues here. Taxes must be proportional and, as has already been referenced, a wider systemic issue led to the tragic events at Grenfell, and we are all trying to resolve that. The issue is system wide but, at the minute, the only part of the system that is being taxed, and the only part that is being looked at to remedy the issue, is the home builder part. If we are looking at how we fill the gap, we need to broaden that out and look at the wider system.
So, you would be happy with the levy if it applied to more people. Should we just add the amount on to, for example, corporation tax, income tax or business rates?
In addition to corporation tax, we already have the residential property development tax, which the largest home builders pay. Our point is that home builders are remediating their own homes, they are paying RPDT and the levy will add another level on top of that.
I accept that the developers do not like the levy, but we must find the money. Should we add it to business rates and all businesses would pay for it?
I am not a taxation adviser. All that I can do is tell you about the impact that it will have on home builders—
Do you not have an alternative?
There are a couple of issues. One thing that we suggested in our submission is a sunrise clause. That, in effect, would mean that, at such a time when the home-building industry is in a stronger place in Scotland—
That could take for ever. It could be in 50 years’ time.
It could be, but it is certainly not when we are in a housing emergency that the Government has declared.
We will always be in a housing emergency. We will never have enough houses.
That is the whole point. We are never going to build enough houses, and what you are doing is exacerbating the situation by putting another tax on house builders.
Our view is that we should have a sunrise clause. That would apply until such time as you have a more stable base—that might be in three years’ time, if the cabinet secretary has achieved the Government’s ambition of a 10 per cent year-on-year increase. We have called for there to be an all-tenure target of 25,000 homes a year, which is what Scotland had been building on average until just before the financial crisis back in the mid-2000s. I would suggest that, once we get back up to those kind of numbers, the Government’s self-declared housing emergency—
Okay. I want to move on to one of the other witnesses.
Ms Douglas, it sounds like Ms Kell would like to put this off for ever and ever. You said that it was not “fair” that the decent developers should pay for the bad behaviour of bad developers or bad manufacturers. Surely, tax is always like that. I reckon that I am a decent person, I am law abiding, and I pay tax for the police to deal with the bad people. Is that not just how tax works?
I am not a tax expert, but it is important to recognise that there are no good or bad developers in this situation. The developers that created buildings with unsafe cladding did not just decide to do so one day with the intention of causing harm to the people living in those buildings. The building was signed off through a building warrant, so a process was followed before the building was erected.
11:30
Did the developer have no responsibility to check the materials that it was using?
The developer would have been given guidance by the designers and manufacturers at that moment in time. Things have moved on, and we know now that the cladding that was used historically is not safe. To go back to your point, Bancon Homes has never delivered a building with unsafe cladding. The nature of the business is that we deliver homes for people to live in, and they are generally one to two storeys in height. Historically, we have delivered flats, but they are generally around four storeys in height and, as I have said, they have not used unsafe cladding. We feel penalised.
If the levy is not fair, how should we raise the money?
As we have said in our submission, the levy as it stands is almost a blanket approach against house builders, but there are other parties that inform the design and build of new homes.
So, would you spread the levy out further? Would you still have a levy but spread it out more?
We feel that, if a levy is to be introduced, it should certainly go further than just the house-building industry.
Would the admin costs for that not be pretty horrific? Normally, we spend 1 per cent on admin for getting a tax, but this time we are up to about 10 per cent or thereabouts. If we go after every single manufacturer, the admin costs will be huge.
I am not an accountant or a maths person. I am not an expert in that field, and I would suggest that I am the wrong person to answer that question.
Fair enough. I will try a different question. There is the suggestion that a development with a small number of units would not pay the levy. Say that somebody builds a £1 million house out in the countryside. Surely, they should be paying a levy for that.
On the exclusion of developments over a certain size, I think that south of the border, in England, they have increased the number of units for a development to be excluded fivefold—from 10 homes up to 50 homes. I am not sure whether that would be considered in Scotland, but it would certainly help us as a business.
Your question about the £1 million property is difficult to answer because, as you will appreciate, viability can be very different from site to site. The viability of a development of 100 houses will be different from the viability of £1 million homes. Without looking in detail at the construction cost of such a house, it would difficult to see what level of profit would be made on it, and whether that would involve a developer or whether someone is building it for their own sole residence. I am afraid that your question is quite a wide one to answer.
I will come back to Ms Jackson. Can you say what we should do if we do not do the levy? Also, surely, if a person is spending £1 million on a house, an extra £5,000 or £10,000 does not matter to them, so, surely, they should be paying a levy.
I will start with your first question. As has been mentioned, and to be clear, Miller Homes has buildings that we are remediating that have had fire safety defects. We are quite far advanced with that programme in England. We are also committed to doing the right thing in Scotland and to remediating the buildings that have fire safety defects. We have made provision for that, and that involves a lot of money. We also pay residential property developer tax. Again, the levy would definitely be the third dip for us in terms of a tax. We are very concerned that it has not been addressed in Scotland that there are contractors, architects, engineers and insurers—a plethora of individuals and companies out there, including cladding suppliers—who are not paying for this.
If we put a tax on each one of them, the cost of collecting it would be horrendous.
We do not have to do that. We have to change the law in Scotland to allow us to go after the people who are responsible for the cladding.
When you say “go after”, do you mean tax them or sue them?
No, I mean recover the cost, because that is what the Government is doing with house builders.
At the moment, house builders are saying that we will voluntarily remediate the buildings, but shoddy workmanship by contractors, architects who specified defective materials and cladding companies that hoodwinked the industry into believing that their products were non-combustible are not paying at all. It is possible to go after some of them in England because Barratt took a case to the Supreme Court. We do not have that ability in Scotland.
Does Scotland have the power to do that? You are not sure.
There are definitely things that the Scottish Parliament could legislate to do to change that. We have been discussing those with the cladding remediation team without a great deal of success, but there is a way of recovering money, and not just for developers but for the Scottish Government.
The vast cost of remediating buildings in Scotland will sit with the Scottish Government. There are way more orphaned buildings here than there are south of the border. That would be my answer. We need to look at some way of recovering costs from those who are actually responsible. It is the polluter-pays principle, which is a settled legal principle across the world.
We would all agree with that. There is the question of whether we have the powers, but I accept that we need to pursue that with other witnesses. We got the impression from the Scottish Government that the window that it has been given to operate in is quite limited by Westminster. It is not a tax that we could just do anything with.
On the tax, I agree.
By all means, come and chat to me afterwards. I am willing to explain what might be possible; I am a lawyer.
Go on—tell us all!
There is obviously not time to go into what might be possible today, but there are possibilities.
You said that the developers are doing something about this voluntarily. Presumably, the manufacturers could also do something voluntarily. That would be one option. Another option is that somebody sues them—either the house builders, the Government or somebody else—and another is that we put a tax on them. Are those all available options?
I do not know how a tax would be put on them, but, again, that is outside my—
I will leave it at that, convener.
Good morning. Fionna Kell, you talked about a sunrise clause—quite a novel concept—that could become part of the fabric of building in Scotland.
When Peter Drummond, from the Royal Incorporation of Architects in Scotland, appeared before the committee, he said that every 10 or 15 years, another building scandal seems to come along. Given the timeframe for remediation, and given that this has been going on for a number of years, how likely do you think it is that another building scandal will come along for which the tax would potentially have to be used to start remediation? Does that not give rise to concern that this is going to become a tax on house builders or house purchasers in Scotland?
We are very concerned that the bill should be set to address only building safety and cladding remediation issues. Scottish ministers have said that that was their intent, but we remain concerned that the definitions in the bill are not as tight as they should be in that regard.
It is fair to say that house builders remain committed to continual improvement of standards. New homes are generally covered by a 10-year warranty, and the new homes quality code and a voluntary ombudsman are now in place.
The industry welcomes the commitment from Westminster and the Scottish Government to the introduction of a statutory new homes ombudsman, which we understand is coming.
So, I do not think that it is appropriate to say that it is inevitable that another issue will come along in 10 or 15 years’ time. As Natasha Douglas has said, no one sets out to build homes that are not of the appropriate standard. Indeed, there is a commitment to continuing to improve standards.
At the moment, there is not a clear sunset clause in the bill. Home builders need certainty as to when the levy will come in, how much it will be and when it will end, so that businesses such as Natasha’s and Julie’s can plan for future investment. With the current uncertainties, they cannot do that.
I want to ask about how manufacturers could be brought into the system. It is clear that that will happen in England. What is the risk to Scotland of having a system that excludes manufacturers? Is there a specific concern, other than the fact that you have identified that it appears that the Scottish Government will be on the hook for most of this?
There are no specific concerns in relation to manufacturers. It would be difficult to recover money from manufacturers, but there are others from whom it would be a lot easier to recover money, such as contractors and architects, who are all insured. The ability to do that is missing.
When we spoke to a representative of the architects’ profession, they said that, in many respects, it was not regulated architects who were working with the building firms. They were almost implying that the people in question were rogue operators and that building standards simply signed off the buildings without professional architects being present at the scene of the crime, as it were. Would you contest that?
Yes. I have evidence that that is not the case.
So, there is buck passing going on here.
Yes.
Okay.
I want to look at the broader impact on the market. It seems that certain areas could be badly hit by the proposed tax. Starter homes are one example, and the build-to-rent market is another. The Government has set a clear target of a 10 per cent increase in house building. The Westminster Government is doing more modelling on what impact any intervention would have on housing supply. What do you want the Scottish Government to do before it presses ahead with its proposed tax?
As you have said, there is an absence of modelling at the moment. The Public Accounts Committee at Westminster was clear on the need for such modelling, and it has asked the Westminster Government to go off and do it. It felt that there was a clear link between the introduction of the levy and the remediation programme and the impact on the UK Government’s ability to meet its home-building targets.
The Public Accounts Committee identified that link and raised it with the UK Government. We would say that exactly the same thing is the case here. We think that there is a very clear link between the two issues, and we have not seen robust modelling to show that that will not be the case.
I would like to comment on a more personal level and bring the discussion back to what we do as a house builder.
I had a wee look back to see how many homes we delivered between 2019 and this year, and the percentage of that volume that we delivered in Scotland. I was surprised to see that, year on year since 2019, Miller Homes has been delivering fewer houses in Scotland, as a percentage of its output. There has been a decrease of 2 to 3 per cent per year. We started off delivering 25 per cent of our output in Scotland, and we are now at less than 14 per cent.
That appears to be a cumulative effect. That has not happened as a result of a desire on our part not to grow in Scotland—that is absolutely not the case. We are a Scottish company that is headquartered here. We want to invest and grow in Scotland, but the numbers are telling us that we are going backwards.
Is that to do with increased regulation and things such as Passivhaus building standards?
It is to do with all sorts of things. Much of the issue goes back to viability and the availability of suitable sites for development.
I also looked at the delivery of affordable homes and the percentage of affordable homes that we delivered in the Scottish context over the same period. The figure has consistently gone down over that period, which means that the delivery of affordable homes in Scotland is going down. Why is that? Again, it goes back to the point about sites not being able to hold affordable homes in terms of their viability.
11:45We already have a double whammy in Scotland. We still want to invest. Everyone wants growth—nobody is telling us that growth is a bad idea. We all need sustainable growth so that we pay more tax in order to fix issues such as cladding. However, the delivery of homes is going into reverse, so the tax base for the levy is going backwards. That will continue, and the current policies on house building in Scotland are making it worse. That is the only reason that I can see for the fact that we are growing everywhere else but not in Scotland.
We had the Minister for Public Finance before us earlier, and Mr Marra asked him why LBTT receipts in Scotland are lower than the projections. Have you or anybody else in the industry made any calculation as to what the loss in LBTT might be if there was to be a contraction in the number of properties being traded, notwithstanding how we might undershoot the goal in terms of what the building safety levy might bring in? Is there a risk that one could offset the other and that the Scottish Government could be worse off?
We have not looked specifically at LBTT. Rather than look at what could be lost, we have looked at what we could have if the sector was growing. As I said, our stated ambition is 25,000 homes per year, and the cabinet secretary’s commitment to 10 per cent year-on-year growth would get us to roughly that number in about three years’ time.
We estimate that, at the minute, the industry contributes approximate £3.4 billion to the Scottish economy. By growing from where we are to the target of 25,000, we would be at roughly just under a further £1 billion contribution to the Scottish economy, with a further 22,000 jobs being supported.
We have estimated an uplift of about £8 million in council tax receipts and an additional £46 million in developer contributions, and an additional 1,200 affordable homes. That is what could be lost if we do not get to the 25,000 target. We can then begin to work back from that. We estimate that there are roughly about four jobs for every home that is built, so the fewer homes we are building, the more jobs we are losing.
That is interesting. It means that the figure of £3,000 per home is suddenly wiped out.
It is roughly £3,000 per home. That is what we have calculated but, as I said, we have not yet had anything from Government and we do not know what the levy will be. We did research this year with our home builders in small and medium-sized enterprises, and they have estimated that the additional cost of regulation over the past five years, including what is coming, is putting £20,000 to £30,000 on the cost of a home. That is not including cost-price inflation, Brexit, war in Ukraine and whatever else happens to be going on. The cost of regulation is estimated at between £20,000 and £30,000 per home, which is not viable for many homes.
You mention the cost of new-build houses in Edinburgh. There may be places in Edinburgh where those kinds of costs can be absorbed, but there are plenty of places outwith the central belt of Scotland where that is not the case. Visualising the picture across the central belt, our fear is that the area where development will be viable will reduce. We will see it moving further and further up or down into the central belt, so that the area of development viability will be really tightly squeezed.
I have one final question. One general criticism of legislation in this Parliament and at Westminster is that the Government is increasingly using skeleton legislation. That is what I call fill-in-the-blanks-later legislation, and that is sometimes the controversial blanks. With the bill as it stands—or rather, once it has been fleshed out with law making through delegated powers—is there any capacity for legal challenge to it on the basis of fairness or equity?
To be honest, I have not looked at issues around legal challenge, but we have raised the issue with such legislation consistently. We raised the same issue with regard to the Housing (Cladding Remediation) (Scotland) Act 2024, which was framework legislation, too, meaning that a lot of the detail was going to come through secondary legislation and regulations.
As I said, that gives us concern. Home builders need certainty to be able to make business investment decisions, and the lack of certainty and detail around that causes us a lot of concern.
Ms Jackson, you are a lawyer, so you might have thought about this more.
I am not that kind of lawyer.
I would echo what Fionna Kell has said. One of our main concerns is about the legislation being brought in and the point at which it will impact us. It will hit sites that we have already bought and are developing, so it will lead to a sudden increase in the costs that we had already calculated for those developments. It would be a lot easier for us, as developers, if the costs came in at the beginning, and if there were some period of grace to allow us to get up and running on a site, knowing what the costs were and how long we would have to pay them for.
On the issue of viability, impact and not knowing what the costs are at the moment, we are putting together our next five-year business plan and, without sight of what the costs will be, we will find it incredibly difficult to provide that to our lending facility with any degree of certainty.
Thank you.
In the submissions and the evidence that we have received so far, the polluter-pays principle has been highlighted, but it strikes me from what you have said today and from reading the bill that many people who are not polluters will be asked to pay, too. Is that correct?
Yes. There are many who are not polluters who are being asked to pay, and there are many who potentially are polluters who are not being asked to pay.
In essence, house builders are meeting a public need and providing a public good, and are building good houses for people to live good lives in, but they are being called polluters. I understand that parts of the sector have done bad things—if we want to use Mr Mason’s terms—and I can understand why some of that language is used, but some companies must find such a description a little bit difficult to wear.
We do. We have many members who are home builders; Bancon is one, but there are many others. I know of a family-run business, based predominantly in Perthshire, that has been going for the past 50 years and has never built anything more than two storeys. It has had to significantly reduce its workforce and output as a result of the raft of issues that are on-going at the minute, and to call it a polluter is more than offensive. Such companies have not built anything within scope; they are Homes for Scotland members, and they are also stepping up voluntarily to remediate any fire safety defects that have been found. The vilification of the industry is, I think, wholly inappropriate.
I appreciate that.
You have talked about the marginal viability of sites. I understand that this might be difficult, in the absence of rates being set, but have you managed to do any modelling in respect of the number of homes that you think might be impacted by the levy?
What we are seeing with our model, which is predominantly delivering private homes to the market, is a lot of sites that are already not viable, given where they are located—and, therefore, given the price that we can sell them for—and the remediation aspects on the ground. We are definitely seeing that in the west of Scotland, and the levy will just tip the balance even further. In answer to your question, we have not modelled anything, because what happens is that these sites come to us, then we do our numbers and say, “Actually, this isn’t for us. Thank you.”
So there is a cumulative effect, and it is quite obvious that there will be tipping points where we move beyond viability.
Yes.
The construction cost for building a three-bedroom house is roughly £270,000—I have managed to get that from the internet, and I do not know how common that would be across different builders and so on, but let us take it as a benchmark. The Government also pays to build houses—it pays local government to do so, for example. If the Government paid £30 million for building on one side of the ledger, that would cover about 110 houses across Scotland. It would seem to me a bit perverse if we were to find ourselves in a position where that number was offset by potentially stopping the building of 110,000 homes. In the absence of modelling from the sector, I find it difficult to measure that trade-off.
As I said, we have not done that modelling. I refer back to the Public Accounts Committee in Westminster, which has put the modelling firmly back in the Government’s court and said that the Government should undertake that before it introduces such a levy. The Government needs to understand whether it is doing something in one place that might have a negative impact somewhere else.
Without that robust modelling, we are in danger of bringing in something that could have significant consequences that we have not worked through. If we have done all the modelling and understand that X will impact Y, we can then make an informed decision. If a decision is made to introduce a levy, and the Parliament knows that the introduction of that levy may result in a 1 per cent decrease, or whatever the percentage might be, that is on an informed basis. However, I fear that we do not have that robust modelling at the minute.
You have given evidence today on other secondary effects around employment tax revenue. Has the Public Accounts Committee asked for those issues to be included in modelling as well?
Yes, it has asked for that broad modelling.
That is interesting. Mr Hoy touched on the issue of LBTT receipts, so I will not go there.
We are eight years on from Grenfell. In quarter 2 of 2025, only three single-building assessments were completed in Scotland. Meanwhile, in England, remediation was either started or completed for 2,490 buildings. In your view, is the limiting factor in Scotland the availability of money to do the work?
That might be the case, but there is a step behind that. In Scotland, we were a couple of years behind in setting up the governance structure—the appropriate legislation and contracts and so on. However, there are buildings in Scotland that home builders have already voluntarily remediated, are in the process of undertaking single-building assessments for, or have completed single-building assessments for and are in negotiations with home owners about the appropriate remediation contracts for. Those buildings might be in addition to the numbers that the Government is publishing through its remediation programme, but there is certainly a commitment to progress from the home builders, and many of them are making progress.
Do any of your colleagues want to comment on that? Is the availability of finance the limiting factor in the lack of progress in Scotland on delivering safety for people?
Not for the buildings where there is a commitment to remediation from home builders. We are one of the home builders who are remediating in England, and we are pretty far through that programme. In Scotland, we are among the developers that Fionna Kell just mentioned. We have been trying to get to the point where we can properly remediate those buildings for five years. It has been very difficult, but that is not due to lack of money. The landscape in Scotland is very complex, and we need the Government to help to get us on site to be able to do the work. We have been trying for a number of years to collaborate with the Government to do that. I do not see the issue being a lack of money.
I do not have anything further to add.
12:00
Assuming that the bill progresses, do the witnesses want to see anything added to the list of exemptions?
We sit in a difficult position. We represent home builders of all sizes, so we understand that, if there is to be a levy, the more exemptions there are, the larger the amount those in the tax base will have to pay. However, we are also balancing against that the need to support the home building industry in Scotland. Definite consideration needs to be given to protecting small and mid-sized home builders.
As I understand it, the Government’s current suggestion is that all home builders will benefit from a levy-free allowance. At the minute, I think that the figure for the levy threshold that it is talking about for all home builders is somewhere around 10 homes a year. However, that is too low, because a very small home builder who builds seven, eight or nine homes a year, will not look at a site and think, “Maybe I’ll move on to 20 homes a year.” Instead, they will say, “No—you know what? I’m going to sit at my 10-home threshold, because anything more than that means I have to begin to interact with the revenue system.”
If you set the levy too low, it will have a behavioural impact on the SMEs. If you set it somewhere in the region of 30 homes a year, you will hit more of a sweet spot because home builders will have some ability to grow the business before they begin to interact with the revenue system.
Is there any reason why the figure for exemption levels in Scotland should be different from those in the rest of the UK? Do you want us to take on board the different character of the sector here, meaning that a different signal of viability should be sent?
In England, it is set by local authority, and by viability relating to house prices. The big issue is that you need to keep some sort of tax base in order to collect the levy and pay for the remediation. You need to find the point at which the levy would make a site unviable. To go back to Mr Mason’s £1 million house, it is not about the numbers or about home builders having 10 free passes or whatever. If it is linked to viability, it then has a hope of keeping the tax base as broad as possible, so that the sites that can afford to are those that pay. That is probably not the answer that you would expect from me, but that seems to be the fairest way of doing it, and that is how it is done in England.
We are content with the exemptions in the bill as it stands, but we ask that there is a levy-free allowance, as Fionna Kell suggested. Equally, as Julie Jackson suggested, if you can demonstrate that the site is not viable with the levy, it would be beneficial for that site to be exempt if possible, so long as it can be demonstrated that the viability is in question and at stake.
We are content with the buildings that are listed as exempt.
In response to question 8 in the call for views, which was about the financial memorandum, all three of you were very sceptical about the methodology that had been used. In particular, examples were cited of levy rates and the possible effects that they would have on developers being able to estimate their liability. Could you explain your concerns about the financial memorandum to us in a little more detail?
There are a couple of points to consider. The Government’s assumption about the size of the new-build market in Scotland is that its value is about £4.6 billion a year. However, Registers of Scotland calculations for the same time period put that figure at about £3.2 billion per year. That is Registers of Scotland’s data, whereas the Government’s assumption was based on assumptions of assumptions. Therefore, we think that the Scottish new-build market size has been overstated by about £1.4 billion. That has a significant impact.
As I said at the outset, there is no clear list of properties in scope to which we can apply an estimated cost. We have had an estimate of the number of buildings in Scotland that is based on an estimate of what happened in England, and then an estimate of what the cost might be. In the absence of anything else, those are not bad proxies, but eight years down the line, we are getting to the stage at which we should not have to rely on estimates of estimates. We should have a robust modelling system. If we had that, we could at least have the confidence that we are making informed decisions that are based on the right evidence. However, I do not think that we have that currently.
That is quite a concern.
It is a very big concern.
Ms Jackson, would you like to comment on the financial memorandum?
We take the same position that Fionna Kell outlined. We do not understand how the numbers have been arrived at. We can only look at our own numbers, and it is difficult to work out how the Government has arrived at the number of buildings that need remediation and who is going to pick up the cost of that remediation. That is still not clear to us.
I presume that that is quite a big concern to people in the industry.
Yes. I am not clear how the numbers have been arrived at. I know roughly how much it costs to remediate a building, because I am doing that elsewhere, but that does not seem to have translated into the numbers that the Scottish Government is talking about.
Apart from presenting your concerns to the committee—and I thank you for your extensive submissions—have you engaged with the Scottish Government about your concerns over the financial memorandum?
I personally have not, although I have engaged extensively with the Scottish Government on the subject of remediation of buildings.
Yes. I have raised the overall questions about the modelling, where the numbers have come from and so on. I spend most of my working week engaging with the Scottish Government on cladding-related issues.
Are those on-going discussions with the Scottish Government about your concerns?
Yes.
Ms Douglas, do you have anything to add?
I would just add that the concerns that have been raised are shared by Bancon Homes.
I will turn to a practical point. I hear what you are saying very clearly. For the record, the quality submissions that you have submitted have been very helpful. We read them all, even though they are extensive.
The planned date for our stage 1 report is December, and we will then have 11 working weeks before the Parliament goes into dissolution for the election that is coming down the line. I would like to hear your reflections on what can be done in the time that we have. Given the timescales and having listened to what you are saying, I think that we are really up against it.
I fully accept the premise that something has to be done, and the bill is something. In other words, all the other people who were party to the issues at Grenfell are getting off scot free. I also hear what you say about not having the hard data to properly estimate the behavioural effects.
However, thinking about the timescales and assuming that the bill gets past stage 1 okay, we will have 11 weeks to try to amend the bill. How practical do you think that is? Bearing in mind what you say about behavioural stuff, if you had to pick your top two or three things that have to be changed or done, what would they be? I would like your sense of where we are at. Fionna, I will come to you first.
I do not have specific comments on the parliamentary process, other than that you are going to have a very busy 11 weeks to get through.
You should see how many other bills there are.
I can imagine.
What concerns us is what we see if we look at our counterparts—the guys building north and south of the border. If they were building in England, they knew 18 months before the levy was to be introduced exactly how much it was going to be, who was going to be exempt, how it was going to be collected and so on. All of that was clear. We are now sitting less than 18 months before the proposed implementation date in Scotland. We would ask that consideration is given to the implementation date.
Mr Marra asked whether money is the key barrier. We do not think that money is the key constraint at the moment. There are a lot of other things. Potentially, in about two years, we will start to need to see much more of that cash coming into the system. I do not see there being a major burden in pushing back the implementation date, but until we have that clarity, we will be pressing officials on it. Indeed, I pressed them on that at a meeting just last week. I was advised that the next meeting of our expert advisory group was going to be in the new year, so another couple of months will pass and we will still not have that clarity.
The other priority for the bill that I would seek is that it needs to be clear about the sunset clause, so that we have a clear understanding of how the bill is going to operate, when it is coming in and when it is going to end.
Assuming that the process is in train, there are two things that are important from my perspective. First, it must be made clear that the money is to be used to remediate fire safety defects and not for any other building defects or anything else. It is important to us that it is made clear what the money can be used for—where it is going to go, where it sits and how it is going to be used.
The second thing that is important to us is phasing in how we can plan for those costs in our budgets. I would ask that, somehow, the levy is not applied to existing sites and existing plans for homes to come, but is about new sites that are coming through the system. Even if the levy is charged earlier in the process rather than at the end, through section 75 contributions or whatever, it I would ask that it is applied only to new homes—homes on new sites. Those would be my two asks.
My views are similar to those of Julie and Fionna. We would also ask that, if a company can demonstrate that it has not delivered a building with unsafe cladding, it should be exempt from the levy. If there is to be a levy, like Julie, we would ask that it is for new sites only, as opposed to sites on which there is currently construction. The introduction of a sunset cause is also important to us.
Thank you. We have a few more questions, but we have another panel to hear from, so I will not hold you back. I thank you very much for your evidence this morning. It has been very helpful.
We will take a break for a couple of minutes to allow for a change of witnesses.
12:13 Meeting suspended.
We continue our evidence taking on the Building Safety Levy (Scotland) Bill. I welcome to the meeting Hazel Johnson, director of Built Environment Forum Scotland; Anna Gardiner, senior policy adviser at Scottish Land & Estates; and Josie Sclater, senior policy officer at the Scottish Property Federation. Thank you, everyone, for your written submissions.
I refer people to my entry in the register of members’ interests.
As with the previous panel, we have approximately an hour for this evidence session, so I will move straight to questions.
Hazel, your submission is somewhat different from everyone else’s, as you say:
“An appropriate levy on future residential builds is a logical route for setting foundations to protect people from this situation, in which defects are discovered years or decades after construction, but public bodies, owners and other stakeholders do not have access to the level of resources required to deal with them.”
That is in relation to BEFS’s remit of examining the existing and historical built environment. The defects that come to light are part of a wider issue around recognising that there is an awful lot of remediation, and not just with cladding; it comes to light with the various issues that we recognise.
Josie Sclater, I suggest that Hazel Johnson has a point. A number of people have raised concerns about building standards over the years. Builders did build according to the standards that applied at the time, and there have been issues over the years. I and members of other committees have looked at the reduced numbers of clerks of works and so on, which has meant that corners have been cut. Does Hazel have a point, in that a fund such as the proposed levy would help, almost as an incentive for builders to be a bit more careful in construction? Otherwise, the levy will fall upon them.
Thank you, convener, and I thank the committee for inviting us to give evidence. I would reaffirm that, as an industry, we are very much committed to addressing all critical building safety issues, including the swift remediation of any unsafe cladding.
We acknowledge the very good intentions behind the building safety levy, and we know that there is a very limited pool of funding that can be drawn upon to help with remediation efforts. Our members are deeply concerned that the levy essentially constitutes yet another tax on development. If I could leave the committee with three key things today—
You do not need to leave us—you just got here. [Laughter.]
Well, to start with, anyway, I will say that the three keys things that the levy will impact on are development viability, investor confidence and, ultimately, the supply of new homes. It is about whether you want to target the sector with the levy and then have a potential reduction in the number of homes in the future.
You said in your submission:
“We must stress the importance of a discounted levy rate for schemes on previously developed land. ”
How would that work?
Brownfield land is very important. We speak with a lot of local authorities that are very much of the view that we need to encourage greater city centre living, because it has a wider social and economic benefit. We are seeking an exemption from the building safety levy for land that was previously developed, with at least 50 per cent of the land according to brownfield. There are many barriers to developing on brownfield land—contamination and remediation costs are higher and there are often more fragmented ownership structures and greater infrastructure constraints on remediating it. That is why we are seeking the exemption.
Are you talking about a total exemption or a discount? If it is a discount, what percentage are you talking about?
In an ideal world, it would be an exemption, but we understand that there are constraints on funding. We also consider that at least 50 per cent of the land needs to have been previously developed.
Looking at the evidence, we see everyone talking about exemptions. If all the exemptions were in place, there would not be any money to collect. Anna Gardiner, in your submission, you said:
“we would suggest that an exemption in the region of 50 units would provide a more meaningful degree of protection in rural Scotland.”
I do not know how many developments of more than 50 units there are in rural Scotland—I cannot imagine that there are many. Surely developers would just build 49-unit developments, to avoid the tax.
You have to take a lot of care when looking at the scale of a development. You also have to look at the pace of the development, because that pace will be dictated by how quickly units sell. The slower that units sell, the slower the pace of the development moving forward.
I will give the example of Leet Haugh down in Coldstream, which is a development of 106 units. It started in 2011, but the site is currently on hold due to viability challenges, because the market values have not kept up with the cost of inflation. We are now in 2025, and 35 units are still outstanding. Even though that is, by rural standards, quite a large development, if you compare the pace of the delivery of that development with a development of a similar size in the central belt, you are very much dealing with apples and pears.
Notwithstanding what I said in our response to the call for views, scale cannot be treated in isolation. You must look at all the factors that have an impact.
You also said in your submission that you
“welcome the exclusion of islands in Section 5(d). However, Scottish Government regulations on local business taxation have already acknowledged that some rural mainland areas, such as Knoydart, Scoraig, and Cape Wrath, face similar levels of inaccessibility and challenges as island communities.”
Knoydart can be reached only by boat, for example.
Exactly. My point is that, in drafting the bill, for simplicity, islands have been excluded—which is great, because that is really important—however, there are many places in rural Scotland that have the same challenges over housing delivery. The issue is that there has been a problem with defining where you draw the line between difficult and unviable, and viable. That has created a situation in which the whole of rural Scotland has been swept into the scope of the levy.
The viability, as I have just illustrated through what I said about Leet Haugh in Coldstream, is a problem. You must remember the impact of housing in rural areas, the necessity for housing and, indeed, the commitment from the Scottish Government to ensuring that housing is delivered in rural Scotland.
Hazel, in your submission, you said:
“BEFS wishes to highlight its position that not enough action is being taken in policy and practice to promote the productive reuse of vacant and derelict buildings and brownfield land, including for housing.”
Would the proposed levy be a stimulus for that?
I come back to the issue of exemptions, I am afraid. It is worth noting that there are existing barriers to the development of brownfield land, and it would be a shame if a levy were to further disincentivise the use and reuse of existing buildings in delivering homes.
The Government is hoping to raise £30 million a year from the levy. If it were to introduce all the exemptions that have been suggested, what would the levy bring in, other than zero? I cannot see there being many areas in which the levy will bring in any revenue for the Government.
In relation to exemptions, we need to look at whether the levy is the right thing.
Your view is that it is not.
If we end up stealing from Peter to pay Paul, we have a problem.
I understand that. Of today’s six witnesses, Hazel Johnson is the only one whose submission has been supportive of the levy. The submissions from the other five witnesses are not supportive. What is your view on who should pay for the work that needs to be done? We have heard it suggested that everyone from architects to manufacturers to companies that were involved in previous construction should pay. I do not know whether the cladding was manufactured in Scotland, China or Germany, so I do not imagine that that would be a big source of potential income.
Who else could the Government raise the levy from? We are talking about spending £200 million a year, but it will cost £3.1 billion to remediate cladding in Scotland. The proposed tax is aimed at only 15 per cent of that. It will go some way towards raising funds, but who else should the required funding be raised from? Others can answer that question as well.
I think that the argument that is based on the polluter-pays principle is very strong. I also think that there is a lot of value in ensuring that the housing market is adequately stimulated so that the tax take from other sectors is generous enough for some of that take to be creamed off. That could help to fill the gap.
But many developers set up single-purpose vehicles—in other words, subsidiaries of the main company—so that when things go a bit awry with a development, the main company has no liability. I have experienced that situation with a number of developments in my constituency, so there will be a myriad of examples across Scotland and the rest of the UK. How likely is it that we will be able to pursue some of the companies that are responsible on a polluter-pays basis? They could simply rename and restructure the company so that it is not the same company that did the stuff that we are all upset about.
I do not have any experience of phoenixing and all the other games that corporations get involved in.
Unfortunately, those are the realities that we have to face. That is why we are discussing an up-front levy. When a local authority supports a housing development, it tends to put a bond in place so that, when all the shenanigans go on, there is still money to repave the roads, put bollards in and all the rest of it. That could include fixing the sewers, which are sometimes not installed properly.
The challenge with bonds is that they often involve up-front payment. With rural developments, if the up-front payments are too great, the developer will face cash-flow challenges from the beginning, which is an issue in itself.
If the council does not put in place a bond, the developer can just scarper and the council will be left facing those costs. That has happened with at least two developments in my constituency, and I know that it has happened in other places. If everyone behaved according to the rules, things would be fine, but that is the issue that the Government faces, which is why it is proposing an up-front levy.
I recognise the concerns of colleagues at the table.
With regard to the polluter-pays principle and why everyone should pay, rather than just polluters, I would suggest that that is a practical approach to raising the necessary resources for all homes, given that those who were responsible for historical issues might well no longer be around. They might have moved overseas, they might have worked the system in such a way that they are no longer identifiable or responsible, or they might wish to delay any payments.
There was a conversation about banding, but I think that BEFS members might be supportive of a whole-system approach.
12:30We are supportive of a levy, but not one that places additional burdens on those who are least able to bear them. In our submission, we were clear that small and medium-sized developments should not be included. I recognise that that does not necessarily address some of the concerns that colleagues have, but it is something that we are clear about.
There is more that I could ask about, but colleagues want to come in.
If you were here for the earlier session, you probably heard my question and I will ask much the same again. Would it be better to forget the levy and add it on to, say, business rates, corporation tax or income tax?
I recognise that there is a difficult balance to strike. It is worth noting, and was highlighted in the previous session, that many developers already contribute to remediation of their own buildings. There is also, as was mentioned, the UK residential property developer tax, some of the funds of which are used towards cladding remediation. The levy might, in effect, be adding a triple tax to some of the developers.
Would you accept that, although it is a triple tax, we all pay income tax and VAT? We all pay lots of taxes, but we still need that money.
The money is still needed but we must recognise that development viability in Scotland is currently in crisis. Developments that were viable five years ago would no longer be viable today. There has been a range of cumulative impacts on the industry, including from the market—I appreciate that it is not all from Government policy. Tender costs have risen by between 20 and 30 per cent; development finance interest has doubled, from 5 to 10 per cent. That is only in the past year—let alone the other layers of Government regulation and policy, such as increasing affordable housing requirements, the Housing (Scotland) Act 2025 and increasing net zero targets and building standards. Cumulatively, that impacts the sector as a whole. Each policy is often developed in isolation. A lot of them are well-intentioned but there is no consideration of how each one impacts the industry and our ability to deliver housing.
I know that that does not quite answer your question. It is a difficult question because as soon as you deflect that money into other levies, it will impact on the industry in another form.
Ms Gardiner, that is a fourth witness who has made that argument—three made it earlier, and we will come back to Ms Johnson later. It sounds like an argument that, if the housing sector—or the building sector or whatever we call it—is struggling, it would be better for the money to come out of general taxation. That would also save us money—Revenue Scotland is going to spend something like £3.7 million in the first year, which is more than 10 per cent of the money that we would get from levy. It seems to me like a strong argument: forget the levy, let us just put it on income tax.
I am not a tax expert. I would not like to—
But are you against the levy?
It is right, to be fair, as we said in our response to the call for views, that we are against the levy as it has been presented. Our key point is that if it is not carefully calibrated, it will exacerbate the housing shortage. When you take that in the context of rural Scotland, it will exacerbate the economic decline and depopulation of rural Scotland. We have said that we support the commitment by the Scottish Government to addressing that issue, but we do not support the way that that has been proposed in the bill.
You are not totally opposed to a levy, but maybe we should look at it in more detail.
Exactly that.
Would one of the details be to include hotels? If Donald Trump builds a big hotel and people pay hundreds of pounds a night to stay there, surely the hotel should pay a levy as well.
The issue of hotels is an interesting one. In the main, the construction of properties is something that needs to be considered. Housing is not the only thing that is affected by cladding—but, for rural property, cladding is not a thing. I am no expert to talk about hotels with cladding; typically, a hotel in rural Scotland does not have cladding because it is built traditionally.
I accept all that. The thing is, we have a problem. You are telling us what is wrong with the levy and you are suggesting that we make more exemptions and so on, but we still have to raise the money, as the convener was suggesting. Do you have any suggestions, or do you feel that it is not your job to suggest alternatives?
I would say that you need to stimulate the economy, so that we can get more tax take in general. Rather than having a negative tax approach, we should have a positive tax approach.
Ms Johnson, you have been the most supportive of the levy so far this morning. Can you defend it? Would we not be better just adding 0.1p to income tax, say, which would mean that we were not targeting the building sector?
I am not a tax expert, so it is not for me to comment on that specifically. I would make the general point that, while we are supportive of the levy in principle, the regulatory frameworks should really catch the areas of greatest risk, with effective checks and balances to minimise the adverse outcomes for the honest brokers and developers who have been mentioned.
On the point about a robust framework, the levy is part of a wider approach; it does not sit in isolation. We have already talked about the wider policy landscape: there is the levy, there are regulations and there is scrutiny through compliance checks. I mentioned a whole-systems approach for construction, involving existing and nascent legislation, to ensure that the matter can be considered holistically. You mentioned hotels, specifically. Focusing on principle over economics and arguing for holistic approaches to place, a hotel might be the right thing for one area, but not for another. That is also the case with regard to homes. It is also about what that looks like with regard to other taxes, such as the visitor levy, say—I appreciate that that is not for this committee—within the wider policy landscape.
It becomes difficult if we have to start assessing every single development and every single hotel.
It is complex; I recognise that.
That would add to the cost of collecting the levy.
As I understand it, the levy is to be based on floor area. Would it not be fairer to base it on value?
BEFS members may have various views on that issue. There are members who are supportive of a floor-area approach—while recognising that it will be difficult to calculate.
Especially if there are communal areas.
I recognise that that will be a bit of a headache for somebody.
If the levy is introduced, we would support a floor-based approach, with some accountability for regional variation. I understand that the Government is considering taking a different approach to calculating that regional variation. We support the granularity, balanced with not having too many complex rates.
There is one thing about having a floor-area based approach in relation to communal areas. We represent many build-to-rent providers and those building purpose-built student accommodation. There is a much higher proportion of communal areas there, including co-working spaces, gyms and lounges. Applying a floor-area based approach to such accommodation will mean inflating the calculation of the unit. We suggest that, if build to rent is not excluded from the levy, you at least need to exclude the communal space, as such buildings tend to have a higher proportion of communal areas than other developments.
I was particularly interested in the part of your written evidence that states:
“the industry is already making significant contributions both voluntarily and via UK taxation to remediate cladding that they were led to believe was safe”.
I asked the witnesses on the first panel about this as well. Is it fair just to blame the manufacturers but build with whatever they give you, or do builders and developers bear some responsibility for checking the safety of the materials that they use?
It is important to recognise that developers must go through a building control process and they must receive a building warrant that deems a building safe to use. These issues have come into play several years later. No developer wants to build an unsafe building—it is not in their or anyone else’s interests to do so. They were using their knowledge and skills, and they were using materials that, at the time, they thought were safe to use, but, unfortunately, they were not.
I have a final question—whoever wants to respond to it can. It has been suggested that the levy should be used only for cladding remediation. However, the bill talks about it being used for wider safety issues. Reinforced autoclaved aerated concrete is another big issue, and other people have said that some other issue will come down the line. Would it be wiser for the levy to have a wider use, so that we can use the funds not only on cladding remediation but on other things, or should the funds be purely used on cladding remediation?
As you have stated, the purpose of the levy is to fund building safety expenditure. All serious building defects could be dealt with using the same mechanism, so it would seem reasonable to widen its use at some point.
The overarching objective of the bill is to address the cladding remediation requirements. I do not believe that the consultation has been remotely focused on addressing other issues, so I am not prepared to comment on that. I suggest that, if the scope were to be widened, we should go back to the drawing board.
I am much of the same opinion. Further, we think that there should be a sunset clause so that the levy, if implemented, should have an end point after around 10 years. Otherwise, it is essentially a tax on development.
I will continue in a similar vein to Mr Mason. When Peter Drummond from the Royal Incorporation of Architects in Scotland was before us, he elaborated on the point that such issues come along every 10 to 15 years, stating that the next ones will be to do with cavity walls, retrofit, structural fire protection to steel buildings and lightweight rainscreen cladding systems, which he said that you cut through with a craft knife.
Ms Johnson, does the industry recognise that we are already aware of potentially two or three further significant remediation projects? Would it not be more honest, therefore, to have this debate in the round and say that it is not only about cladding but about changing the landscape in which we remediate problems that will routinely come along?
I recognise my esteemed colleague’s turn of phrase. Yes, the list is as Mr Drummond put it to the committee. I will not elaborate on that specifically. What BEFS members would like to advocate for is improved data to understand what novel technologies are in which buildings and how to avoid having similar conversations about future issues.
Looking at unintended consequences of those novel technologies, we do not want to add to the list, but we do want to recognise that inappropriate interventions might well have been undertaken during previous retrofitting work—perhaps, say, under green deals. However, I note that there have been many good examples of that, and that we support the reuse and retrofit of existing buildings as a means of meeting other targets such as net zero.
This is about recognising that we are having this conversation in the context of a wider issue and being cognisant of the limitations of what we are discussing today when we consider the levy.
I recognise that issues might come up in the future that we are not aware of just now; however, that is impossible to predict. As I mentioned previously, I think that, if the levy is going to be implemented, its duration needs to be limited to around 10 years.
Ms Gardiner, in your submission, you proposed an exemption for rural areas from the levy. The issue with exemptions is that you can point to any area of the market, such as build-to-rent properties, and ask for it to be made exempt. However, having read your submission and spoken to other stakeholders, it strikes me that the impact of the levy on the rural property market is a very real concern—and there are already issues with that market. If we were to implement a rural exemption in law, how would we go about that? How would we, for example, define a rural area? What more could be done to tie that down before we started looking at how an exemption might work?
12:45
We have been talking to the Scottish Government team about that, because it is really important to get the definition correct. Any rural exemption should target the fragile housing markets. We have already talked about the high costs and tight margins, and the critical issue is that we have a massive housing shortage in rural areas. The sixfold urban rural classification that is typically used for such things does not work, because the accessible rural class also includes, for example, areas within the Edinburgh city bypass. Just because it has “rural” in its name—
So, Gilmerton, where a lot of house building is under way, could be exempt.
Exactly.
We are saying that we should go with what we know. Classes 4 and 6 in that classification—“Remote Small Towns” and “Remote Rural”—are black and white; you can look at the map and see clearly how rural those places are. However, we would argue that you would need a layered approach to class 5, which is “Accessible Rural”. That is what we are working on with Government officials, and we hope to make headway on creating a clear definition so that we can have a very simple process and ensure that anyone, whether it be Revenue Scotland or a builder, can see very simply whether they are in or out.
That is all from me.
I call Michelle Thomson, to be followed by Michael Marra.
You probably heard me express concern about timescales to the earlier panel. I do not know the exact date, but it is proposed that the stage 1 debate on the bill be held in the chamber in December. When we come back in the new year, we will have 12 working weeks—not 11 as I said earlier—in which to deal with a multitude of other legislation. After the stage 1 debate, the bill will come back to the committee for stage 2, before returning to the chamber for stage 3.
First, based on your knowledge and experience to date, how realistic is it that the required work can be completed within that timescale?
Secondly, what must be put in place for that to happen? What would be your top ask to get the bill into the condition that we might like it to be in? I fully accept your comments about the levy not being fair, which is what we have heard from contributors across the board.
Anna Gardiner looked at me first, so you can go first.
The timescale is really tight and, if measures are to be dealt with through secondary legislation, it will be even tighter. In fact, if we look at it in the context of planning a development, it becomes impossible—there are so many known unknowns. If I am planning a development that will come out of the ground in three years’ time, I will already be years into it, and the legislation will mean having to go back to the drawing board with the numbers.
You have to remember the other inputs that are coming in. Come 2026, we will have the Passivhaus standard, and it is estimated that that is already adding £12,000 to £20,000 a unit. There are also the section 75 costs, which are always unknown until far too far down the line. Finally, we do not even know what the levy will be. It has been suggested that it will be around £3,500 a house, but is that right? Will it be less or more than that? All those costs are swishing around in the pot, and the developments that they might apply to have already been in design for years.
In the previous session, the point was clearly made that, with the levy, a line will need to be drawn in the sand to take account of all the developments that have been in planning. Otherwise, everything will grind to a halt, and we cannot really afford for that to happen. Our big ask, therefore, is to get as much detail into the bill as possible so that we can have certainty.
As I said, I want to leave you with three points today. The second one is confidence. If the consideration of the Housing (Scotland) Bill taught us anything, it is that capital is very mobile; it will seek to move to other parts of the country—indeed, to other parts of the world—if the environment is deemed too risky.
Lenders need a certain level of return in order to take on, and compensate them for, the inherent risk of development. As Anna Gardiner has rightly said, many plans are already in process, and we need clarity on the transitional arrangements. Members are coming to us and asking, “Will my building qualify for a levy in two or three years’ time?”, and we are unable to give them certainty on that.
That is one thing. We also need an understanding of whether the communal space in build-to-rent developments will be included in the levy, and, indeed, whether build to rent is even covered. We need to know the rates for the levy, too. As was mentioned in the previous evidence session—and as we, too, have raised—England had 18 months to provide indicative rates. Scotland is now past that; there are now 17 months left, and we will probably not see those rates until early next year, at the very earliest.
It is important to get right the modelling but, at the same time, we need to be able to tell our developers and investors what is happening down the line, so that we can have a proper pipeline of development.
Ms Johnson, I do not know whether you have any final comments.
I would support the comment about the pipeline. I reiterate the need for a whole-system approach, the need to look at skills and capacity, and the need to ensure that we do not look at the timeframe in isolation. Indeed, we have talked about the heat in buildings bill. I think that the timescale is tight, and I share some of the concerns that have been expressed.
I want to pick up on a point made by Josie Sclater. You will have heard the my earlier discussion and the concerns that I expressed about the polluter-pays principle and the language that is used in that respect, given that many building contractors are not polluters in that sense. It is not just those people.
You said that it is in the sector’s interest to build good homes. The Grenfell report made it quite clear that there was systematic dishonesty in the sector and not only manufacturer but corporate culpability in some respects. For example, the principal contractor came in for very heavy criticism about a lack of concern for fire safety.
Therefore, there is a body of evidence showing that parts of the sector have done the wrong thing. I have concerns about some of those things, and the fact is that many people lost their lives as a result. I just want to put on record that there is an issue with some of the language that is used, but we must be clear that there has been a problem in the sector. Do you accept that?
I cannot comment on the specific examples that you have just mentioned. However, I can say that, for many of the members whom we represent, particularly in the build-to-rent sector, it is in their long-term interest for their buildings to be maintained properly, because that investment is for the long term. A developer would not go out to make a building that would be unsafe.
No. In this particular instance, though, I am talking about a public inquiry into something that resulted in the death of many people, and I think that the Scottish Property Federation should take a view with regard to acting on its recommendations. However, I understand your point about the particular relationship with regard to build to rent. I will just leave that there.
My more general question, which is for all of you, comes back to some of your evidence and the comments that you and the previous panel of witnesses made about regional variation. Perhaps Anna Gardiner might comment on this, but there is, perhaps, a feeling in Scotland that there is a lack of viability outwith the central belt—indeed, almost outwith Edinburgh. Are you seeing a trend in viability that you fear might exacerbate that situation?
You simply have to look at how much Government support is required to help to bring forward rural housing. The margins of viability are so much lower.
There is a reason why so many smaller developments in rural Scotland are community or landowner led—indeed, that applies to many developments in rural Scotland because, typically, they are small. Developers do not touch them, because there is no money in it. When margins are so low, any development is left to those who bring forward housing for other reasons—typically, the critical role that it plays in the rural economy.
Every area is unique, but I go back to Mr Gibson’s comments about the average house price. We should put that in the context of what it might cost to deliver a house in, for example, Assynt—I have just plucked that off the top of my head, as it has a development proceeding. The price per square metre is north of £3,000, which means that, if those houses were sold at the average price, people would make a massive loss. On paper, the capital value of those houses is way up at £450,000 or thereabouts—forgive my maths—but that illustrates just how unviable it is to develop in those parts of Scotland.
Every area has different characteristics, but you cannot understate the positive impact of housing development across rural parts of Scotland. It does not stand alone; a single new house in a rural community will sustain a local school, enable a business to grow or help with services. South of Scotland Community Housing did a fantastic piece of work on worker housing across the region, and it made pretty miserable reading, frankly, because of the massive shortage of housing across the south of Scotland and its impact on the economy. Anything that holds back housing will not be helpful.
Does the approach lack sensitivity to that regional variation? We have heard that the system in England will be constituted differently, with more local authority input into levels and so on, whereas there will be a national approach here.
Yes. You must also take into account what the market is doing. Ultimately, the market dictates the sale price. If the houses are not selling, the prices must go down, and if they do not go down, the properties will not come forward and the market for that site will stall.
In those regional locations—that is, out in the sticks—that sensitivity is far greater, because there is far less choice, and people know what they can afford to pay. That is the key feature of a free market.
I mentioned some work that is being carried out with the Government on how you calculate the regional variation, and I want to reiterate that, although we need to account for local variation in house pricing, we must also make sure that it is not an overly complex process. In some instances, there were thousands of different rates. That is just too complex.
We share the same concerns about SMEs, which are a very important part of the housing approach. Typically, they develop on land that tends to be overlooked by the larger volume house builders, so we need to protect them. Indeed, their share of development has fallen from 40 per cent in 2017 to 20 per cent in 2023. We must ensure that the sector is not affected disproportionately or inadvertently by the levy.
Hazel Johnson, do you have concerns about regional variation and viability?
I would say so. I agree that regionality needs to be recognised, and I suppose that that, perhaps, comes back to scope, definitions and the detail in the bill.
Thank you.
I thank you all for your invaluable evidence today. It will be a heavy shift for the minister when he gives evidence to us next week, along with Revenue Scotland.
Meeting closed at 12:59.Air ais
Subordinate Legislation