Meeting of the Parliament

Meeting date: Thursday, May 18, 2023

Official Report 1125KB pdf

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Non-domestic Rates

The next item of business is a statement by Tom Arthur on delivery of the agreed recommendations of the Barclay review on non-domestic rates. The minister will take questions at the end of the statement, so there should be no interventions or interruptions.

14:26  

I am pleased to provide a statement on the implementation of the independent Barclay review of non-domestic rates.

The Barclay review was commissioned in 2016 with a remit to explore how the rates system could better support business growth and long-term investment and reflect changing marketplaces. I thank Ken Barclay and his colleagues Professor Russel Griggs, David Henderson, Isobel d’Inverno and Nora Senior for their work on the review.

The report, which was published in August 2017, made 30 recommendations. The majority of those were accepted by the Scottish Government and I am pleased to report that all the agreed recommendations have now been implemented. To deliver that, we engaged, consulted and worked closely with local authorities, assessors and businesses. We introduced primary legislation—the Non-Domestic Rates (Scotland) Act 2020—and a range of statutory instruments, as well as making administrative changes.

This afternoon, I would like to highlight a number of the key policy changes that stemmed from the Barclay review. Supporting business growth was core to the remit of the Barclay review and we have implemented recommendations to improve economic performance and to encourage investment.

The business growth accelerator relief is the only relief of its type in the United Kingdom aimed at supporting property growth and property improvements. We introduced the relief in 2018 and, this year alone, the relief is forecast to save ratepayers £15 million.

To better incentivise the reoccupation of empty properties and therefore support our town centres, we expanded fresh start relief to cover all property types. We further extended it this year, making it available to properties with a rateable value of up to £100,000.

For the renewable energy sector more specifically, we commissioned an independent review of small-scale hydro schemes—the Tretton review. Following publication of that report in 2020, we provided more certainty for investors by guaranteeing 60 per cent relief for hydro generators until 2032.

Barclay considered both ends of the property scale, large and small. A reduction in the large business supplement was recommended and, in 2020, we introduced an intermediate property rate. In April, we raised the rateable value threshold at which the higher property rate applies. Over 95 per cent of properties in Scotland are now liable for a lower property rate than would apply anywhere else in the UK, and we remain committed to reducing the higher property rate when that is affordable.

We also commissioned an independent review of the small business bonus scheme—the SBBS—by the Fraser of Allander Institute. Its findings were reported in 2022 and we convened a short-life working group to consider its recommendation to collect new information to enable a more robust assessment of the impact of the SBBS.

We are committed to evidence-based evaluation and policy development to ensure that our support schemes are effective and deliver value for money. However, acknowledging the concerns that were raised by the working group about additional red tape and burdens on business, we are not currently planning to introduce any new reporting requirements for SBBS relief recipients. The SBBS remains the most generous scheme of its kind in the UK. We have introduced changes this year to make it more progressive and it continues to take 100,000 properties out of rates altogether.

This year saw the revaluation of all non-domestic properties following a six-year gap. The Barclay review recommended more frequent revaluations to reduce volatility and shorter tone dates to allow rateable values to more closely reflect market trends. The revaluation marks the introduction of the first three-year revaluation cycle, with valuations based on a one-year tone date. New rateable values for non-domestic properties across the UK came into effect on 1 April, but in Scotland they are based on market conditions as at 1 April 2022, compared with a year earlier, 1 April 2021, in England and Wales. That ensures that values in Scotland more accurately reflect up-to-date rental market data and, specifically for this revaluation, reduces the risks of the Covid-19 pandemic distorting rateable values.

Earlier today, a report on the impact of the 2023 revaluation was published. The report details changes in rateable values as a result of the revaluation, both by property class and by area, as well as resulting changes to gross bills—that is, after the application of general revaluation transitional relief, which we introduced to protect those that were seeing large increases in rateable values due to revaluation.

The Barclay review also recommended a number of measures that are aimed at improving ratepayers’ experience, including improving transparency and increasing efficiency. Assessors are now required to publish a draft valuation roll on 30 November the year before revaluation, as well as to publish lists for prescribed property types of the comparable properties that they used to determine the basic rate for revaluation .

In advance of the next revaluation in 2026, we are committed to exploring whether further improvements can be made to the transparency of valuations. We also introduced a new two-stage appeal system on 1 April, which took place alongside the transfer of valuation appeal committees to the Scottish tribunals. The new appeals system ensures that there is greater transparency and fairness, encouraging earlier information sharing and quicker resolution of cases for ratepayers, which is important for the success of three-yearly revaluations. We are committed to a fair and transparent non-domestic rates system that provides a level playing field.

The Barclay review recommended the creation of a general anti-avoidance rule, and the Non-Domestic Rates (Scotland) Act 2020 introduced regulation-making powers to empower councils to tackle rates avoidance tactics. The first anti-avoidance regulations under those powers came into force last month, delivering commitments in the Bute house agreement and the 2021 programme for government.

A number of other changes have also been made to level the playing field for all ratepayers: owners of self-catering properties that are liable for non-domestic rates became required, from 1 April 2021, to provide evidence of those properties being actually let for 70 days per year, in addition to being available for let 140 days in the year.

We removed the financial incentive for councils to award charity or sports relief to arm’s-length external organisations and the eligibility for charitable rates relief from mainstream independent schools. We published statutory guidance on discretionary sports relief to ensure that it supports affordable community-based facilities.

We restricted the small business bonus scheme to occupied properties, focusing the relief on economically active premises, and previously exempt property in parks became rateable from 1 April.

We want to encourage empty properties back into economic use and the Barclay review recommended a number of reforms to empty property relief. However, those were superseded when we devolved the relief to councils on 1 April this year. The reform was accompanied by a revenue transfer to councils of £105 million a year for three years, which is significantly more than the estimated cost of maintaining the national relief, in light of the decision to freeze the poundage this year. That delivers greater fiscal empowerment, as local authorities may use that money as they see fit, according to the needs of businesses and communities in their areas, which includes using it for discretionary local empty property relief. We will undertake an initial review of the devolution of empty property relief in advance of the next revaluation.

I have outlined key reforms and changes and significant progress that we have made following the Barclay review to deliver a system that better supports business growth and long-term investment, increases fairness and transparency and improves ratepayers’ experience. The UK Government’s fundamental review of business rates, which concluded in 2021, made recommendations that Scotland had already or has since implemented.

It is important to recognise that non-domestic rates are an important source of revenue to fund the local services on which we all rely. We continue to offer a strong non-domestic rates package; we have responded to calls from businesses to freeze the poundage and offered reliefs that are worth almost £750 million this year alone.

It will take time for the Barclay reforms to bed in and longer still for them to be evaluated. In line with the framework for tax, we want to provide certainty, convenience and efficiency to ratepayers. However, we also want the door to remain open to discussions about further improvements to the rates system.

In his statement on 18 April, the First Minister acknowledged the need for a new approach to the Government’s relationship with business. On Monday this week, we announced the creation of a new deal for business group. One of the group’s aims will be to establish a consultative sub-group to advise on further enhancements to the operation and administration of the non-domestic rates system, following the final implementation of the independent Barclay review. I will chair that sub-group and I look forward to it being set up and to hearing the business community’s views.

As part of the new deal for local government, I will ensure that local government’s views are fully taken into account when any further enhancements to the NDR system are considered. I have also written to invite the spokespeople from the other parties to raise their NDR concerns with me. I look forward to the constructive engagement that will take place between me and Opposition party spokespeople and I look forward to the questions that will be asked this afternoon.

The minister will now take questions on the issues raised in his statement. I intend to allow 20 minutes for that, after which we will move on to the next item of business. I encourage members who wish to ask a question to press their request-to-speak button if they have not done so.

I thank the minister for the prior sight of his statement. I will ask three questions. The minister is well aware that the Scottish Retail Consortium has persistently demanded the restoration of parity with England on the higher property rate. Such parity was promised in the Scottish National Party’s manifesto in 2021, so why has it still not been secured? That adds to what the Scottish Retail Consortium has described as “damaging perceptions” about Scotland’s lack of competitiveness.

Secondly, when the review was published in 2017, Kenneth Barclay rightly made it clear that all 30 of his recommendations were aimed at improving Scotland’s economic climate. Does the minister accept that retail, hospitality and leisure industries have been put at significant disadvantage because, despite having the Barnett consequentials to do so, the Scottish Government would not commit in the recent budget to the 75 per cent rates relief in 2023-24 that is available in England?

Thirdly, does the minister believe that, as the highest-taxed part of the UK, Scotland is in line with the competitive ambition that Ken Barclay expressed?

On the higher property rate, my statement touched on the fact that we are operating in demanding fiscal circumstances, but we are committed to meeting the commitment on that rate when that is affordable and finances allow.

Because of the small business bonus scheme, which is the most generous of its type, about 50 per cent of retail, hospitality and leisure premises pay no rates. As we move towards the budget process for next year, ministerial colleagues will be more than happy to discuss Opposition party priorities, but I note that allocating additional revenue to non-domestic rates relief would require revenue to be taken from other budget lines.

With regard to the overall net tax position in Scotland, it is important to look at that in aggregate because, in Scotland, we deliver a social contract that is unparalleled in other parts of the UK, and that is made possible only because of our progressive approach to taxation. Of course, all decisions around tax will be set out at the budget, in line with established processes.

I thank the minister for prior sight of his statement. I remind members of my entry in the register of members’ interests: I am director of a company with retail interests and, indeed, it is probably important to add that my constituency office benefits from the small business bonus scheme.

I look forward to engaging with wider reform of non-domestic rates. The analysis that the minister alluded to leads with the point that the median rateable value increased by £450. With the median rateable value being below the small business bonus threshold, what is the actual aggregate rise in bills? Is it the 12.5 per cent that is mentioned on page 13 of that report? How does that compare to economic growth over the period?

One of Barclay’s recommendations was about having national standards on assessment methodology, and the review also called for a statutory body, if needed. I ask the minister for his reflections on whether such a statutory body is needed at this time. Although he might not want to acquiesce to the calls for a 75 per cent discount, many small businesses complain about being at a competitive disadvantage compared to England, so has the Scottish Government assessed what impact that differential has had on Scottish businesses?

The total gross bill has increased by £127 million, which is 3.37 per cent after adjustments for the general revaluation transitional relief.

With regard to a statutory body, we have sought to increase standardisation through our reforms of the appeal process. As part of the discussions that we have through the sub-group of the new deal for business group and, indeed, engagement with Opposition party spokespeople, I am happy to explore what further standardisation and simplification could be undertaken.

With regard to the competitive position vis-à-vis the rest of the UK, we take a range of factors into consideration during our budget-setting process. As I touched on earlier, we provide the most generous social contract anywhere in the UK, which is made possible by our progressive approach to taxation. Where Opposition members feel that there should be a change to taxation policy, whether that be on income tax or on non-domestic rates, we are open to those discussions, but it is incumbent on Opposition spokespeople to identify not just the additional spend that they wish to see but where the corresponding reduction would take place elsewhere in the budget. I look forward to those discussions.

In his statement, the minister mentioned the new deal with business. Can he tell us more about how that is progressing and, particularly, whether it might lead to further enhancements to the NDR system?

My colleague Neil Gray, the Cabinet Secretary for Wellbeing Economy, Fair Work and Energy, co-chaired the first meeting of the new deal for business group yesterday afternoon. It will be agreeing the parameters and priorities for the new deal and how the agreed sub-groups will be established. As I mentioned in my statement, the consultative sub-group will be established to advise on further enhancements to the operation and administration of the non-domestic rates system, following the final implementation of the Barclay review. More details, including the membership of the sub-group, will be confirmed in due course. I very much look forward to engaging with the sub-group and Opposition spokespeople. In addition, my door is open to any member of the Parliament who wishes to engage on any matters that pertain to my portfolio, including non-domestic rates.

The minister mentioned the Tretton review of rating for small-scale hydro schemes, which we all want to support as part of our transition to net zero. Many of those schemes have seen punitive increases in their rateable value, potentially putting their viability at risk. The temporary relief that the minister mentioned is very welcome, but it does not provide the necessary long-term certainty that investors in those schemes want to see, as Scottish Land & Estates points out in its briefing to MSPs. Are we going to get a permanent solution to that significant issue, so that small-scale hydro ramps up to the levels that we all want to see?

Mr Fraser raises a very important set of questions. Of course, we will keep all of our non-domestic rates policies under review, in line with not just policy aspirations but affordability and other Government priorities.

We all recognise that there is a big role for the Scottish Government in realising the potential of hydro, and there is also a big role for the UK Government in realising that potential. We are committed to working collaboratively and constructively, using the powers that we have at our disposal, to ensure that hydro can flourish and play the important role that it can and must play in reaching net zero by 2045.

Small businesses are the beating heart of Glasgow’s economy and culture. My constituency is home to the Subversion gallery, which is located in the west end. As a small business, it is eligible for the small business bonus scheme, the benefits of which I know have been a lifesaver to many businesses across the country. Will the minister confirm how many Glasgow small businesses are eligible for the scheme and how much that has invested back into Glasgow’s economy?

Our statistics show that, as at 1 July 2022, 11,410 business premises in Glasgow received the small business bonus scheme relief, with more than 90 per cent of those premises receiving a 100 per cent reduction. That has saved ratepayers in Glasgow an estimated £33 million in 2022-23 alone, and more than £160 million cumulatively over the past five years, between 2018-19 and 2022-23.

The changes introduced under Barclay on self-catering properties were already well out of date when they were announced. Wales introduced the 140-day rule back in 2010. A year later, the Government has announced more consultation on taxation affecting housing. In the spirit of suggesting areas of additional funding, will the Government consider including in that consultation abolishing the short-term lets rates relief, which could save councils £21 million?

I thank Mr Griffin for raising our on-going live consultation on potential reforms to council tax regarding second homes and empty properties and to NDR. As he will appreciate, those areas are interrelated, which is why, as well as asking specific questions on the proposition around council tax as it applies to empty properties and second homes, we also asked the question on NDR. I encourage all members to engage with that consultation and to promote it among their stakeholders and networks. Of course, we will report back to Parliament on the conclusion of the consultation.

The review has offered local authorities an opportunity to incentivise the occupation of vacant properties by allowing them to consider applying an NDR charge in respect of empty properties. Does the minister agree that that provides an opportunity to breathe new life back into vacant town and city centre properties, which have regrettably become a more common feature of many streetscapes in Scotland?

The member raises a very important point. We are taking a number of actions across Government to support our town centres, which are being led by my colleague Joe FitzPatrick, who is the minister with responsibility for planning and regeneration.

With regard to the role that NDR can play, we have devolved empty property relief to councils as of 1 April this year. As I referred to in my statement, we are providing councils with £105 million in extra revenue funding annually over the next three years, which is far more than the expected cost of continuing empty property relief as a national relief, due to the freezing of the poundage.

We are taking a number of measures through the planning system, the tax system and the wider empowerment of local government to support the regeneration of our town centres.

I will press the minister a little bit further on Liz Smith’s question about the large business supplement. When I looked back at the 2021 manifesto, it did not mention anything about affordability in that commitment. Of course, it is sensible to have affordability as a characteristic of the policy, but I am sure that that was considered when the manifesto was drafted. Therefore, why has the commitment been watered down, and will it be delivered by 2026, as was promised in the manifesto, especially considering the state of the high street just now?

I recognise the point that Willie Rennie is making, but I will just add that the challenges that our high street faces are multifaceted. Tax is part of the situation, but the member will appreciate that there is a broader range of factors that have impacts. We have made progress with regard to the number of properties that are eligible for the higher relief. We increased the threshold for the intermediate property rate from £95,000 to £100,000, so that less than 5 per cent of properties are qualifying for the higher rate.

I note that we are two years into a five-year parliamentary session. We have faced the highest inflation in my lifetime—in the lifetime of many of us in the chamber—as well as significant economic pressures. However, we have made a commitment and, as I have said, the decisions will be taken as part of the annual budget process.

I note again that we still have a number of years to run of this parliamentary session. There was a manifesto commitment that was to be delivered over the entire session; we have to take such decisions in the light of affordability at the time. We will, of course, keep members up to date through the annual budget process, as we always do.

To elaborate on the relevant comments in his statement, does the minister agree that it was right that, in 2020, Parliament decided to delay revaluation of non-domestic rates from 2022 to 2023 with a tone date of 1 April 2022 instead of 1 April 2020?

I absolutely agree with that. The Barclay review highlighted the dangers of economic volatility occurring between the revaluation date and the tone date, which I know Ben Macpherson will be well aware of. The challenges around the tone date were the key determinant in the decision to delay revaluation.

If revaluation had not been delayed, the tone date would have fallen on 1 April 2020—just three weeks after Covid-19 was declared a global pandemic and during a period when many businesses had stopped trading. The tone date would not have delivered rateable values that reflect post-Covid economic conditions, because the rental markets would not have adjusted. Similarly, a tone date of 1 April 2021 would have been unsuitable because the volatility in the commercial property market continued.

We remain committed to three-yearly revaluation with a one-year tone date, with the next revaluation being scheduled to take effect on 1 April 2026.

Following Daniel Johnson’s example, I note that my constituency office, too, benefits from the SBBS.

Analysis by the Scottish Parliament information centre in 2020 found that shooting estates benefit to the tune of £10 million a year from non-domestic rates relief through their eligibility for the small business bonus scheme. I am glad that, in response to the Barclay review, a review of the SBBS took place and some reforms were made. However, does the minister agree that shooting estates simply should not be eligible for such a tax break?

Shooting rights and deer forests were added to the valuation roll with effect from 1 April 2017, following the Land Reform (Scotland) Act 2016. In 2021-22, shooting rights and deer forests raised £1.7 million in non-domestic rates income and were in receipt of £4.9 million in reliefs including the small business bonus scheme and empty property relief. I acknowledge Ross Greer’s views on these matters, and am keen to discuss them with him as part of my on-going engagement on NDR with members of all political parties.

From the impact report, we can see that 70 per cent of properties in Aberdeen have had their rateable value reduced. I welcome the cut because I have been campaigning for it for the past seven years. Will the minister now accept that the valuations for Aberdeen were badly wrong and that the Government should have acted sooner to prevent the impact of SNP austerity in the north-east?

I am sure that Mr Lumsden is aware—I certainly hope that he is—that valuation is conducted independently by Scottish assessors. Valuation is informed by the rental value that is estimated at the tone date, and it is determined by macroeconomic conditions. It is for assessors to determine valuations. It is for local authorities to administer non-domestic rates and the Government and the Parliament set the overall legislative framework within which that takes place, as well as property rates.

Beyond that, I am happy to engage directly with Mr Lumsden on any specific matters around non-domestic rate reform that he thinks merit further consideration. However, the issue of valuation that he has raised is a matter for the independent Scottish assessors.

I welcome the fact that the Scottish Government acted decisively at an early stage to implement Barclay review recommendations that did not require primary legislation. I note that the minister has already mentioned measures including expansion of the fresh start relief to help town centres, and changing the business growth accelerator relief. Will he provide more information on whether an evaluation has been done of the impact of the early introduction of those recommendations and their benefit to businesses in Scotland?

I am happy to inform Michelle Thomson that since the expansion of the fresh start relief it has saved ratepayers an estimated £17 million, between 2018-19 and 2022-23. Since the business growth accelerator relief was introduced it has saved ratepayers an estimated £96 million over the same time period. Our statistics show that, as of 1 July 2022, 320 business premises were in receipt of the fresh start relief, and 450 business premises were in receipt of the business growth accelerator relief. That demonstrates the positive impact that those policies are having.

The minister seems to know an awful lot about Glasgow, but some people will worry that he is less familiar with the situation outside the central belt. Aberdeen’s Union Street has many empty properties. What impact assessments and scenario planning did the minister do on the effect of the reforms on Union Street? What do those reports suggest the outcomes will be?

I heartily assure Liam Kerr that I am very familiar with Union Street, because I worked in Aberdeen for many years as part of my pre-political career in music. I recognise that Union Street, like many of our high streets across Scotland, has faced a range of challenges—the pandemic, Brexit, the specific challenges that the north-east has faced around oil and gas and the more general challenges that the retail sector has faced due to the changing nature of how people purchase products.

As I highlighted in my statement, the review was an independent review that was chaired by Ken Barclay. Following the review, there was an implementation group and a process of consultation and engagement. That process took place to look at how we set non-domestic rates policy for the whole of Scotland.

Under the Community Empowerment (Scotland) Act 2015, local authorities have a discretionary power whereby they can provide targeted reliefs for their areas. That is an important power and an important piece of fiscal autonomy for local government. We are committed to expanding that, as is demonstrated by the devolution of empty property relief.