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Land and Buildings Transaction Tax (Investment Zones Relief) (Scotland) Order 2026 [Draft]
Our next agenda item is an evidence session with the Minister for Public Finance on the Land and Buildings Transaction Tax (Investment Zones Relief) (Scotland) Order 2026. I intend to allow around 30 minutes for the evidence session. The Scottish statutory instrument is our final item, should more time be required.
The minister is joined by two Scottish Government officials: Laura Parker, the LBTT policy lead in the directorate for tax and revenues, and Liam Farrow, the head of regional economic policy.
Good morning, minister. I welcome you and your colleagues to our meeting and invite you to make a short opening statement.
Good morning, convener, and happy new year to you and to the committee. I welcome the opportunity to discuss the SSI with you and I look forward to the committee’s questions.
As you know, there are two investment zones in Scotland—one in the Glasgow city region and one in the north-east. They are designed to leverage research and innovation strengths to boost productivity and increase innovation in our regions. Through the incentives on offer, they can make a major contribution to attracting private investment, promoting growth and creating good jobs in key sectors such as advanced manufacturing and green industries. The investment zones are a collaboration between the Scottish and UK Governments and the Glasgow city region and north-east Scotland regional partnerships. The regional partnerships are ensuring that regional interests remain at the heart of this work and that the benefits and opportunities of growth are felt by communities throughout investment zone regions.
The Glasgow city region and the north-east have engaged extensively with regional stakeholders, including businesses and research institutions, to develop proposals for their investment zones and to secure appropriate buy-in. The Land and Buildings Transaction Tax (Investment Zones Relief) (Scotland) Order 2023 provides relief from LBTT in part or in full for qualifying transactions within a designated investment zone tax site. That is part of a package of incentives offered to the investment zone.
As part of the partnership working arrangement with the UK Government, it was agreed that we would ensure, as far as possible, that the overall offer in Scotland is equivalent to the offer that is available to investment zones in England and Wales. The LBTT relief is designed to be equivalent to the stamp duty land tax relief that is offered to investment zones in England, to ensure parity.
The LBTT relief supports the overall programme by encouraging investment in specific tax sites on land that is underdeveloped or undeveloped, and the relief will be available immediately once the tax sites are designated for a period of up to five years.
Are there any concerns about displacement activity with regard to the investment zones? We discussed the issue in relation to green ports a couple of years ago. People will remember, way back, Radio Clyde moving to Clydebank when it became an enterprise zone. A specific investment zone was set up, but it did not create any jobs or anything specifically; it just moved activity from one part of the city to just outside it. Are there any concerns about displacement in relation to that, which would mean it would be just reshuffling the deck, so to speak, but not creating any additional wealth?
That is a fair comment. It is important to look at that aspect—and, indeed, at the green ports work—through the lens of what we are trying to achieve, which is to create clusters of businesses in those high-tech, forward-looking technology areas and to create a coalescence around a geographical space that allows and helps to deliver those multiplying cluster effects across those areas.
Looking at the reliefs that are on offer, you benefit from LBTT when you move—by definition, somebody would have to move to get it, but they get it only by virtue of the fact that they are moving, so it is not an incentive per se to move into the area.
Typically, those businesses that are looking to move to create something are looking at the international context—they are looking for what Scotland has to offer if they come here rather than go elsewhere and considering the cluster in the round and the package of incentives that are part of it. However, it is fair to say that the bigger part of the matter is about what other businesses there are, what the opportunities are for finding customers and what the supply chain and the skills pipeline look like. Those aspects are probably much more of an attraction than anything that we are doing around particular reliefs.
Will those investment zones be in competition with green ports, for example? I know that green ports are ports, obviously, but what about attracting investment?
The investment zones are focused on specific areas and technologies—the one in Glasgow is centred around advanced manufacturing and AI, so it is quite a specific focus. The green ports are very much focused on supporting the offshore sector and the roll-out of floating offshore wind platforms in particular, so they have different specific areas of focus with regard to the type of technologies and industries that they are trying to attract.
Why were those two areas picked? For example, my area in North Ayrshire has the highest level of vacant and derelict land, proportionately, in Scotland, so it would be deemed to be underdeveloped. Why was Glasgow picked as opposed to, for example, an area in North Ayrshire—which also has the second-highest level of unemployment in Scotland—or Dundee, for which Michael Marra could, no doubt, make a similar claim?
The process, which I was not involved in at the time, was a joint process between the UK Government and the Scottish Government. As I said, it was a rigorous process that looked at several factors. The availability of underdeveloped land was one of them, but there were others, such as the existing business activity, its location, access to technology and the role of universities—several factors were chosen. Of course, in a perfect world, we would want to create more investment zones, but the offer that we took up from the UK Government was limited to two, and those two areas were chosen.
What additional wealth are you hoping that those zones will create, given the fact that there will be a reduction in revenue from LBTT? I would hope that the Government anticipates that that activity will mean that it will ultimately benefit by having higher revenues. What kind of timescale are we talking about? How will we achieve that, and what is expected to be achieved?
The first point to note is that LBTT happens only when somebody moves into the area, so if the counterfactual is that the transaction did not happen, you are not losing any money.
The second point is—
Well, if they move somewhere else where they have to pay, you are losing money. That is the point.
Yes. However, looking at the context, the work in relation to investment zones and green ports has largely been focused on the attraction of international investment for cluster developments.
The package of £320 million from the UK Government includes money to cover the foregone loss of the cost for LBTT—that money is covered by the UK Government in any event. For the Scottish Government, it is all upside, because it is about the other revenue that you get from income tax or other taxes over time from the economic activity and its multiplier effects. There is no loss to the Scottish Government per se in that regard.
But there is no ability to quantify the gain that one would hope to secure in terms of employment, additional taxation, additional revenue or whatever.
It is not part of my portfolio, but I can come back to you on that matter—unless officials have anything specific to say on the numbers. There are certainly numbers for the matched investment that is estimated or forecast to come in, which is somewhere north of £300 million. Liam Farrow might want to comment on your point.
First of all, LBTT is an important part of the overall package, but the vast majority of the funding that will come to us from the UK Government for these investment zones will be spent on non-tax interventions such as skills programmes and regional infrastructure. The regional economic partnerships that will be managing and delivering these investment zones—and that, indeed, have been integral to designing them—are still going through their business case processes and are doing economic analyses and appraisals of the likely outcomes. We can tell you that Glasgow city region estimates that it will secure, I think, £363 million of match funding from the private sector, and in the north-east the figure is expected to be around £260 million, with 10,000 and 18,000 jobs respectively being supported in these investment zones.
There will be more detail forthcoming—
I am sorry, but over what time period?
Over the 10-year period of the programme. There will be more detail forthcoming in the coming months, but we are somewhat beholden to the regional economic partnerships, which are working with the companies, universities and relevant stakeholders to develop the business cases.
Okay. We have had regional planning partnerships, green ports and so on, and vast numbers of jobs always seem to be attached to them, but I never really see those jobs quite materialising in the numbers that have been suggested.
We have seen a number of significant investments, with jobs running into the hundreds. They were really just at the start of the process.
To be fair, one would say that the situation is quite uneven throughout the country. We are not seeing it in Ayrshire, and I think that there are other areas where we are not seeing that sort of thing coming through the regional deals. Therefore, there needs to be greater focus on ensuring that what is being promised in terms of these developments is actually being delivered.
I call Michael Marra.
Minister, you said that you were not the minister in charge at the start of the process, which I think dates back to 2023. What is your understanding of how the selection process was carried out?
I was heavily involved in the green ports process, but I was not involved in the investment zones process. My understanding, though, is that a rigorous assessment involving a number of criteria was undertaken jointly by the UK and Scottish Governments. There are two investment zones in Scotland and eight, I think, across England and Wales, and, in the process that was undertaken, there was an assessment of a number of factors and the decision was made on the basis agreed between the two Governments.
Was there any application process?
Not to my knowledge, no.
The allocation was made on 22 June 2023, I think, and then it was announced that Glasgow and Aberdeenshire had qualified. However, it appears that the only correspondence between Glasgow City Council and Scottish Government ministers happened that morning—a letter was sent to Scottish Government colleagues on 22 June. The idea that you can write in the morning and get £80 million of funding by the afternoon is a bit of a joke, really, isn’t it? The convener began to set out some general concerns about certain regional issues—displacement issues, for example, and how these things might work—but surely there has to be full transparency with regard to how such decisions are made and whether there has been proper evaluation of the economic impact and potential.
As I have said, I was not involved in that process. My understanding is that a rigorous process was undertaken by the two Governments, with a number of criteria considered as to where the investment zones should be located.
Can you provide those criteria to the committee, in writing if not today? Perhaps your official wants to do so.
The methodology for the selection process is available online, and it involves high-level consideration of economic potential, innovation and knowledge anchors, as well as specific metrics that were used by the UK Government and the Scottish Government to select the two investment zones.
It strikes me that, at the time—in June 2023—the principal metric was probably the fact that there were Conservative seats at risk in Aberdeenshire and Scottish National Party seats at risk in Glasgow. Those were probably, first and foremost, the issues that the two Governments, working together, looked at in cutting out other parts of the country, if I am being honest.
Such an approach leads to that sort of issue being raised. The minister might disagree with my interpretation—I am sure that he does—but, if you do not have full transparency and a proper process in which people can develop bids based on the full economic potential of their areas, is that not a problem? Indeed, are you able to realise the full economic potential of that kind of investment if you do not have proper external bidding transparency based on long-term economic planning?
11:30
It is important that there is a process and that the process is robust. As officials have said, the criteria for the process are available online. There is an issue in that this is a zero-sum game and only two investment zones were on offer from the UK Government. Two areas had to be selected for that process, and criteria were used on that basis. At the end of the day, whichever areas were chosen through that process, other areas would have made the case that they were hard done by, as was the case with the green port selection process. However, the reality is that there were only two areas to be allocated, and a rigorous process was undertaken to select those two.
As I think you mentioned in your opening questions, convener, one of the minister’s colleagues attended the committee a couple of years ago to bring forward measures in relation to freeports very similar to the measures that he is bringing forward in relation to investment zones. My colleague Ross Greer, who was on the committee at that time, asked whether any measures were being taken to restrict the relief for companies that use tax havens. Am I right in assuming that nothing different has happened this time and that tax dodgers will still be entitled to access the tax relief?
Legally, everyone has to pay their tax, so I am not clear on what you mean by tax dodgers.
I mean those who use tax havens. I mean legal tax avoidance.
Anyone who is investing in the areas and taking advantage of the incentives that are on offer has to comply with all legal requirements, be those in relation to paying tax, regulatory issues, environmental or employment law issues, or any other issues. They need to comply with all the laws and regulations, as anyone else would.
Yes, they need to comply with the law, but the law allows them to use tax havens. The Scottish Government has, in the past, taken a different approach. For example, it was agreed, following suggestions from my party, that those who are based in tax havens should be restricted from accessing the emergency reliefs that came in during the pandemic. Why is the Government not taking the same approach now?
As I said, anyone who is taking advantage of the incentives and investing in those areas has to comply with all legal requirements.
That is the answer that you gave me last time.
Exactly. That is the answer to the question.
The question that I am asking is, why, according to the Government’s policy, is it a good thing in principle—when you want the alleged economic activity that this policy will generate to benefit Scotland—for the relief to be available to those who siphon their profits into tax havens?
Do you have examples of specific companies that this applies to?
It does not apply yet, does it? You are just bringing forward the regulation—
Sure, but it already applies in relation to green ports, for example.
I am asking whether the order ought to restrict this tax relief in respect of companies that are based in tax havens.
How would you define that? As I said, the companies would have to comply with all legal requirements.
There is a widely recognised United Nations list of tax havens that was used in respect of the tax reliefs that came in during Covid.
As I said, anyone who is taking advantage of the incentives has to comply with all legal requirements. If you want me to follow up on anything more specific, I am happy to do so if you write to me, but that is the situation.
We made the case at the time for the same restriction to be brought in for freeports—in other words, that companies that use tax havens should not be able to access the relief. The Government is already very familiar with the argument; it has been put before.
We have put the same argument to the Government in relation to companies that pay below the real living wage. The Government has a strong track record of supporting the real living wage and wanting to promote that. It took several years of consistent pressure to persuade the Government that it did, in fact, have the power to attach conditions to procurement and the provision of grants in order to ensure that the real living wage is paid.
However, in relation to the tax relief issue, the Government is still saying that it cannot do that, even though the tax relief is coming from a flexible funding pot. As you said a few minutes ago, anything that you do not use in tax relief can be spent in other flexible ways within those investment zones. Why are you taking an unconditional, blanket approach to the tax relief, rather than an approach that is targeted to companies and businesses that behave ethically, do not use tax havens and do not pay poverty wages?
The member will be aware that there is a list of criteria that a company must comply with in order to be eligible for relief.
They do not include the criteria that I am suggesting.
I suggest that we have done as much as we can on the fair work criteria, given that we do not have control over employment law, which means that there are legal restrictions on what we can do. You will be very aware that, for the work that we did on green ports, we engaged in the process only when there was a commitment from the UK Government and all parties that they would comply with the fair work agenda. The agenda has been signed up to by the green ports, which are taking that forward with the businesses that are seeking to base themselves in those locations. One of the criteria that they will use to assess businesses is compliance with the fair work agenda.
The same process will be followed in this case: a code of conduct has been written by both the regional economic partnerships, which will be used to assess bids and determine their eligibility and compliance with the criteria so that those businesses can receive the benefits. There are restrictions on what we can do, certainly with fair work, because we do not have control of employment law. We are using other measures to try to circumvent those restrictions so that we can influence business behaviour. We take that very seriously and I believe that we have done everything that we can to ensure that those criteria are in place.
To be clear about what you are and are not claiming, are you saying that a company that pays below the real living wage will not be entitled to access the tax relief?
First, there are legal restrictions on what we can do, because we do not have control of employment law. The criteria in the code of conduct will be used to assess whether businesses will be eligible for the benefits or not, as is the case with green ports.
Are you are saying that the payment of the real living wage is a criterion?
Yes.
And will those who do not meet that criterion not be able to access the tax relief?
That would be assessed at the point at which those businesses make the application for the tax relief benefit.
Does that mean that they would not be entitled to access the relief?
That is in the code of conduct, which businesses need to comply with in order to be able to access the relief.
If you are giving a clear guarantee that no company that pays below the living wage will be able to access the relief, why can you not take the same approach in respect of the use of tax havens?
I will add to the point about fair work and the codes of conduct that the minister has referred to. We have given a lot of autonomy in the programme to the regional economic partnerships, which are the local authorities that will be managing the tax sites. They will be required to follow the fair work principles that we have set out. That is a condition for them to receive funding from the programme. It is for them to ensure that companies that are within their tax sites—those that set up in the locations and receive relief—are complying with and are demonstrating that they are following the fair work principles. The codes of conduct are being drafted as we speak; they have not been finalised. There will be specific guidance on tax site management, which will be issued by the regional economic partnerships in the coming months when there should be more detail on that.
It sounds as though the minister’s answer was not as robust as he seemed to suggest it was. If the codes of conduct are still being written and local authorities, rather than the order that you are proposing, will determine how the rules are applied, it does not sound as though there is a clear guarantee that companies that use those practices will not be able to access the relief.
We are still in the development phase of investment zones. Throughout the process, which has been co-designed with the UK Government and the regional economic partnerships, we have made it clear that companies will need to demonstrate how they are going to meet the fair work principles and ensure that any new companies that are set up in the tax sites are following those principles. We have not yet got the specific detail of what the code of conduct will look like, but we will have it very soon. However, we have been clear that we are looking for ambition in that area and that their receiving that funding is conditional on the fair work principles being followed.
You are looking for ambition. I am sorry to press this—it is my last opportunity to do so: is it the case that a company that pays below the real living wage will be denied the LBTT relief?
Companies have to make the commitment that they are meeting the code of conduct.
Thank you—I think.
In answers to my original questions, minister, you leaned heavily on the robust methodology for the selection of the investment zones. Can you tell me the date on which that methodology was agreed?
I do not think that I or my officials have anything on the specifics of that. We might need to come back to you.
We would have to come back on that.
I ask because, after a freedom of information request, a selection note was published on 18 August 2023 and it was stated that the methodology was agreed on 22 June 2023. Mr Farrow mentioned that the methodology was subsequently published on the website, which is welcome. However, 22 June 2023 is the same day as the decision was made.
The methodology was agreed on the same day as the decision was made. Do you think that that would be normal practice for the allocation of public funds, minister?
I would need to go and look at the details on the specific dates that you are quoting, because I am not familiar with them.
Did it all happen in one phone call between ministers—that is, the methodology and the allocation of where in Scotland that money was to go?
I would need to go and check the details on the specifics of that but there was quite an involved process to be gone through.
It does not sound very involved. It sounds as though there was one phone call.
I would expect that there would be more engagement than that but, as I said, we will come back on the specific details.
Were none of your officials who are with you today involved in that discussion?
I am afraid not. There was a significant level of engagement at official level between the UK Government and the Scottish Government on the selection methodology and how the two sites were chosen.
Okay, because it says that the methodology was
“not discussed in great detail”
when it was agreed between ministers. That is in the response to the freedom of information request as well.
Perhaps you could come back with some clarity, minister, because you are leaning quite heavily on the idea that there was some kind of robust methodology. All the indications are that there really was not; there was a political stitch-up. So, if you can give us some more detail on that, that would be entirely welcome. Thank you.
Good morning. For the record, in relation to the structure of investment zones and the way in which this relief will apply in Scotland, are those broadly comparable or an absolute replica of the way in which investment zones in England are applying reliefs on stamp duty?
Certainly, the reliefs are broadly aligned in terms of the detail. I do not know whether there are any areas where they diverge, but my understanding is that they are aligned.
The tax reliefs are broadly aligned. We have sought a level of parity between investment zones in England and in Scotland, in order not to disadvantage anyone.
I note that some investment zones and freeports in England have not been designated as special tax sites, whereas the two in Scotland have. Is there any reason why some investment zones in England are not special tax sites but both of those in Scotland are?
I do not have the detail on the English tax sites, I am afraid.
Fine. Lastly, minister, implicit—or, perhaps, explicit—in this is an acceptance that you can achieve behavioural change in the corporate environment by reducing or eliminating taxes. Looking at the structure of LBTT in a corporate environment, would it be a goal of the Government to try to make sure that there were greater incentives to bring those sorts of developments to Scotland than the incentives in other parts of the UK? At this point, what assessment have you made of the competitiveness of the LBTT structure versus the full stamp duty regime in England?
Obviously, that is part of the picture. It is important that the measures are targeted, that we are clear about what it is that we are trying to do and that we understand the reason for it. In relation to green ports and investment zones, it is about targeting specific industrial sectors and specific locations where there are inherent advantages, with the intention of building clusters in those technologies that are world-competitive, in order to attract those technologies.
The tax piece is a part of that. If you look at the total amount of money in relation to investment and so on, the amount that is allocated to tax—as opposed to skills, infrastructure or other site-readiness measures—is a small percentage of the total. It will be part of the decision-making criteria for companies, but, again, it will be a small part of the overall consideration. In answer to your question: yes, those incentives and reliefs can play a role, but they need to be targeted and we need to understand what we are trying to achieve with them.
11:45
Do you accept the principle that by reducing a tax or eliminating it altogether, you can achieve a positive outcome?
If it is done in a targeted and specific way for a specific purpose, yes, of course.
Thank you. Is there anything else that you want to add before we move on, minister?
No, thanks.
I turn to agenda item 4, which involves formal consideration of the motion on the order. I invite the minister to speak to and move motion S6M-20212.
Motion moved,
That the Finance and Public Administration Committee recommends that the Land and Buildings Transaction Tax (Investment Zones Relief) (Scotland) Order 2026 [draft] be approved.—[Ivan McKee]
Would any member like to speak?
I am grateful to the minister for his comments during the evidence session. He appeared to give a fairly clear reassurance on the issue of the minimum wage. However, given that the codes of practice referred to have not been finalised, it feels as though that reassurance might be premature. The minister was not able to give any reassurance of the kind that I was seeking in respect of the use of tax havens. For those reasons, I will oppose the motion.
Since no other colleagues wish to contribute to the debate, I invite the minister to wind up.
I have nothing further to add.
The question is, that motion S6M-20212 be agreed to. Are we agreed?
Members: No.
There will be a division.
For
Gibson, Kenneth (Cunninghame North) (SNP)
Hoy, Craig (South Scotland) (Con)
Marra, Michael (North East Scotland) (Lab)
Smith, Liz (Mid Scotland and Fife) (Con)
Thomson, Michelle (Falkirk East) (SNP)
Against
Harvie, Patrick (Glasgow) (Green)
Abstentions
Mason, John (Glasgow Shettleston) (Ind)
The result of the division is: For 5, Against 1, Abstentions 1.
Motion agreed to,
That the Finance and Public Administration Committee recommends that the Land and Buildings Transaction Tax (Investment Zones Relief) (Scotland) Order 2026 [draft] be approved.
I thank the minister for his evidence. In due course, we will publish a short report to the Parliament setting out our decision on the order.
Meeting closed at 11:47.Air ais
Budget Scrutiny 2026-27