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Non-Domestic Rates (Scotland) Bill

Overview

The Bill aims to update the ‘non-domestic rates’ system in Scotland. Non-domestic rates is a tax on non-residential buildings or properties. Local councils use the money to help pay for local services. 

The amount paid depends on the ‘rateable value’ of the property. This is a value based on its size, location and other things.

The proposed changes to the systems supporting this tax include:

  • how this tax is collected and enforced
  • how information about changes to properties is collected and shared and  the introduction of fines for not replying to requests for information
  • how the property valuation system works, including:
    -  properties being re-valued every 3 years instead of every 5 years
    - those paying the tax can challenge the rateable value of a property after it has been assessed before having to appeal
    - changes to the administration of the ‘valuation roll’ (register of value of all non-domestic properties in Scotland) including being able to send emails about changes made

Changes to discounts

Some types of organisations get discounts for this tax, for example charities. This Bill proposes removing this discount from private schools, except specialist music schools.

It proposes guidance for councils on administering the discounts for not-for-profit recreational clubs.

Stronger tax avoidance measures

This Bill proposes stronger measures for councils to:

  • decide if a property is residential or commercial
  • recover unpaid rates 

It also gives Scottish Government ministers powers to make anti-tax avoidance regulations.

You can find out more in the Scottish Government document that explains the bill.

Why the Bill was created

This Bill is trying to implement recommendations from the Barclay Review. Published in 2017, it was the first review of this tax system for years. The review suggested 30 recommendations and some of these have already been made.

There have been recent changes to the non-domestic rates systems in England and Wales. To maintain a competitive business environment, the Scottish Government believes the system here also needs to change. 

This system would be more reactive to economic changes.


You can find out more in the Scottish Government document that explains the bill.

The Bill at different stages

'Bills' are proposed laws. Members of the Scottish Parliament (MSPs) discuss them to decide if they should become law.

Here are the different versions of the Bill:

The Bill as introduced.

Non-Domestic Rates (Scotland) Bill as Introduced

The Scottish Government sends the Bill and the related documents to the Scottish Parliament.

Bill is at ScottishParliament.SC.Feature.BillComponents.Models.BillStageModel?.DefaultBillStage?.Stage_Name stage.

Where do laws come from?

The Scottish Parliament can make decisions about many things like:

  • agriculture and fisheries
  • education and training
  • environment
  • health and social services
  • housing
  • justice and policing
  • local government
  • some aspects of tax and social security

These are 'devolved matters'.

Laws that are decided by the Scottish Parliament come from:

Government Bills

These are Bills that have been introduced by the Scottish Government. They are sometimes called 'Executive Bills'.

Most of the laws that the Scottish Parliament looks at are Government Bills.

Hybrid Bills

These Bills are suggested by the Scottish Government.

As well as having an impact on a general law, they could also have an impact on organisations' or the public's private interests.

The first Hybrid Bill was the Forth Crossing Bill.

Members' Bill

These are Bills suggested by MSPs. Every MSP can try to get 2 laws passed in the time between elections. This 5-year period is called a 'parliamentary session'.

To do this, they need other MSPs from different political parties to support their Bills.

Committee Bills

These are Bills suggested by a group of MSPs called a committee.

These are Public Bills because they will change general law.

Private Bills

These are Bills suggested by a person, group or company. They usually:

  • add to an existing law
  • change an existing law

A committee would be created to work on a Private Bill.

Introduced

The Scottish Government sends the Bill and related documents to the Parliament.

Non-Domestic Rates (Scotland) Bill as introduced

Related information from the Scottish Government on the Bill

Scottish Parliament research on the Bill 

Stage 1 - General principles

Committees examine the Bill. Then MSPs vote on whether it should continue to Stage 2.

Have your say

The deadline for sharing your views on this Bill has passed. Read the views that were given.

Who examined the Bill

Each Bill is examined by a 'lead committee'. This is the committee that has the subject of the Bill in its remit.

It looks at everything to do with the Bill.

Other committees may look at certain parts of the Bill if it covers subjects they deal with.

Who spoke to the lead committee about the Bill

Video Thumbnail Preview PNG

First meeting transcript

The Convener

Under item 2, the committee will hold its first evidence session on the Non-Domestic Rates (Scotland) Bill at stage 1. I welcome Eileen Rowand, director of finance at Fife Council; Jonathan Sharma, policy manager at the Convention of Scottish Local Authorities; Kevin Fraser, treasurer of the Institute of Revenues Rating and Valuation Scotland; and Morag Johnston, director of financial business services at Glasgow City Council and representative of the Society of Local Authority Chief Executives Scotland.

We will move straight to questions from members.

Alex Rowley (Mid Scotland and Fife) (Lab)

Does the bill, along with the early measures that the Scottish Government has implemented, sufficiently address the Barclay review’s findings and recommendations?

Jonathan Sharma (Convention of Scottish Local Authorities)

COSLA very much welcomes the bill. It covers a number of the Barclay review recommendations, as we understood them. We have worked very closely with the Scottish Government, and local government offices have been involved in that work, too. We have worked on an implementation advisory group, so we have a good understanding of how the Barclay review recommendations are being managed.

We understand why some recommendations have not been progressed and where the Scottish Government is coming from. I can mention issues relating to charity relief as the conversation develops. In the main, the provisions in the bill are what we expected to see following the Barclay review recommendations.

Morag Johnston (Society of Local Authority Chief Executives)

I echo those points. The bill picks up a number of the Barclay review recommendations. Its provisions will enable local authorities to bill and collect taxes more quickly, which we want to do. The move to three-yearly revaluations will also help.

Alex Rowley

Scottish councils are generally happy that the bill’s proposals will implement the Barclay review recommendations.

Jonathan Sharma

Yes. In our discussions with the Government, we have said that certain things need to happen. If there are to be three-yearly revaluations, it is key that the assessors are fully supported. We welcome the fact that the Scottish Government has provided funding for 2019-20 to ensure that assessors can start their preparation. It is essential that such funding continues into the next period, to ensure that assessors are able to undertake their activities effectively.

There must be reform of the appeals system. A significant amount of work has been undertaken on that, and local government representatives and assessors have been involved in discussions with the Scottish Government and other stakeholders about what the new appeals system should look like. That reform has to happen, because the three-yearly revaluation cannot proceed unless there is a convincing enough appeal system that will reduce the number of, in particular, speculative appeals.

Although we support the bill’s provisions, the essential thing is what is delivered on the ground.

Andy Wightman (Lothian) (Green)

I will talk about the broad scope of non-domestic rates. This is the first non-domestic rates bill that the Parliament has dealt with in the devolution era. In 2012, the Government was committed to conducting what it described as

“a thorough and comprehensive review of the whole business rates system.”

However, the Barclay review was limited to looking at the impact on business, and asked just one question.

The bill is an opportunity to change the law on non-domestic rates. Are there other things that you might wish to use the bill to do on, for example, who sets the rates and on the design of relief schemes? NDR was a local tax until the 1990s, after which it was centralised. Are there other things that you want that go beyond what the Government has introduced to Parliament?

Jonathan Sharma

I guess that it is best for me to answer that question. COSLA wants greater local fiscal empowerment, which is a key driver for us at the moment. We welcome the commitments that were made by the Scottish Government in the Budget (Scotland) (No 3) Bill, which were supported by the Greens following the stage 2 amendments.

We are strongly committed to working on a cross-party basis to look at a potential replacement for council tax and develop a fiscal framework that would encompass the whole local funding arrangement. We believe that non-domestic rates should be considered as part of that; it should not sit outside it. At the moment, it is a national tax—there is no escaping that.

We welcome the proposal to devolve empty property relief, and we are speaking to Government and local government officers about what that would look like. We need decisions from COSLA’s leadership on the options and its perception of the risks for local government.

It is important to stress that, although we might aspire to returning non-domestic rates to local government, a huge amount of thinking is required before we can even consider whether that would be possible. That includes a whole range of issues such as how local government financing would work and how the return of non-domestic rates would bring back accountability and proper local democracy to those who pay them.

There is a long road to travel to get anywhere near that happening. Nonetheless, there are aspects of the bill, along with potential devolution of empty property relief, that would start to bring in more local fiscal control of the rates system, and that is welcome.

Andy Wightman

I am aware that you have all been heavily involved in the Government’s follow-up to the Barclay review, and I saw that there were 27 responses from local authorities to various Barclay recommendations. However, now that the bill is before Parliament, there is an opportunity to do more, if we wish to.

I move on to the two Barclay recommendations that were rejected by the Scottish Government. Recommendation 28 is that all non-domestic properties should be on the valuation roll. That would mean that agricultural land, which is currently exempt, would be on the roll. We could give that land 100 per cent relief if we wanted to—if we did that, at least the cost would be transparent. Recommendation 29, which was also rejected, is that large-scale commercial processing—mainly food processing—taking place on agricultural land should pay the same rates as commercial food processing on a food park.

Do you have any views on the recommendations that were rejected? Are you content with that?

Eileen Rowand (Convention of Scottish Local Authorities)

We understand that it was the scale of the work required to get such properties on the valuation roll and then whether they would be exempted that led to those recommendations being rejected. We have had discussions with the Government about that and we understand the rationale for its decision.

Andy Wightman

You understand where the Government is coming from, but do you agree with its recommendations?

Eileen Rowand

The working group reached a position where it supported that.

The Convener

Will you clarify that point for me? Did the group support that recommendation 29 should be agreed to or that it should be left out because of the complexities of implementing it?

Eileen Rowand

We supported that it should be left out because of the complexities and the practicalities of implementing it.

Kenneth Gibson (Cunninghame North) (SNP)

We have already learned that such a measure would not raise any money, so what would be the point of it?

Andy Wightman

If no one else has anything to add, I will move on to recommendation 22, on the small business bonus scheme loophole for self-catering properties. Section 5 of the bill makes provision to define what a dwelling is, which is a precursor to implementing recommendation 22, which is to close a loophole whereby people with holiday homes can claim that they are self-catering properties for let and put them on the non-domestic rate roll then claim under the small business bonus scheme and pay nothing. The policy proposal is that such properties have to be intended to be let for 140 days and actually let for 70 days to qualify to be on the non-domestic rate roll.

The bill does not implement the policy recommendation—it only makes enabling provisions to allow the regulations. I noticed that there was quite a split of opinion in the responses in the report, “Analysis of responses to Barclay Implementation: A consultation on non-domestic rates reform”. IRRV Scotland said that properties

“must meet the multiple of 70 days total over the three or five years”

or over one year, and Scottish Borders Council asked what would happen if the requirement to let for 70 days was not met. Has anyone got any views on how the proposal might work in practice?

Kevin Fraser (Institute of Revenues Rating and Valuation Scotland)

It would be difficult to make it work in practice. We would like appropriate rates relief to be given to proper holiday lets. Sometimes, second homes are put into the ratings system purely for financial gain, and we want that situation to be addressed. The problem with the 70-day rule is that, when first written, the proposals referred to “a year” but did not specify whether that was a calendar or a rolling year. Therefore, there could be difficulties if the 70-day period crosses a financial year. It can be extremely difficult if things frequently move in and out of the rates roll and the valuation list, or if things change quite drastically.

We recognise that some properties are usually let out or occupied regularly, but that that might not be possible in some years—perhaps because someone is ill or there are structural issues and it is difficult to access the property. There may be situations in which occupation may not be possible in one particular year but the rules have been met in general. We want there to be something that addresses that.

Andy Wightman

Do you believe that we can do it?

Kevin Fraser

It will be quite difficult to judge where the decision-making power lies between the local authority and the assessors. However, it is achievable.

Andy Wightman

The assessors make decisions on what is admitted to the roll, but the separate question is whether councils should have discretion in how they apply the relief. I suppose that that is really a question for the councils.

Kevin Fraser

Yes. It would be useful for them to have that discretion.

Alex Rowley

What are the potential policy impacts of the changes to guidance for local councils on granting discretionary relief for recreational clubs? Do you have any concerns?

10:00  



Kevin Fraser

We would still want to support local and community-based sports clubs and anything of that ilk. There is an issue if wider sports clubs or organisations go beyond the local authority’s boundaries. There is recognition that there are two streams of sports clubs: there are local clubs, which we would want to support; and there are national clubs, which can afford to pay their way through membership income or other income. Perhaps we need to consider that approach.

Alex Rowley

So, a local bowling or football club—

Kevin Fraser

I would still want to see them being supported. However, there is an argument that larger-scale golf clubs, for example, should be able to pay their way.

Graham Simpson (Central Scotland) (Con)

I will jump back to something that Jonathan Sharma said about his desire to see non-domestic rates fully devolved to local government. He seemed to be saying that that might be too big a job. Surely, now is the opportunity to act. We have the bill in front of us, so why has that work not been going on?

Jonathan Sharma

As I said, we welcome the commitments that the Scottish Government made at stage 1 of the Budget (Scotland) (No 3) Bill to look at developing a fiscal framework. We think that non-domestic rates should be part of that, along with a potential replacement for the council tax. We want to couch this in terms of local taxation and local government funding, so that we can start to ask the questions. There are a lot of questions to ask about non-domestic rates and returning them to local control—if we were simply to do that tomorrow, that could create substantial disruption to local authorities, businesses and communities.

We believe that there is a path to follow. So far, we have not had that discussion with Government, but we hope that those questions will be part of it.

Graham Simpson

Do you not think that there is a role for the bill in tackling the issue?

Jonathan Sharma

There is no role for the bill to tackle it. Further devolution will be a longer-term discussion that will go into the next spending review and even beyond that.

Graham Simpson

Given that we have legislation in front of us, if you do not deal with the issue now, do you not think that there is a danger of it getting kicked into the long grass?

Jonathan Sharma

Given the commitments that it has made to us, I do not think that the Government has accepted that this is the end of the road for what could be done on local fiscal empowerment. I do not want to say whether the Government thinks that it has done enough on rates, but when it comes to local fiscal empowerment, it is committed and willing to sit down with us and the political parties to see what that looks like. That should help to shape how we look at a wider, more far-reaching transfer of powers on non-domestic rates.

Kenneth Gibson

I will follow up on that point. Do you see the domestic rates issue as being a two-stage process, whereby the Non-Domestic Rates (Scotland) Bill will be put to bed during this session of Parliament and we will have a further piece of legislation that looks at local fiscal empowerment in the next session?

Jonathan Sharma

I cannot spell out the shape of that. We are still in the early stages of discussion. We know that ministers are speaking to other political parties about the issue; they might not be speaking specifically about non-domestic rates, but they are talking about the fiscal framework and local fiscal empowerment.

Kenneth Gibson

The argument that is always made against giving local authorities the power to set rates locally is to do with where people spend their money. For example, people in North Lanarkshire spend their money in Glasgow, which obviously gives Glasgow a real advantage in rates income relative to North Lanarkshire. There are plenty of other examples from around Scotland of our cities benefiting in that way.

However, does that not just mean that the Scottish Government would have to readjust the grant settlement for local authorities to take account of the money that is lost by some and gained by others? Does COSLA take the view that, if that happened, we would just start with a clean sheet and move forward from there? In such a reorganisation, Glasgow City Council’s grant would be reduced, North Lanarkshire Council’s grant would be increased and that would be the page from which we would start. Is that how you envisage the process working?

Jonathan Sharma

As I have mentioned, those are the issues that we would have to discuss properly if any step were taken to consider a return of rates to local control. We have not had that discussion. I do not think that the bill is the place to have such discussions, but we welcome the opportunity to flag up the issue to the committee.

The Convener

We are veering away from the subject matter.

Kenneth Gibson

Yes, we will leave that for another day.

The Convener

I am sure that we will have that discussion on another day.

Kenneth Gibson

I think that it was important that we got that issue out of the way, because it is obviously the elephant in the room.

Graham Simpson

I want to look at the change whereby revaluations will be carried out every three years. What impact will that have on your organisations? The question is not just for Mr Sharma—we can hear from other people.

Morag Johnston

I mentioned in my introductory comments that I think that councils support that move to three-yearly revaluations. We accept that additional costs will be associated with that, which the financial memorandum to the bill sets out. At this stage, it is difficult to be certain what those additional costs will be, so we hope that conversations about that can continue with the Government and that we can keep those costs under review.

I have mentioned local authorities’ role in billing and collection, and their engagement with ratepayers when they receive their new rates bill. Although ratepayers will have received notification from the assessor at the time of the revaluation, it tends to be the local authority that ends up getting involved in the discussions at the time that the revaluation notices are issued.

The move to revaluations every three years will remove some of the issues that we experienced with the most recent revaluation. The fact that that took place after a seven-year period explains a lot of the significant movements in certain areas. I think that everybody’s view is that, if we move to three-yearly revaluations, significant variations will be limited in certain sectors, because people will not have to wait as long for the revaluation to catch up with what has happened economically.

Eileen Rowand

We welcome three-yearly revaluations. As Morag Johnston said, we hope that that will help us to get a better indication of market values and to keep that up to date.

If the assessors are to deliver on three-yearly revaluations, there will have to be a reduction in the number of appeals, because of the sheer volume of that work. We must consider the impact of what is proposed. We very much support the move to three-yearly revaluations, but we really need to take action on the appeals, and there are proposals in the bill to do that.

Kevin Fraser

You have a full house, because I, too, fully support three-yearly revaluations. I also support the move to a one-year rather than a two-year tone date, which will bring the values closer to market values at the time. As I have mentioned, I have concerns about the volume of appeals and the ability of the assessors to deliver the change.

The Convener

Andy Wightman wants to come in at this point. Is that okay, Graham?

Graham Simpson

I was going to continue on the same line of questioning, but I am happy for Andy Wightman to come in.

Andy Wightman

Section 2 of the bill will change the period between revaluations from five to three years, but it will not change the scope for ministers to change that period, as they have in the past. Do think that the bill should hardwire in the three-yearly revaluation period, or should the power to change the period still exist?

Morag Johnston

I do not know whether we have formed a view on that. There always has to be recognition that something might occur that might mean that achievement of a three-year revaluation might not be good for local authorities, assessors or even ministers. On the basis that it is useful to have flexibility, we might not want to hardwire in three-yearly revaluations.

Alex Rowley

Are you not concerned that ministers might be concerned about an upcoming election?

The Convener

You are so cynical, Alex.

Alex Rowley

Would removing the politics from it not be a better way of ensuring that what is meant to happen does happen?

Morag Johnston

I suppose that my response was based on the assumption that ministers’ use of that flexibility would be economically rather than politically driven.

The Convener

Absolutely. [Laughter.] Following Alex Rowley’s cheap political shot, we will move back to Graham Simpson.

Graham Simpson

Thank you, convener. Morag Johnston mentioned that moving to three-yearly revaluations will mean extra costs. Have there been any discussions with the Government about how to meet those extra costs?

Morag Johnston

I understand that the financial memorandum reflects primarily the costs that will be incurred by the assessors. As the cycle stands at the moment, they will have staff who are working on appeals or a revaluation. If a three-yearly cycle is brought in, the assessors will need staff who do both, so additional staffing resources will be required and the associated information technology costs will have to be met.

As I mentioned earlier, the costs for local authorities are also reflected in the bill. When we were asked to submit what the costs of the Barclay recommendations could be, it was difficult for us to make an assessment. We tried to do so—we know that there will be IT costs—but it has been difficult to assess the administration costs. We recognise that we can continue to have discussions with the Scottish Government.

Kenneth Gibson

Do you think that the financial memorandum represents a realistic assessment of the costs that the bill will impose on the assessors and local government? Do you have any issues with it?

Jonathan Sharma

I am probably best placed to answer that. The financial memorandum broadly reflects the figures that COSLA provided to the Scottish Government, which we welcome, because there have been situations in which we have submitted figures but they have been ignored.

I will add to what Morag Johnston said about the assessors’ costs. We tested those costings vigorously with the assessors, who are having to make estimates as well. The figures will never be absolutely accurate, but there is room for a bit of refinement, which the Government officers want us to do. We and the assessors will look at their costs for future years; their costs are the most significant from the point of view of administration costs, although there are costs to councils as ratepayers, which we might come on to.

With regard to the councils’ costs, in the course of preparing our response to the committee—I apologise for not being able to provide it until our leaders have signed it off—councils have said to us, “Hang on a minute—this provision will come at a bit of a cost,” so we need to look again at the figures that we provided to the Government. The Government officers know that, and they have said, “Go away and start to speak to the councils again.” We are looking to do that and we hope to bring back more refined costings that will help to inform the Government’s budget considerations.

The Convener

We will go back to Graham Simpson, although Andy Wightman might want to come back in on that point later on.

10:15  



Graham Simpson

If the bill is passed, the next revaluation in Scotland will be in 2022. I believe that the next revaluation in England will be in 2021. A lot of firms operate in England and Scotland, so would it be doable to bring forward the revaluation in Scotland to 2021? Would that be a good idea?

Jonathan Sharma

All I can say is that, from our meetings with the assessors through the Barclay implementation advisory group, I got the impression that they are pretty clear that even getting to 2022 will be challenging. It is more a question for the assessors, but that is what they have told us.

Eileen Rowand

I echo that view. The assessor whom I deal with would have real concerns about being able to carry out the revaluation before 2022, and they need to take into account where they are on appeals and other matters. It would be a real struggle for them to bring forward the revaluation.

Graham Simpson

There will still be outstanding appeals.

Eileen Rowand

Yes.

Graham Simpson

On a different subject, how will the proposed changes to the valuation roll and notices impact on the administration of non-domestic rates?

Kevin Fraser

Are you referring to the markers for the new and improved properties and the properties that are under repair?

Graham Simpson

Yes.

Kevin Fraser

The changes will help us greatly. We are already setting up some informal arrangements with assessors locally, whereby they will voluntarily put markers that are similar to those that are proposed on the roll. Including provisions on the markers in legislation will ensure consistency throughout all local authority areas and will help local authorities to make changes more quickly. More important, it will save people from needing to make applications for certain forms of relief, as it will be possible for those to be awarded automatically.

Graham Simpson

Mention has been made of appeals. What do you think about the proposal for a pre-appeal mechanism?

Kevin Fraser

Again, that is more a question for the assessors to answer directly, but we welcome the proposal. We welcome any appeal being dealt with at the earliest opportunity, at the lowest level possible.

Graham Simpson

Will the proposal help to reduce the number of appeals?

Kevin Fraser

It would force there to be an earlier exchange of information, which should be supported, because the lack of such an exchange is usually the cause of any disagreement about rateable values.

The Convener

What are the expected impacts of changes to how parks are entered on the valuation roll? Is there likely to be an impact on the services that are offered within park spaces?

Morag Johnston

Generally, I do not think that the proposals will necessarily impact on the services that are offered, but there is one area of concern. As you will be aware, a number of local authorities have set up charitable arm’s-length organisations, some of which are responsible for leisure services, which might take place in a park environment.

It is welcome that, very early on, the decision was made not to take forward the Barclay review recommendation regarding charitable relief for arm’s-length external organisations. However, conditions have been set and, in effect, a baseline has been created for the rates relief that is provided to charitable council-owned organisations.

Our reading of the bill is that if, in the future, a council’s ALEO was to set up within a park, it would not get charitable relief. There would, therefore, be a cost to local authorities in those circumstances. Existing services would not be affected, but there is a concern that there could be an additional cost for services delivered by an ALEO in the future, which we would need to take into account before setting up a new service.

The Convener

Do you accept or disagree with the suggestion that the change creates fairness across the piece? If something inside the park is providing pretty much the same service as something outside the park, is it fair if the one outside is paying rates while the one inside is getting relief?

Morag Johnston

If it were to be an organisation other than a local authority organisation, the way the bill is written—as we have interpreted it—means that it would be liable for rates. In that context, I think that the change is fair. My point was about the considerations for local authorities in relation to the additional costs that might fall to them because of the change.

The Convener

Okay. Does anybody else have any comments on that?

Eileen Rowand

As Morag Johnston said, the restriction on the relief that our ALEOs can receive, taken together with the changes that are proposed in the bill, means that there could be a cost pressure. We believe that those organisations are there for the community good and to deliver public services, so that is obviously causing a bit of concern.

The Convener

Is that the sort of technical issue that you are discussing with the Government or anybody else who is involved?

Jonathan Sharma

We have made it clear to the Government all along that that is a concern. We understand that if there are commercial facilities sitting in a park and others on the edge of the park, there is a question about why those outside the park should be paying rates when the ones in the park are not. However, to put this in context, the bill proposes an exemption for specialist schools—

The Convener

I am about to come on to that issue.

Jonathan Sharma

My point is that, if those schools are seen as being valuable, and our council services within the park are valuable, the fact that they are run by an ALEO is simply an organisational consideration rather than—

The Convener

Are those discussions going on just now?

Jonathan Sharma

Yes, they are.

The Convener

Okay. That is great.

Annabelle Ewing (Cowdenbeath) (SNP)

I have a brief supplementary. Taking advantage of Eileen Rowand’s presence, I have a question about Fife. The bill, as drafted, would require local authority owned parks that generate a net profit for the local authority to be entered for the first time in the valuation roll in circumstances in which there is not “free and unrestricted” access to the park, or where a local authority park consists solely of facilities that are charged for. At this time, would any park in Fife be impacted? I appreciate that I am putting you on the spot.

Eileen Rowand

We have considered the possible impact for Craigtoun country park, but we need to explore that further. There could be implications, because it is run by a body other than the council.

Annabelle Ewing

Okay. Is that the only park that springs to mind?

Eileen Rowand

Yes. I would have to come back to you with further detail.

The Convener

We will move on to the impact of changes to rates relief for independent mainstream schools. Does anyone have any comments on that? Will it impact them hugely or lightly?

Morag Johnston

For local authorities that bill for and collect rates, it will just be somebody else to bill and collect rates from. From that perspective, I do not see any particular issue. I imagine that there are broader issues concerning the fact that organisations that previously had relief from rates will now have to pay them. However, that was well discussed when Barclay first made that recommendation.

The Convener

Okay.

Graham Simpson

From COSLA’s point of view, there is the potential risk—and it is just potential—that some kids might leave the independent sector and come into the local authority sector schools. Have you done any analysis of that, or of the costs to councils?

Jonathan Sharma

We have not done any analysis, but that is interesting to hear. In our submission to the Scottish Government, we said that it is fair that the independent schools be treated the same as local authority schools. We are not aware that the changes would drive loads and loads of children out of independent schools and into local authority ones.

Eileen Rowand

I echo Jonathan Sharma’s comment. We believe that there is an issue of equity and we believe that the suggested changes are fair.

Alex Rowley

I want to broaden this out to the bill’s impact on the cost of council rates for a rate payer. Councils pay rates on their schools as they do on other buildings. Is there any concern in councils that the bill will have a negative impact on council finances?

Eileen Rowand

We have already raised the potential cost implications in relation to the parks. There has also been a lot of discussion about an increase in our administration costs. It is important for councils to look at the quantum of funding; the sums that are collected for non-domestic rates help to fund councils. If we improve our collection rates with earlier interventions, it should help us. We are looking at the financial impacts, and we are flagging the one relating to parks.

Andy Wightman

The last bit of the Barclay review’s remit was that the recommendations should be based on overall revenue neutrality; in other words, any recommendations that result in increases in rates should be balanced by decreases in rates.

It is my understanding—I might be wrong—that what drove this recommendation on schools was that councils looked down the list of reliefs and thought, “Which ones can we withdraw because we need to raise some money?”. It was not based on any fundamental appraisal of which properties that are currently charged for relief should have that status removed. For example, as I understand it, charitable relief will still be available to Shelter and Oxfam shops on the high street. That does not seem to be fair. I am trying to work out why you think that it is fair to pick out one particular sector from charitable relief—that is, schools—while not tackling universities, which are also charities.

Also, the provisions in section 10(3) of the bill are about exempting independent music schools. There is only one independent music school, but there are four mainstream centres of excellence—in Dyce, Plockton, Bearsden and the city of Edinburgh. Why is that fair? I do not understand that fairness argument, because it seems to apply to one narrow bit of the non-domestic rating system.

Morag Johnston

I will try to assist with that question. As has already been said, the focus on independent schools is seen as improving fairness because at the moment local authorities provide schools and have to pay rates for those schools. Therefore, the conclusion to charge fee-paying or independent schools was because local authority schools do not get rates relief. That is where the fairness argument has come from.

Andy Wightman

My question is whether that relief should also apply to charity shops in the high street.

10:30  



Morag Johnston

The challenge for local authorities is in determining whether the charity is national or local. Whether the benefits from the funds that are raised by the charity are seen locally—whether the funds stay in the local community—can be a consideration for local authorities. The issue of national charity shops has not necessarily come out through the bill process and, as far as I am aware, it has not been discussed more widely.

Andy Wightman

Do you support the relief for independent music schools, which do not have to pay full rates although mainstream, state-supported music schools do?

Morag Johnston

We need to try to understand why the independent music schools have been identified as being different from other independent schools. I draw a comparison with my point about local authority schools having to pay rates and other schools currently being partially exempt, which may explain why certain independent schools would continue to get rates relief and others would not. From the perspective of administrative processes, it would create more complexity in the system.

Andy Wightman

What would create more complexity? Are you referring to the provisions of the bill?

Morag Johnston

The fact that certain schools would no longer get relief, but a group of independent schools would still get relief would do that. We need to understand how to determine which schools fall within that group. If a new school is established, how do we know whether it is eligible for relief? My point relates to the potential challenges around non-domestic rates administration.

Kenneth Gibson

I point out that charity shops in my constituency are all run by local volunteers.

Presently, independent schools can get an 80 per cent discount on non-domestic rates. After the bill is passed, if a local authority wishes to continue to give those schools an 80 per cent discount, surely it will be allowed to do so?

Kevin Fraser

Under the Community Empowerment (Scotland) Act 2015, local authorities can grant any relief that they wish, but they have to fully fund it, therefore it is a financial matter.

Kenneth Gibson

The councils would still have the ability to grant the discount, though. The argument that was made earlier was that, if the 80 per cent discount was removed from independent schools, it might have an impact on state schools. My understanding is that charging independent schools at the full rate would result in only a 2 per cent increase in annual school fees, but local authorities would still have discretion as to whether they grant those schools the discount.

Kevin Fraser

Yes, under the 2015 act, the local authority is free to grant relief if it chooses to do so, as long as it fully funds that relief. There is an argument that that approach is an option, depending on individual financial implications.

Kenneth Gibson

Indeed. So, if a local authority felt that it was losing out financially by eliminating the discount, it could reinstate it.

Kevin Fraser

It could consider doing so.

Eileen Rowand

The local authority would have to consider the financial implications. It is fairly challenging for local authorities to get to a balanced budget position. Although the flexibility to grant the discount is there, we would have to look at our ability to do so.

Kenneth Gibson

Okay. Thank you.

Alexander Stewart (Mid Scotland and Fife) (Con)

I want to go back to Graham Simpson’s point. He talked about a potential knock-on effect on state schools in certain council areas. Not all councils would be in that position, but a number of them have a larger proportion of independent schools in their area. Depending on the non-domestic rates situation in that area, any such knock-on effect could potentially be an issue. For example, Perth and Kinross and Edinburgh have large independent school sectors, so pupils moving to state schools could have a massive impact on the community. Is that a potential problem, or has it not been looked at as part of the equation?

Kevin Fraser

Obviously, that is a potential problem, but my understanding is that there has not been sufficient analysis to know what the financial impact would be and what the likelihood of any transfers from private schools to state schools could be. There is still an argument that there is work to be done on that issue.

Alexander Stewart

In some locations, the number of pupils on school rolls already exceeds the number that should be on them, and the schools are at breaking point because they do not have enough capacity. The independent sector has capacity, which takes some pupils out of the state sector and supports it. If that was reversed, there could be consequences for both sectors.

Kevin Fraser

There could be.

To return to the point about the Community Empowerment (Scotland) Act 2015, a local authority does not have to give an 80 per cent discount; it could give a smaller discount if it chose to do so. Again, the local authority would not invite applications as such, but it would make people aware that there is scope for that and that the award does not have to be a full award to that value. The awards could be calculated case by case.

The Convener

If independent schools decided that they were not making quite enough money out of pupils and described or identified pupils as their profit, would that put at risk their charitable status? They have charitable status because they register as charities so, if they say that they cannot take in all those children because they will lose money, surely that would put at risk their charitable status.

Kenneth Gibson

That is certainly true for scholarship children.

Graham Simpson

There is an exemption for music schools. Would not it be relatively easy for other independent schools to rebadge themselves as music schools? [Laughter.]

Kevin Fraser

As long as there is a definition of what a music school is, it would be quite easy to scratch the surface and find out whether a school was being operated as such.

Graham Simpson

Do we have a definition?

Kevin Fraser

I think that there is one.

Jonathan Sharma

I want to speak slightly more broadly about the point that I made earlier.

There are provisions in the bill on which the Scottish Government has clearly taken a view: it is as simple as that. It has taken the view that it wants to protect particular institutions because it believes that they have a certain value. All that we want to say is that there is a point of principle relating to some of the services that local government provides, perhaps through arm’s-length organisations. That is where we are coming from.

We have not done the sort of analysis that has been alluded to. We are more than happy to take away the point that was raised about the potential risk of pupils coming across to state schools.

Annabelle Ewing

I will turn to collection of non-domestic rates. There are provisions in the bill that seek to put debt recovery of unpaid non-domestic rates on the same footing as recovery of council tax. Various proposals are intended to allow local authorities to take action sooner on debt recovery. Would the proposals in the bill achieve the objective that is sought in that regard, which is that councils would have the same powers in relation to non-domestic rates as they have in relation to council tax? Do you wish to see other provisions included in the bill?

Kevin Fraser

No—the provisions are as they should be. Aligning non-domestic rates with council tax will make things easier to understand from an administration’s and a customer’s point of view. The bill will do what it intends to do. As well as seeking earlier collection, it seeks earlier interaction with customers so that, if people are having difficulty paying, it will not be October before the council finds out. The bill will give us the right balance with those powers.

Annabelle Ewing

Do the other witnesses agree with that summation?

Morag Johnston

Yes.

Annabelle Ewing

In light of the relative ease with which people would be able to seek to recover non-domestic rates debts, do you foresee that that would be of significant help in reducing the administration around non-domestic rates and improving the financial pot that is available to local authorities?

Eileen Rowand

The main advantage of the proposed move to instalments is that there would be earlier engagement with businesses about payments. The earlier we can work with individuals, organisations or businesses to get them to a position in which they can pay, the better. The move to a similar approach to instalments to that for council tax is welcome. We hope that that will improve our recovery position, although we do quite well at recovering non-domestic rates.

Annabelle Ewing

If somebody gets into debt, the best time to engage—for the individual and the creditor—is when that happens, so that both sides can come up with something together. If things are left to slide, it is difficult to find a solution.

The proposed information notices will facilitate a greater flow of information to local authorities, which will support assessment, billing and reliefs. Is the bill’s approach to such notices generally welcome?

Morag Johnston

The bill says that, if information is not provided, the assessor and the local authority can raise a civil penalty, which is welcome. That provides the ability to make an additional charge if ratepayers do not engage.

However, I have a point about the penalty levels that the bill sets. The purpose is to encourage people to provide information; if they do not do so, it is probably because they do not want to. For some businesses, the penalty levels that the bill sets might not be enough to create an incentive to provide information, although they might be enough for others. If a business is due to pay thousands of pounds, the penalty levels might not be enough of an incentive.

Annabelle Ewing

For failing to give the assessor information, the penalty will be £100, and failing to comply within 21 days of a notice being issued will lead to a further £100 penalty and a daily penalty of £20, up to a maximum of £500. Your point is that that is adequate for some businesses but is perhaps not enough of an incentive to comply for larger players.

Morag Johnston

Yes. A penalty of £500 might encourage some businesses to pay their rates, but the risk is that it might not do that for others. Responses to consultations had suggested introducing a scale of charges that was linked to the rateable values of properties; I appreciate that that might cause a difficulty if a property had not been valued, but having the ability to vary the civil penalty rate might better meet the intention of encouraging businesses to pay their rates.

Annabelle Ewing

Are discussions about the issue on-going? Do you seek discretion—full stop—for assessors or additional provisions to carve out the larger player side of things?

Morag Johnston

I do not know whether my colleagues know about that, but I am not clear about whether such discussions have taken place. The bill needs to set parameters; I imagine that linking them to rateable value bandings might be doable, but I am not aware of any discussions about that.

Jonathan Sharma

We have had comments from councils about the penalty levels and about who can be asked for information. Kevin Fraser can correct me if I am wrong, but I think that one comment was about whether councils can approach solicitors for information. There is a question about which party withholds information.

We welcome the fact that the bill provides for assessors and councils to request the information by law. That should be enough to encourage compliance; otherwise, people would end up transgressing the law. In our submission to the committee, we said that we would consider how that works out in practice and whether there is a need to be clearer about aspects of it.

10:45  



Eileen Rowand

We have had discussions about that with the Scottish Government at the working group. It is therefore aware of concerns about the ability of the £500 penalty level to act as a deterrent.

Kevin Fraser

If the ratepayer was a limited company, it would be useful if there was the power to ask the director of the company to provide information and to hold them personally responsible for any failure to do so. If a company will not pay rates and its intention is to go through the phoenixing process later down the line, I imagine that—in a lot of cases—it will not be much bothered about an additional fine. However, the power to ask the directors for information and to hold them personally liable for the fees would go a long way to helping the position.

Annabelle Ewing

That is an interesting suggestion.

I have one last brief question. The penalty levels that have been set for failure to comply with local authority information notices appear to be slightly different. The initial penalty is £95, and I am not quite sure what the maximum penalty is. As far as you are aware, why has a slightly different level been set?

Kevin Fraser

To be honest, I do not know the answer to that. I know that there is a second level penalty of £370 for failure to comply with a first notice. However, I do not know why there are two different schemes.

Alexander Stewart

I will ask about anti-avoidance measures. Sections 5 and 12 aim to tackle or minimise tax avoidance. Are the tactics in the bill strong enough? Should they be seen as a positive devolution of power to local authorities or as an extra burden on the local authority?

Kevin Fraser

Those powers are definitely welcome, because there is certainly work to be done to tackle wide-scale rates avoidance. However, my worry is that the bill does not go far enough to tackle real problems such as the phoenixing companies that I mentioned. There is nothing in the bill that would help us to get out of that problem.

There needs to be more in the bill to help us to pierce the corporate veil, as the phrase goes. We need to find out who is behind the business and profiting from it, and to scratch under the surface of any companies that are set up in order to appear to be running. It would therefore be welcome to see more in the bill about phoenixing companies specifically.

Alexander Stewart

Is there enough resource or capacity, with workforce planning behind it, to achieve that? Alternatively, is it the case that there are not enough people to go and find that information, meaning that it would have to be in legislation to give that extra bonus?

Kevin Fraser

It would be helpful to have it in legislation because, at the moment, phoenixing companies are not breaking any law in the way that they operate. We therefore do not have much power to do anything. If the bill said that that action is wrong and should not happen, that would give us the power to address it head on and people would not be able to hide behind company rules, as they do at the moment.

Morag Johnston

On resourcing, part of the difficulty for local authorities is the way that the legislation is framed. As Kevin Fraser outlined, such companies are not breaking any laws, so it can be quite difficult. We would therefore look for the general anti-avoidance rule to put in place parameters that make it much easier for local authorities to get to a place where they can recover rates in a situation where there is a phoenix company.

Alexander Stewart

What does local government think needs to be there to make that happen?

Eileen Rowand

On the previous question, there would be increased policing costs for us, but those would be vastly outweighed by the additional non-domestic rates that we would be able to collect.

Alexander Stewart

As I said, local authorities do not have those powers at the moment. Unless they are beefed up, will it be a major issue to achieve that?

Jonathan Sharma

Yes. We would need to understand what is required. In a way, we are talking about a proposal for a new regulation and we have not had that discussion yet. We welcome the general anti-avoidance rule, because it is a placeholder to allow consideration of subordinate legislation or other measures to tackle the issue. We will be calling for that kind of discussion. We need to get the Government and the right people round the table to talk about how we can tackle it and whether we need legislation or other measures. The general anti-avoidance rule is about trying to give us scope to do that without getting caught up in primary legislation. There is more to come in that discussion.

Alexander Stewart

As you say, it gives you a stepping stone to something else, which would be much more beneficial to the organisations because it would bring in the revenue and help fund some of the gaps. It would also give back some of the burden.

Jonathan Sharma

COSLA would want to be fully engaged with the Government at an early point in any consideration of that.

The Convener

Will you describe what a phoenix company is, Mr Fraser?

Kevin Fraser

Phoenix companies are common in the public house trade, for example. A company will trade under a name or banner, that company will dissolve—its debts will have to be written off—and then a new company will open up the next day, but the sign above the pub will not change and nor will the staff. The business will not change—it is just the mechanics of doing away with debt and a company re-inventing itself.

The Convener

Thank you, that is very clear.

Kenneth Gibson

I will just add that that is why we have to make company directors individually liable, rather than the business. That is being done through the Unsolicited Marketing Communications (Company Directors) Bill that Patricia Gibson MP introduced in the House of Commons.

What is the estimated level of avoidance in Scotland?

Kevin Fraser

I do not have direct figures on that.

Kenneth Gibson

I am looking for parameters. If it is being avoided it will be hard to know exact amounts.

Kevin Fraser

There is one case that is going through at the moment where £2 million is at risk of being written off—that is for just one operation. There are not that many. I should stress that the vast majority of ratepayers are 100 per cent honest and we have no problem at all with them—they pay their dues when they are due. It is a very small minority who avoid paying, but the sums involved can be substantial.

Kenneth Gibson

Eileen Rowand talked about the fact that the new anti-avoidance measures would bring in more revenue than they would cost. To look at this another way, do you have any ballpark figures for how much additional revenue could be brought in through the new anti-avoidance measures? I realise that it is quite difficult to get hold of figures for people who are avoiding paying, but it would be good to understand how significant the new measures would be.

Eileen Rowand

We are well aware that it happens and that avoiders exist. At the moment, we do not have effective tools to tackle that, which is why we welcome the anti-avoidance rules that are being introduced. We cannot really put a figure on it. Individual authorities will have identified instances of avoidance over the past few years but, as you say, that is not the full picture.

Graham Simpson

The question around phoenix companies is interesting. Is it possible for us to get some kind of idea of the scale of the issue from the perspective of individual councils that have been unable to collect rates debts from companies because they have closed down? Do you have any examples that you can pass on to us?

Kevin Fraser

The scale is not huge. There are probably one or two that are known to carry on at any one time in each local authority area.

Morag Johnston

It can be quite difficult to identify a company as a phoenix company. Although we might see a pattern of a particular premise continually changing hands, the directors of the companies are often different. Although we may suspect what is going on, unless it is obvious that the directors are the same, it can be difficult to identify such companies.

Often, it depends on local knowledge. As Kevin Fraser identified, the name over the door might not have changed but, from our rates records, we know that there have been three or four different companies in place. That is where it can be difficult. In Glasgow, we have a rates base of about 28,000 properties. To give you some context, we are not even talking about hundreds of cases, but it happens and it is unfair for the ratepayers who pay.

Graham Simpson

Mr Fraser, it sounds like you are looking for an amendment to the bill.

Kevin Fraser

Ideally, yes. We are highlighting the fact that we need to look at the corporate veil or company liability and to deal with phoenix companies.

Kenneth Gibson

I had already taken a note of that, but I am sure that the minister will be listening.

Andy Wightman

A couple of questions ago, Jonathan Sharma mentioned a note that he had given the committee, but we have no written evidence from COSLA.

Jonathan Sharma

We expect the committee to have COSLA’s submission by the end of May. The council leaders will meet a week on Friday and I hope that the submission will be available immediately after that.

Andy Wightman

That is excellent.

Kenny Gibson raised the financial memorandum, and we have just talked about penalties. Perhaps I should know this, but do you receive the moneys from penalties or do they go to the courts administration?

Kevin Fraser

I understand that councils retain the moneys.

Andy Wightman

They come to the councils—that is fine.

The financial memorandum says that the administrative cost to local authorities, assessors and the Scottish Government will be £32 million and that the cost to ratepayers through NDR liabilities and potential penalties will be £68 million. Broadly speaking, do you accept all the figures in the financial memorandum?

Eileen Rowand

Yes.

Andy Wightman

You are broadly content.

The figures of £32 million and £68 million are dealt with in the summary table on page 21. Have there been discussions with the Government about baselining those costs? If councils are to receive £68 million over the next five years, have there been discussions about netting off the enhanced administrative costs that will arise? As a consequence of the bill, will councils be no worse off?

Jonathan Sharma

It has been made clear to us that there will be nothing forthcoming for any costs to councils as ratepayers. Councils will be expected to pay along with all other ratepayers—that is the message that we have had from the Government. We have made our point about the implications for ALEOs; some of that is captured in the financial memorandum.

Our councils provided the figures for the costs as ratepayers and the administrative costs. For the administrative costs and, in particular, the assessors’ costs, which are the biggest element, I have already stated that we welcome the funding for 2019-20 and that we expect full funding to be provided for future years. We will do a little more work on assessors’ costings and local authorities’ costings.

Andy Wightman

You are correct that the biggest single administrative cost—£29.1 million out of a total of £31.9 million—is for the assessors. Local authorities govern the assessors—the valuation joint boards are run by councils—and councils pay them. You want the Government to make sure that the costs of the £68 million of income from ratepayers are met from that £68 million and that you are left no worse off from having to pay your valuation joint boards £29.1 million to meet extra costs.

11:00  



Jonathan Sharma

We have to accept that there will be some costs to councils as ratepayers; there is no getting away from that. If there are ways to alleviate costs through charitable relief for ALEOs, the message that we want to get across today to the Government is, “Look—can we have greater flexibility on that?” That might bring down the costs to councils as ratepayers.

As I said, we expect all the administrative costs that have been identified to be covered through central funding.

Andy Wightman

I make it clear that I was not asking about the impact on councils as ratepayers, which is covered in the £41.9 million. I am merely asking whether you expect the £29.1 million—the biggest single administrative cost—to be covered.

Jonathan Sharma

In the discussions that we will have on refinement of the costs, we will expect the costs to be recognised—for example, in the next spending review.

Andy Wightman

Are you content with the financial memorandum’s assessment of the potential costs to ratepayers and the impact of those costs on, for example, independent schools and others that will have to pay more rates?

Eileen Rowand

It is hard for us to say that we can sign those elements off, as we have not necessarily provided the figures. We are happy to speak about the administration costs that have come through and been provided by local government, but the Scottish Government has worked on the other elements.

The Convener

On that note, I thank the panel for attending today’s evidence session on the bill. Further sessions will take place over the remainder of May and June. The committee will consider the evidence that has been heard later in the meeting.

11:02 Meeting suspended.  



11:04 On resuming—  



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Second meeting transcript

The Convener

The next agenda item is the committee’s second evidence session on the Non-Domestic Rates (Scotland) Bill at stage 1. I welcome, from the Scottish Assessors Association, Ian Milton, who is its president; Alastair Kirkwood, who is its vice-president; Jim Doig, who is chair of the public buildings committee; and Heather Honeyman, who is project manager for non-domestic rates reform implementation.

We will move straight to questions. Does the bill as drafted, along with the early measures that have been implemented by the Scottish Government, sufficiently address the findings and recommendations that were made by the Barclay review group?

Ian Milton (Scottish Assessors Association)

The answer is yes and no. The bill goes some way towards addressing those recommendations. It introduces more frequent revaluations, on a three-yearly basis, which is an excellent move forward and means that rateable values will be more aligned to markets and more likely to meet occupiers’ expectations and understanding. However, the bill does not go as far in some aspects as we would wish, but that does not mean that it will not get there at the end of the day.

The bill is moving in the right direction. The main issue for us is information, which is absolutely critical for assessors. We cannot assess properties unless we have accurate and complete information, which is about not just the physical circumstances but the letting, costings and relationships between occupiers and interested parties in a building, which can be quite complex. The information powers that are introduced by the bill go some way towards achieving that, but not as far as is necessary to ensure that we get our job done.

The Convener

Will you or another witness expand on what is lacking with regard to gathering information?

Ian Milton

Certainly. Heather Honeyman will speak to that.

Heather Honeyman (Scottish Assessors Association)

As Mr Milton said, the bill moves in the right direction. However, for us to achieve the three-year revaluation cycle, it is key that we have the right information in at the right time. It is not just about getting our returns; it is about making sure that they are comprehensive and understandable so that we get the right valuations up front. We hope that more accurate valuations will result in a reduction in the number of appeals.

We welcome the move to civil penalties for non-return of information, but the SAA believes that it would also be helpful not to repeal section 7 of the Lands Valuation (Scotland) Act 1854, which retains the criminal penalty. Having the two strands would help to ensure a comprehensive return. Information is key to accurate valuations and streamlining the process.

The Convener

What is missing that would help you to get that information? You said that the Government has moved on with the bill, but not far enough. What could be put in to allow you to get the information that you require?

Heather Honeyman

As it stands, we ask for information, but the issue is the enforcement of the return of that information. The bill includes moves to improve that situation, but we need to be sure that they will be taken to the point at which not returning the information will not be an option. It is necessary to get the information and it has to be the right information.

10:00  



As things stand, we ask for information, and we get a low percentage of returns in some areas. During the appeal process, which is some way down the line from the original valuations being presented, that can result in a reduction to the rates per square metre, for example, which can undermine the original valuation and result in appeal loss. That could potentially have been avoided if the information had been submitted at the start of the process rather than later on.

The issue is having the full presentation of information at an early point. Our returns can often be incomplete, or the information can be given to us in a way that is difficult to analyse.

The Convener

So the only thing that is missing is having criminal penalties still in place as well as the civil ones.

Heather Honeyman

That would certainly help. The goal is to make it more challenging for people to avoid returning the information.

Ian Milton

Getting down to specifics might help, so I refer to section 14. It is anticipated that the assessor will be given the power to request information that

“the assessor may reasonably require for the purpose of valuing the lands and heritages referred to in the notice.”

For me, that is far too narrow. One of the big issues for me and all assessors is that we will have to do the revaluation every three years. Every 36 months, we will have to refresh our values, and we will have only around eight to 12 months to do that work from the tone date once we move to a one-year tone. Therefore, we will need the information to come in very quickly, but we do not want to be restricted to asking only for information that will allow us to value particular properties, because a lot of our properties are valued by reference to costs. We use unit costs, and we analyse costs. At each revaluation, we will already have a valuation roll with a quarter of a million properties valued in it. At the next revaluation, two years into the previous revaluation, we will want a refresh of that data. We might want information for a property that we have already valued, but it will inform our next revaluation. Therefore, we really need a power to reasonably request information that is required to fulfil our statutory duty to maintain valuation rolls. If it is simply a case of asking for the information to enable us to value a property, that is not sufficient for us to do our job.

We look at not only cost and rental information; as I mentioned in my opening statement, we look at information about relationships and who has what interest in property. That is becoming very complex, with management agreements and the way that complex industrial properties—such as those used for energy—and many other lands and heritages are now delivered to an occupier or user. Whoever appears to be the user of the property might not be in law the proprietor, tenant or occupier whom we have to identify and value.

That gets down to the unit of valuation. We need that detail, but it is often tied up in confidential agreements that are not disclosed to us when we need them to update the valuation roll. If the information is provided at a later date, we cannot wind back to the valuation roll and make the right entry beyond the current year. There is the serious issue of ensuring that we have access to all cost, rental, occupation and relationship information about properties.

I realise that the power is very wide, but we need it to do our job properly, provided that there are checks and balances, as anticipated. The request has to be reasonable and reasonably made.

Jim Doig (Scottish Assessors Association)

It is worth building on what Mr Milton has just said. The one-year tone date with the three-year revaluation will make it extremely difficult for us to get information when we need it. One of the potential issues with civil penalties is that, if we needed information on a property that was not on the valuation roll, the maximum penalty would be only £500. There would be no entry on the valuation roll at that time, so there would be less of an incentive for someone to send the information back.

The Convener

Are you saying that it would benefit people who were not giving you information not to be on the valuation roll?

Jim Doig

Yes. If we were dealing with a large complex industrial property or one that had a multimillion-pound value, a £500 civil penalty would be neither here nor there.

Alastair Kirkwood (Scottish Assessors Association)

I will make three points in answer to your question, convener. The first request that we would have on information gathering would be the wider powers that Mr Milton mentioned. The second is clarity on the extent of the penalties and the precise circumstances in which they would apply. The third element is the timescales within which responses would have to be made to information requests. I will be happy to go into the issues on penalties in greater detail if the committee wishes me to do so. I have a number of points to make.

The Convener

I am sure that there will be an opportunity later, but we have quite a lot to get through. I say to all our witnesses that they should not feel that they have to respond if they do not have anything specific to add.

Heather Honeyman

I would like to add a point about timing. The bill proposes a period of 56 days for the return of information, which is quite a long period, given the timetables that we have touched on.

The Convener

What would be your favoured timescale?

Heather Honeyman

Around 28 days would seem to be more reasonable, given that we are trying to move towards a three-year revaluation cycle.

Andy Wightman

I have a few questions, but first I want to pick up on Ian Milton’s observations on the potential difficulties in obtaining information from complex properties. It used to be the case—until the 1960s, I think—that rates were split: there was an owner’s rate and an occupier’s rate. If it is difficult to identify the real occupiers of very complex properties, is there an argument for going back to just levying rates on the owners, who would be much easier to find out? It would then be up to the owners, if they wished, to apportion the rates to occupiers, tenants, management companies and so on.

Ian Milton

That is an interesting point, which I have not yet explored. The complexities arise with particularly large sites on which there is perhaps an energy module that is under a management agreement or a design, build and supply agreement, and perhaps a processing or manufacturing unit. In such cases, even the ownership details could be quite complicated. Moving away from occupiers rates to owners rates would be a major strategic shift in taxation. As I said, I have not explored that for the purposes of this meeting, but I could have a think about it.

Andy Wightman

I am just exploring possibilities, but might there be a case for having a default power on such complex sites? If it was difficult to ascertain the occupier, you would then have the power to levy the rate on the owner of the land. It is always easy to find out who the owner is, because that will be registered with Registers of Scotland.

Ian Milton

It could form a resilience point whereby, if it was difficult to obtain information as to precisely who was in rateable occupation of which element of the subjects, we could fall back to the owner, which would ensure that the valuation roll was complete and the property was assessed. It might open up arguments and questions on units of valuation, so you would have to start to look at precisely how it would sit comfortably in the current legislative framework. However, I suppose that the principle is there.

Andy Wightman

I want to talk about parks, but before I do so I want to ask about a matter of professional best practice. Let us say that the Government took a policy decision to exempt graveyards from rates. Is it correct that rates are payable on those at the moment?

Ian Milton

They are certainly assessed.

Andy Wightman

Let us say that the Government decided that rates should not have to be paid on them. Would it be good practice to exempt them from the roll, or would it be better to have them on the roll but made subject to relief?

Ian Milton

The Scottish Assessors Association’s position throughout our involvement in consultation responses, going back to the “Supporting Business—Promoting Growth” consultation in 2013 and in the more recent consultation last year, has always been that, if all land and heritage is entered on the valuation roll, we have complete transparency and clarity on the landscape in terms of valuation. It is then up to local government and central Government to decide how they want to use their economic levers and whatever strategic objectives they have to grant reliefs.

At present, we have a mixture of reliefs and exemptions. We made reference to that in our responses to the Government consultations last year and in 2013. For example, rural ATMs are exempt; agricultural land is exempt, too, as are many other subjects, as you know. Therefore, there are gaps in the valuation roll that introduce an element of opacity to the overall land valuation assessment process.

Andy Wightman

As a matter of principle, therefore, does the Scottish Assessors Association agree with recommendation 28 in the Barclay review, which states that

“All property should be entered on the valuation roll ... except public infrastructure”?

Ian Milton

Our position is that it is easier to value everything than it is to be selective. If we have everything on the valuation roll, we have a much clearer situation.

Andy Wightman

Would that therefore also go for recommendation 29, which is that

“Large scale commercial processing”

that happens to take place

“on agricultural land”

but which is exactly the same as processing that takes place in a food park should be rated? Would you want that, as a matter of professional best practice, to be on the roll and then the Government to make a policy decision as to why farmers who make ice cream should not pay rates but other businesses that make it should pay them?

Ian Milton

Yes. The position is that, for transparency, it is much better to have a complete valuation roll that has all lands and heritages shown on it. That gives Government and those who determine policy the opportunity to decide precisely how they want to implement local taxation and the distribution of rates according to our assessments, granting reliefs or otherwise through their process.

Andy Wightman

Other members of the panel are free to come in. You all represent the Scottish assessors in some way.

That brings me on to parks. I confess that I am a little bit confused about the provisions on parks. The Barclay report says:

“all public parks are exempt from rating and there are no plans to change this, except where commercial activity takes place.”

As I understand it, the provisions in the bill try to bring into the rating system those parks or parts of parks where commercial activity takes place. Is that a fair summation of what the bill attempts to do?

Heather Honeyman

Yes. The issue is to do with the definition of “commercial activity”. Not all public parks are exempt at present, as they have to fulfil specific criteria. The Barclay review recommended that that be broadened to cover commercial activity. The bill could bring in more parks than has been envisaged, depending on the definition of “commercial activity”. Given what is proposed, various types of subjects could be brought in.

The bill is potentially a little unclear on restricted access. For example, public parks that are exempt at present may have within them trampoline areas or putting greens that customers have to pay to enter. Is the suggestion that such areas should be on the roll but the remainder of those parks, which there is no charge to get into, should be exempt? Or is the proposal that the whole park should be included because part of it has restricted access?

At the moment, buildings that are considered ancillary to the park would also be exempt. The proposals in the bill suggest that those would come on to the roll. Bowling clubs and sports clubs might enter the roll because they are not in the occupation of the local authority.

10:15  



We also need to think about what a park is. When we think about parks, we think about green areas, but the definition of park can extend to other types of subjects, such as golf courses, bowling greens or sports areas—effectively, recreation grounds—which might not be what first spring to mind as public parks. Many properties are exempt at the moment and the proposals would bring them on to the roll. They might be subject to rates relief, but they would be included in the roll.

Andy Wightman

That is similar to my earlier point: they might be subject to relief but they will be on the roll.

The Barclay review highlights the fact that the St Andrews links’ courses are exempt from rates because the land is classed as a public park. It is owned by a trust, but the courses are commercially operated, and other golf courses pay rates.

Is there a problem with section 4? In your evidence, you highlight that

“It is not clear from the Bill how Assessors should deal with local authority parks where part is open for free and unrestricted access and part is not.”

Going back to my previous question, would it not be better to bring all parks on to the roll and, through secondary legislation, deal with what is rateable and not rateable, so that you can adapt to circumstances that are changing all the time? In Edinburgh, there are proposals to turn the Ross bandstand into a commercial venture. The occupation and use of parks change all the time.

Heather Honeyman

I take your point. Assessors would respond to what the legislation stated. As I mentioned, in relation to restricted and unrestricted areas, we need the proposals to have more clarity, so that we can be consistent in our approach to our task.

Andy Wightman

Thank you. I have other questions on dwellings, but I will ask them later.

Kenneth Gibson (Cunninghame North) (SNP)

I have a straightforward question. If everything is added to the valuation roll, what would be the resource implications for staffing and costs?

Ian Milton

Over time, that issue has exercised our minds. As we have said, we are conscious that the proposal would impact on us. We are no strangers to that sort of task. Our recent experience of adding shooting rights and deer forests to valuation rolls required a significant commitment of resources and the lessons that we learned from that were useful. One was about the information that we receive. As I said, we need the power to get information, not just to value a subject but to value that category of subjects. The real challenge is getting good-quality information, particularly when we come to agricultural holdings. Off the top of my head, I think that there must be between 20,000 and 30,000 agricultural holdings in Scotland. I imagine that the Scottish Government has considerable data on agricultural holdings; the issue is the quality of that data and whether it provides us with the information that we require. When we embarked on the shootings exercise, the information that was available to us did not meet our expectations and, as a result, it was a resource-intensive process.

Any adding of another category of properties to the valuation roll will have a resource implication. I cannot put a precise figure on it, although it would not be impossible to do so. One of the issues with the bill relates to resources. We can speak to the fact that not only financial resources but expertise are required, and there is a limited pool of that rating expertise in Scotland. That is an issue.

Kenneth Gibson

That is why I asked about resource implications for staff. People think about financial resources but we need trained individuals to do that work. If we have a sudden change and there is a huge increase in the number of properties to be valued, that would put a significant strain in terms of the number of people who would be available to do the job and the level of experience that they have. If there was that step change, I imagine that it would take some time to get everyone up to the required level.

Ian Milton

Certainly. We have a real challenge on our hands in gearing up for the 2022 revaluation and delivering three-yearly revaluations after that. There are some huge pinch points there, such as the proposals for the appeals system, which we may come on to.

The point about expertise is critical. We are working with education providers to see whether we can find ways of bringing more expertise into the market. The general direction of travel has been for universities in Scotland to reduce the output of what we call cognate graduates—graduates with surveying or estate management degrees—whom we train up to professional qualification standard. We want to reverse that trend, but we need to do it in a short time if we are to deliver three-yearly revaluations. There is quite a bit of inertia in the system.

For that reason, we are trying to bring in school leavers and are looking at apprenticeships. Quite a lot of work is being done in that sphere just now. However, that does not take away from the fact that, if we want to increase the size of the roll by 20,000 to 30,000 subjects for the next revaluation, it will be really hard to deliver that.

Looking further ahead, over time, it is certainly doable, but we would need to build up expertise.

Kenneth Gibson

Your submission says that it is important that resources are maintained. We are looking at a significant increase when the bill is implemented, and then a reduction over the years. What is the age profile of assessors? Is there an issue with the number of people who will retire in the next few years exceeding the number of people who are coming in? Is there a balance, or are the numbers growing? You have talked about apprenticeships, but how do you feel about the human resource that you have available at the moment and are likely to have in the next five to 10 years?

Ian Milton

I think that we are facing a real and serious challenge. I do not have figures on the demographic profile of our services at the moment, but I have my own experience of trying to recruit a chartered surveyor in Aberdeen. I got one applicant for the job after advertising twice online and in the media. That does not bode particularly well, unless it was just the location or the employer that was the issue. In any event, that story has been repeated across Scotland. It is difficult to recruit.

It is also difficult to hold on to qualified staff. We invest five years in training someone up to become professionally qualified. However, the demand that regular revaluations create for rating consultants to advise occupiers of property means that we have a significant brain drain into the private sector as a result of providing such an excellent training environment. That is a further challenge.

The situation will also lead to wages inflation, which is difficult to manage in a public sector environment in which we are conscious of resources, as are the councils that fund us.

Kenneth Gibson

Thank you for those comprehensive answers.

Graham Simpson (Central Scotland) (Con)

I want to follow up on the impact on you of moving to three-yearly revaluations. Have you assessed how many extra staff will be needed across Scotland?

Ian Milton

Yes, we have. We provided input to the Scottish Government and the Convention of Scottish Local Authorities in the preparation of the financial memorandum.

The estimates that we provided were based on our understanding at the time. Our first estimate in September was reasonably sketchy, I suppose, but over time, up to February, we managed to form a better understanding of what the NDR reforms mean on the ground. That informed the information that is in the financial memorandum.

As you can see from the financial memorandum, we are talking about an estimated additional 122 personnel, of whom 50 per cent will be trainees, 20 per cent will be qualified surveyors and 30 per cent will be information technology and support staff. We will have to gear up in terms of the information powers so that we can support staff to ensure that we get the information coming in and manage it properly.

However, we also need the expertise. As I think is acknowledged in the policy memorandum, in the past, we have always dealt with things sequentially. We did a revaluation, the staff who did the revaluation went on to resolve the appeals and then, three years later, they went back to revaluation tasks. Instead of a sequential approach, we will now have two teams: one that will deal with revaluation full time and all year round, and one that will deal with dispute resolution, proposals and appeals.

Although we have done some work in that regard, that work and the figures in the financial memorandum must be considered alongside the caveats and assumptions that we made based on what we knew in February. One caveat—which I do not think is mentioned in the financial memorandum—is that we are assuming a 25 per cent reduction in appeal volumes. That assumption is built into our figures. In addition, there is no funding allocation or estimate for the additional costs that designated assessors will face in relation to public utilities. There is also the issue of the impact of asynchronous revaluations compared to the other jurisdictions in the United Kingdom. There are therefore gaps in the estimate that are difficult to fill at this point.

Graham Simpson

So although the 122 figure takes into account three-yearly revaluations, a new pre-appeal mechanism and everything else, it cannot be wholly accurate.

Ian Milton

No. In relation to the proposal and appeal system, the figure is based on what our understanding was at that time. The bill creates the gateway for a new appeal system, but it does not do the most fundamental thing that we need it to do, which is to reduce the volume of appeals. In addition to the information flow into our offices—which I have already said is critical—that reduction is critical if we are to deliver three-year revaluations.

Our costings reflect our knowledge of the proposal and appeal system in February. However, as the proposal and appeal provisions take shape over the next few months, they could influence and change our estimates and resource requirements. If we cannot find a way of getting the volume down, or if we find that we end up with a cumbersome proposal and appeal disposal process, we will find ourselves stretched and requiring more resources.

Graham Simpson

Are you confident that the proposals in the bill will reduce the number of appeals?

Ian Milton

No.

Graham Simpson

You are not.

Ian Milton

In short, no. The proposals in the bill would set up a system of proposal and appeal. Instead of a system of straight appeal, there will be a proposal stage first—which it is anticipated will be dealt with by an assessor—and then an appeal; it will be a two-stage process. The big question is how that will operate, and the bill is—of course—silent on that, because that will come in secondary legislation, which is currently being formed. Discussions on what shape it might take are on-going between the various stakeholders, and the shape that it takes will be absolutely critical to whether we are on budget or not—we do not know the answer to that at present. I therefore urge all observers in the process to reflect on the financial memorandum as a statement that is based on assumptions and knowledge from February of this year.

Graham Simpson

Are there assumptions that you are not entirely confident will be met?

Ian Milton

Absolutely.

The Convener

Ian Milton said that the system of proposal and appeal is part of the problem. How would someone get to the appeal stage without going through the proposal stage first?

Alastair Kirkwood

Under the current system, in effect, an appeal is lodged with the assessor and followed through until it comes to the valuation appeal hearing before a committee. The bill proposes splitting that into a two-stage process: in the first instance, a proposal would come to the assessor, who would issue a decision on their assessment of the position at the end of the proposal stage. The ratepayer would then have the opportunity to lodge an appeal with the valuation tribunal or the valuation appeal committee.

From the assessors’ point of view, that is likely to be a more complex procedure than the current one-stage process. At the moment, 80,000 appeals are lodged at each revaluation. It will not help us if there are 80,000 proposals followed by a second stage. The same amount of work will be involved for assessors whether it is called a proposal or an appeal. In fact, it is likely that the volume of work will be higher because of the two-stage process.

10:30  



We envisage that ratepayers will lodge their proposal with the assessor, a discussion will take place, the assessor will intimate his thoughts on the matter, and the ratepayer will then have the opportunity to proceed to a formal appeal with the valuation appeal committee. That will probably reduce the number of appeals that go to the valuation appeal committee, but it will not necessarily reduce the number of proposals that the assessor receives.

The Convener

So you think that those people who automatically go to appeal at the moment would automatically go to the proposal stage and that some of them might go on to appeal.

Alastair Kirkwood

Indeed. In fact, some of the provisions in the bill suggest that there might be slightly more proposals than there are appeals.

Graham Simpson

Will having the extra stage increase the workload?

Alastair Kirkwood

It is likely to increase the workload. A lot will depend on exactly how the Scottish Courts and Tribunals Service deals with the appeals, which is yet to be decided. The valuation appeal committee structure will be absorbed into the Scottish Courts and Tribunals Service in 2022, which will coincide with the introduction of three-yearly revaluations. We are not sure of the details of how the tribunals service will manage those appeals. We have concerns that the streamlining of the process and the timescales for dealing with appeals will have a significant impact on our ability to achieve revaluation on a three-yearly basis.

The assessors consider that it is imperative that appeals are resolved within the course of the revaluation. The issue of fairness to ratepayers and their having certainty about their liabilities aside, going into the following revaluation with appeals outstanding and continuing legal uncertainties or valuation issues doubles the potential income loss from one revaluation to the next. We consider that all appeals should be resolved within the three-year period.

The new arrangements could be slightly more administrative than the current arrangements, but we see the logic of going down the proposed route.

Graham Simpson

Given the concerns that you have expressed, is there anything that you would change in the bill to make things better?

Alastair Kirkwood

One issue that is not addressed in the bill but which could be dealt with through mechanisms other than the bill is the role of public sector appeals. It has been suggested that the number of appeals from the public sector could be reduced, given that it could be argued that that involves money going from one public purse to another public purse.

Beyond that, assessors have suggested a number of measures, the first of which is that a fee could be charged at the proposal stage. The bill contains provisions for a fee to be charged at the second stage, when the valuation appeal committee or the tribunal considers the matter, but not at the proposal stage. We have suggested that there could be measures whereby, if a property is in receipt of 100 per cent relief, there should be no right for a proposal to be lodged. We have also suggested that there should be no right for a proposal to be lodged when there has been a pre-discussion in which ratepayers have reached an agreement with assessors about what the value should be. A number of measures have been suggested that do not appear in the bill.

Andy Wightman

I want to follow up on Mr Simpson’s questioning.

Mr Milton—when you were asked whether there would be any change in the volume of appeals, you said that there would not be. You said that you did not know how many appeals there would be. You mentioned that the issue will be resolved in secondary legislation. I presume that that was a reference to subsection (6) of proposed new section 3ZB, which the bill will insert in the Local Government (Scotland) Act 1975. It states that ministers may make regulations that make provision about the

“circumstances in which such an appeal may be made only with the permission of the valuation appeal committee”.

Alastair Kirkwood has mentioned a few gate-keeping rules. Could another one be that someone would not get to make a proposal unless they were appealing a valuation that was more than, say, 10 per cent away from the current valuation? I presume that, at the moment, it is possible to appeal a valuation without there being any threshold with regard to the extent to which the new valuation departs from the existing valuation.

Ian Milton

It is anticipated that a proposal could be made against an entry in the valuation roll. It might not be just the rateable value that is in dispute; the existence of the entry itself might be in dispute.

The bill introduces the business growth accelerator, which we have not touched on. The bill anticipates that there would be a marker in the valuation roll, the existence or lack of which might be challenged by a proprietor, tenant or occupier, as it might be a gateway to their getting or not getting relief. As Alastair Kirkwood mentioned, we anticipate that more proposals might come into the system unless there are active measures to reduce their volume. Another means of reducing them might be to say that, if an outstanding request for information has not been responded to or a civil penalty was sitting against an entry, there should not be a right of proposal.

The position is quite complicated. The volume of appeals is very significant, but I argue that the actual adjustment of properties under appeal is not significant. With any appeal or proposal system, there is an issue about public resource being gummed up. Obviously, we would not want to deny people access to justice, but we have a finite resource. The question is how we can ensure that the volume of appeals is minimised but injustices are remedied.

With other stakeholders, we are currently feeding into the Barclay implementation advisory group’s appeal sub-group, and we are looking at options. One issue is the potential for the exchange of information to be set down in secondary legislation. That would tie up assessors in providing information, which is fair enough, but it would also tie up ratepayers in providing information on grounds of appeal, comparisons and such like. There is the potential for a huge raft of work. To be perfectly frank, it will be a challenge to find a system that would be fair to all parties and would not overburden public resources.

The Convener

Graham Simpson wants to come in on changes for independent schools.

Graham Simpson

The panel might be able to answer this question quite quickly. I noticed that the panellists did not have anything to say in their written submissions about the proposals for changes to the way in which rates for independent schools are handled. However, as they are here, now is their opportunity to tell us their views on that.

Alastair Kirkwood

Our position on independent schools is that the matter is one of relief from the charging of rates. That issue would not impact directly on assessors, which is why we have not commented on it in our submission. Currently, such schools are valued and they appear on the valuation roll, and applying the relief is a matter for policy makers and councils.

Graham Simpson

That is fair enough. That is really a policy question, which is not for the assessors.

Annabelle Ewing (Cowdenbeath) (SNP)

Good morning, panel. I want to go back to the issue of information notices. First, I will deal with time limits. I note that you would prefer a limit of 28 days with the possibility of appeal instead of, in effect, 56 days plus another 28 days. As far as you are aware, why is the current position in the bill that the period would be 56 days plus 28 days? What was the thinking behind that? Obviously, you do not agree with it.

Ian Milton

To be frank, it was a surprise to us that the limit came out at 56 days. Such a provision might apply in the jurisdiction of England and Wales, but our position has been that we need the turnaround of information to be quicker. The current rule specifies a limit of 14 days, which we accept is unrealistic, especially when detailed information is looked for. However, we are also aware that detailed information for large, major projects is available through quantity surveyors and project managers, often in digital form—in spreadsheets, for example. A period of 14 days is far too short. Our view is that a period in the region of 28 or 30 days would be about right.

At the end of the day, we have a tight turnaround time of only 12 months between the tone date and the roll coming into force, so we need to get the information in. That is the background. I dare say that, if there was an appeal, there would be a further 28 days. Currently, people have 84 days—12 weeks—between receiving the first notice and the civil penalty appeal stage. Given that we are dealing with a revaluation cycle that is measured in months rather than in years, that is an issue.

Annabelle Ewing

We will doubtless pursue that issue with the minister in due course.

In your submission, you stress that communication should be “digital by default”. I presume that that also applies to information notices. Will you explain a bit more about what that approach would rule in and rule out? Does the bill support the position that you are seeking to achieve?

Heather Honeyman

Under the current legislation, valuation notices have to go out in writing in paper form. We are responding to the modern world and looking at ways of having more streamlined processes. When the bill was introduced, there were suggestions in relation to writing. It was also suggested that how information and valuation notices go out might be agreed between the parties. We believe that the process of going to and fro to get agreement on email addresses and how the notices are sent out could be burdensome. Issuing correspondence digitally and maintaining email addresses and so on would lead to greater efficiency in delivery. We are trying to respond to the modern world and to be more efficient in how we do things.

Ian Milton

As part of our preparations for NDR reform and as we formalise our strategy for delivering it, we are looking at what goes on elsewhere in the United Kingdom. In Northern Ireland, all the assessments are published online, and no valuation notices are issued to ratepayers. There is, of course, an accessibility issue, but that system means that all the information is published at the same time in one place. People know where the information is, and proprietors, tenants, occupiers, agents, rating consultants, advisers and neighbours can all access it online. We have the SAA portal website, on which we publish all our rateable values, all our council tax bands and lots of other information. We are very keen to move towards delivering NDR reform and our service through our portal rather than through paper notices.

We need to issue 400,000 valuation notices each time we do a revaluation. The proposals to increase the amount of information that we provide to ratepayers are very sensible, useful and good, but the problem is that, if we provide that information—such as the addresses of properties that we use for comparisons in our valuation process—on a paper valuation notice, there will be all sorts of challenges. For example, how will notices that contain a list of addresses that have been used for comparison purposes be printed? Sometimes, the list might contain several hundred properties but, in other cases, it might contain only one or two. There are all sorts of such issues.

We believe that the answer is to have all the information available online and to have messaging for ratepayers, proprietors, tenants and occupiers on where they can access that information. We believe that, to ensure cost efficiency, online publication is the way forward. Whether that can be achieved while ensuring accessibility and that nobody is discriminated against is an issue. However, if we look at the common delivery models that taxation services use, we see that Revenue Scotland and other bodies in Scotland are moving to online delivery to drive efficiency.

Annabelle Ewing

I hear what you say, and we can put some of those issues to the minister, who has a digital element to her brief. It will be interesting to hear what she has to say. I take it that you feel confident that you have the infrastructure to go digital.

Ian Milton

We have the infrastructure, in that we have the portal, for which Heather Honeyman is the senior responsible officer. We have that resource available, but we would need to work to expand it.

10:45  



Heather Honeyman

We are moving forward a work plan to deliver the Barclay recommendations. That involves putting more information online so that people can self-serve at their leisure—they can go online and look at the information. We are trying to make more valuations available online so that people can look at the detail of what makes up the rateable value.

Annabelle Ewing

Another issue that you raise in your submission to the committee in connection with the information notice concerns legal privilege. You are concerned that the provision of information could be precluded in circumstances in which confidentiality would be detrimentally impacted. That seems to arise when the notice is sent to a solicitor, but you say that there is a lack of clarity. Can you explain that further? As far as I am aware, legal privilege would extend only to communications with the solicitor, not to those with anybody else. Therefore, if the notice was sent directly to the ratepayer, why would there be an issue? Will you clarify what your concern is?

Alastair Kirkwood

Our concern is that, under the current regime, leases are routinely subject to confidentiality clauses. We are seeking confirmation from the Government and the Parliament that the provision will not be extended to cover situations in which a lease includes a confidentiality clause or in which a contractor has a confidentiality clause within his contract. At present, that is a convenient way for parties to claim an exemption from providing the information for which we are asking. The concern is that including the provision expressly in the bill could further encourage that type of action.

Annabelle Ewing

I see. Because it is a new provision that expressly refers to legal privilege, you are concerned that it could somehow be applicable more widely than is intended.

Alastair Kirkwood

We want to be sure, first, that it would not be applicable more widely and, secondly, that it is not perceived to be applicable more widely. We have a significant number of discussions with people in which they refuse to provide information on the ground that their lease is subject to a confidentiality clause. We need to get beyond that.

Annabelle Ewing

It would be a question of ensuring that the language that was used was absolutely watertight.

Alastair Kirkwood

Indeed.

Annabelle Ewing

Another issue—it has already been touched on, so I will not labour the point—concerns the civil penalties. There are two issues, one of which is the fact that it seems to be your view that civil penalties in the form of information notices will be substituted for the current position. What would the current offence be?

Alastair Kirkwood

The current offence is the one in section 7 of the 1854 act, which is somewhat historical.

Annabelle Ewing

That is well known to everybody around the table, I am sure.

Alastair Kirkwood

The Lands Valuation (Scotland) Act 1854 makes it a criminal offence not to respond within 14 days to a reasonably made request by the assessor. Some of the language around that provision is, again, quite restrictive in the sense that the request can be served only on the proprietor, tenant or occupier, not on any other party, and only for the purpose of valuing that subject. For a number of years, assessors have said that it is inadequate for their purposes. Nevertheless, it had some value as a deterrent. Simply being able to put that on the valuation notice or on a questionnaire reaped some benefits, albeit that larger ratepayers, who were perhaps professionally advised, were not always inclined to comply with it.

We very much welcome the introduction of civil penalties—I do not want to disparage that—but the importance of the issue is such that we want all possible tools available to us, and we would prefer to keep the existing criminal offence in addition to having the ability to levy a civil penalty.

Annabelle Ewing

Is it your view that the possibility of a criminal offence will be removed completely from your armoury by the bill?

Alastair Kirkwood

Yes. I am sure that section 7 of the 1854 act will be repealed by one of the sections of the bill—I would need to find that for you—and the provision is not contained anywhere in the bill. Some parts of section 7 are retained in another section of the bill, but not the aspect of non-provision of information. The parts that are retained or replaced in a new provision are about knowingly making false statements. Those have been placed in a new section, but the criminal offence of not providing information has not been included in the bill.

Annabelle Ewing

Do you have any understanding of why that is? Is it an oversight or a deliberate policy decision?

Alastair Kirkwood

Obviously, it is a matter for the Scottish Government. We are not aware of there being any protocol to prohibit the dual approach of having the two resources available. Certainly, it would be assessors’ wish to have both available.

Annabelle Ewing

In other words, they would want the criminal offence of the non-provision of information to be retained.

Alastair Kirkwood

Yes.

Annabelle Ewing

That is clear.

On the civil penalty proposals, last week, we discussed with COSLA the scale of the charges. It was felt that they are inadequate and that, for those with properties of very high rateable value, the charges would be a drop in the ocean and would provide no deterrent whatever. What is your view on that?

Alastair Kirkwood

I very much agree. There are, if you like, two separate issues, the first of which is the size of the penalties. In many cases, we are dealing with properties of rateable values running to tens of thousands, hundreds of thousands and, in some cases, millions and tens of millions of pounds. With the current penalty set at £100 plus £20 per day, the maximum charge in a year would be £7,000 or £7,500, and it would be several years before you would get a more sizeable figure. Even then, that is really nothing at all to some of those who own such properties and companies. I suppose that it will be a meaningful amount of money to smaller individual concerns, in which regard it might be useful, but I would suggest that it is not meaningful to larger organisations.

Mr Milton has touched on the restrictiveness of the provision in question, but I also point out that it is worded in such a way that the maximum penalty is linked to the rateable value of the property on the roll on the day on which the notice is issued. That does not really kick in if we are making an information request about a property that is not yet on the roll. It means that the penalty will be limited to £500, which, to be honest, will be meaningless to the majority of those who own properties of a high rateable value.

Annabelle Ewing

We hear what you and our witnesses last week have said on that matter.

I have a final brief question about the level of the penalty that is applied by local authorities, which is slightly lower than that which is applied by the assessors. Is there any reason for that? Why is the penalty not the same?

Alastair Kirkwood

I am not aware of the thinking behind that. Perhaps there is a difference in the complexity of, or the need for, information.

Annabelle Ewing

The difference is marginal, but it is a difference nonetheless.

Alastair Kirkwood

I should also say that we welcome the fact that the proposed assessor information notice will contain the maximum rateable value of the property. I do not want our comments about civil penalties to be seen as negative; we would just like the provisions to be a bit more complete.

Alexander Stewart (Mid Scotland and Fife) (Con)

The anti-avoidance measures in the bill have been welcomed by some organisations. Phoenix companies have been identified as a potential problem, but do you, as assessors, believe that the measures are strong enough and go far enough in closing such loopholes?

Ian Milton

Our submission is silent on the general anti-avoidance regulations because we do not see this as an area of our practice; instead, we see it as an issue of rates avoidance.

Because we are not involved in that side of things, we have not made any comment on it. If we have the right information powers to enable us to get the detail that we need, we will be able to get on with our job and assess the property in question. What happens downstream with the levying and collection of rates is another issue.

Alexander Stewart

You have also suggested that there might be additional costs to the workforce and other aspects. If the costs of the process end up being higher than the estimated costs, do you believe that they will be fully funded? Do you anticipate any issue in that respect? If so, how do you think the situation will be managed?

Ian Milton

We are committed to having a dialogue—or even a trialogue—with the Scottish Government and the Convention of Scottish Local Authorities as the NDR reforms take shape. I am reasonably confident that people will be listening. I suppose that the question is whether the resource will be put in place. Resource availability is an issue that all managers across the whole public sector face. If an allocation is made for NDR reform, there is a risk that funding bodies that are in particularly tight financial conditions might see that as an opportunity to draw back from their baseline funding. We want to guard against that by maintaining our baseline funding and adequate resource funding to deliver the reforms.

Alexander Stewart

As you have identified, many others in the public sector are having to do more with less. You might become an organisation that fits those criteria, depending on the workload for the process that you are going to take on.

Ian Milton

Uniquely, the responsibility to maintain the valuation roll lies with the assessor, not with the valuation authority. The valuation authority has to appoint an assessor, and the assessor has to do the maintaining work and meet all the statutory requirements. There is a tension there.

Alexander Stewart

Exactly. Are any businesses likely to be affected by the introduction of new penalties in the process? If so, what type of business would they be? Have you assessed whether that is the case?

Ian Milton

We have not carried out any assessment of that. It is probably quicker for us just to say that we have not done any analysis of that.

You will find that there is a greater degree of engagement and provision of information across different sectors. Evidence that we have given to the committee in the past has covered that, to a degree. Perhaps my colleagues will have something to add.

Alastair Kirkwood

I am not sure whether the question was aimed at the civil penalty aspect.

Alexander Stewart

Yes.

Alastair Kirkwood

We would like there to be no civil penalties. We would like the information to be provided and there to be a route to ensuring that penalties do not arise. We do not think that ratepayers should be disbenefited by the penalty regime. Our fundamental interest is in getting the information; we are not really interested in applying penalties. It is really just a tool to make sure that we have the necessary information.

Kenneth Gibson

You have been talking about avoidance. In your submission, you say:

“The SAA recognises the rationale behind the proposed change to section 72 of the Local Government Finance Act 1992”

and that the provision will

“counter a known avoidance tactic for second homes, owners or occupiers of self-catering properties must prove an intention let for 140 days in the year and evidence of actual letting for 70 days.”

However, you have some concerns about local government—how shall I put it?—treading on your toes a wee bit. What are those concerns?

Jim Doig

Although the SAA supports the measures in the bill, we make the point that, historically, assessors have decided whether a property enters the roll or the council tax valuation list, whereas in this case, there is a provision to allow the local authority to do that. We are concerned that there should be some sort of criteria to at least determine in what circumstances local government could make the change. For example, in our submission we say that some properties genuinely—through location or whatever—will not be able to do 70 days’ letting. We just want to make sure that councils have a policy in place.

At the moment, there are a lot of changes, with self-catering properties moving in and out of the roll. I will give you an example. In my area, there are about 1,300 self-catering properties. Since the revaluation in 2017, I have made about 600 changes through properties coming in and out. We just want to make sure that we do not end up with local authorities making ad hoc decisions on properties moving in and out of the roll.

11:00  



Kenneth Gibson

Your submission also says that

“the SAA would recommend that the exercise of that discretion should require a policy decision of the Council.”

I am a bit unclear as to whether you feel that that decision should be made for each individual property or whether the local authority should make some overall decision.

Secondly, you refer to

“an island situation or very remote area,”

where

“the letting season is not as long as 70 days.”

I have two islands in my constituency—Arran and Cumbrae—where the letting season goes on for months and months. Where in Scotland is there a letting season of only 70 days? We are talking about May, June, July, August, September, October, Easter and so on. Surely, there is nowhere where the season is 70 days—not even Iceland or the Faroe Islands have a letting season of under 70 days. I was just a bit curious about that, but I am more concerned to know how you expect councils to operate in that respect.

Alastair Kirkwood

In that part of our submission, we are pointing out that assessors and local authority officials do not have any discretion to add subjects either to the valuation roll or to the council tax valuation list. There is already legislation from policy makers in the form of the Scottish Government that would be applied by assessors, and the proposal is a departure in the sense that the responsibility will now fall to local government. That is entirely appropriate, but we want to make it clear that it means that decisions on whether properties go on to the valuation roll or the council tax list will move from the Scottish Government to local authorities. The assessors have no difficulty with that; we just want to point out that that is the effect of the move.

As Mr Doig has said, we would welcome it if the policy were not changed frequently, because each change will require moving more subjects from one list to the other, which in turn will require information gathering and valuation administrative processes. From a working point of view, the assessors’ desire would be not to have a regular process.

Kenneth Gibson

I see that, but councils generally do not change a policy within six months of its being made.

My question was about whether you are looking for the local authority to put in place some overall policy or to have a policy to meet each circumstance. That is what I am trying to get clarity on, because I am not sure what you are trying to get at in your submission.

Alastair Kirkwood

One would imagine that a council would make a policy decision with regard to a particular circumstance such as a landslip on a major access road. If there were to be a provision whereby, in certain areas where, we are told, the letting season is less than 70 days—

Kenneth Gibson

I am sorry, but where would those areas be?

Alastair Kirkwood

Some of the Western Isles and the northern isles. It is not my area, so I cannot speak authoritatively on it, but it has been suggested to us that, in some of those places, the letting season is not 70 days. It might be for the council to make a policy decision on the matter. We are just highlighting it as an issue that we hope will be decided by policy makers at the Scottish Government or local government level and not implemented by, say, assessors, directors of finance or other such officials.

The Convener

Let us return to the anti-avoidance measures. Surely, the assessors would be the front line in that respect, because they would be out there, seeing what is going on. You must have intelligence from the assessment work that you do. Would you not be the people who, first and foremost, would see where the loopholes were and who was using them, and would you not feed that information back to, for example, the Government?

Ian Milton

We have certainly identified weaknesses in the lands valuation acts that make it difficult for us to make an entry in the valuation roll, and we have also highlighted areas where our attempts to make such entries can be frustrated by the non-provision of information—which is, indeed, the classic example. If part of a property is sublet and that information has not been provided, we cannot, if the entry in the roll is challenged, make a new entry outside the current year for the sublet bit, although we might be able to correct the former entry.

I see the anti-avoidance proposals as addressing not that particular matter but phoenix companies and the like, which is not an area in which I have any particular experience or professional expertise. My job is to make sure that everything in my area—in this case, the Grampian area—is accurately assessed and on the valuation roll.

The Convener

Would it not be assessors who, with their experience, would feed back on the loopholes that are regularly used?

Ian Milton

We have identified situations in which weaknesses in the Lands Valuation (Scotland) Act 1854 are being exploited, and we have fed that information back to the Government. There are elements of these reforms that address them, but it remains to be seen whether they go far enough. I do not know whether my colleagues have other views.

The Convener

You seem to fear there being a shortage of funding, but the Government has said that it will fund the anti-avoidance measures and, at last week’s meeting, COSLA said that it was very confident that the Government will do that and that the funding will be there, so what in particular do you fear?

Ian Milton

Derek Mackay, the Cabinet Secretary for Finance, Economy and Fair Work, has been very clear that we fall in the local government family—that is understood. Local government is being subjected to funding challenges. Valuation joint boards have a power to requisition—assessors for unitary authorities do not have a valuation joint board; nevertheless, the valuation authority has a power to requisition funding from the local council. When making a requisition request, valuation joint board members are conscious of the financial situation that they face as members of their councils. The challenge is that there is a limited pot. Although the Government might say in the financial memorandum that the estimated cost over so many years of funding the NDR reforms for assessors is £29.1 million, the challenge will be to make sure that the money reaches assessors, while their baseline funding is maintained.

Most assessors are electoral registration officers, so we have experience of working in other areas. We have, for example, received direct funding from the Cabinet Office for the introduction of individual electoral registration, so we have experience of receiving direct money from Government—in that case, the UK Government—to deliver a reform to electoral registration. That money came straight to the electoral registration officers. However, we do not have a similar mechanism here; rather, we have a mechanism that runs through and is supported by COSLA. For the first year, that has worked well, but the question in my mind is about whether the funding will continue to work how we want it to work or whether authorities will be reluctant to maintain the level of funding because of their chosen funding priorities.

The Convener

The basis of your concerns is to do with how councils continue to fund you.

Ian Milton

Yes.

Andy Wightman

Going back to section 5 of the bill and

“whether lands and heritages are dwellings”,

how do you currently assess whether a property is residential or a commercial short-term let? For example, there are just over 1,500 self-catering properties in the city of Edinburgh. Do they come on to the roll because their occupiers voluntarily request them to be on it or are you making proactive assessments?

Jim Doig

Most of the time, the occupier or proprietor will advise us that there has been a change. We send out a declaration to say that there is intention to let that property for 140 days for self-catering use. We evidence that as best we can, and then we make the entry on that basis.

Andy Wightman

It is based on occupiers approaching you.

Jim Doig

Or, if we find out about that through other sources, we will be proactive.

Andy Wightman

Do you pay attention to planning applications, for example?

Jim Doig

We look at planning applications, VisitScotland’s website and various other things to see whether properties are being used commercially rather than being on the council tax list.

Andy Wightman

Is there any reason why local authorities need the power to vary the meaning of “dwelling” in section 72 of the Local Government Finance Act 1992, which is all about council tax? Commercial short-term lets are not dwellings—they are commercial self-catering properties or short-stay accommodation. They are in a different planning use class. Why do we have to play around with section 72?

Jim Doig

I assume that the provision is for the local authority to take a decision if there is any short-term cessation of use of the property for self-catering purposes. The example that is stated in the bill’s policy memorandum is of a property that cannot be used for self-catering purposes due to an issue such as a landslide or there being no access to the property. That is my understanding of what the provision is for.

Ian Milton

As Andy Wightman identified, the definition of “dwelling” for council tax purposes is in section 72 of the Local Government Finance Act 1992. That definition is varied by a number of statutory instruments. Prisons, for example, are defined as dwellings; the definition also identifies self-catering subjects. Dwellings that are in fact still dwellings, and which would, but for the provision, be subject to council tax, can be defined as lands that fall within the definition of “lands and heritages” that need to be entered on the valuation roll by way of a statutory instrument.

As Jim Doig said, the current rule in relation to self-catering properties is that they must be available for 140 days with a reasonable expectation of being let commercially. The suggestion is that people who have second homes—perhaps inherited homes—use that rule to avoid paying council tax. If they can convince the assessor that the property is available for commercial let for 140 or more days a year, they can apply to have it added to the valuation roll, and it falls into the definition of “lands and heritages”. I think that that is the issue.

Andy Wightman

Maybe we should redefine what we mean by dwellings as a planning use class. About 2,000 dwellings in Edinburgh are on the council tax roll and operate as commercial short-term lets—there is no anti-avoidance there.

Ian Milton

Student halls of residence are defined as dwellings by similar legislation.

Andy Wightman

Okay—maybe we need to revisit that. Going back to revaluation, the Barclay review considered the situation in the Netherlands, for example, where there are rolling revaluations—on a three-yearly revaluation, a third of the country, or a third of the classes, is done every year. Is there any merit in that, or have you arrived at the clear position that a three-yearly valuation for everything is the best way forward?

Ian Milton

That is an interesting way of looking at it. Local property taxation operates in a number of ways across Europe and, indeed, the wider world; all sorts of different models are available, including indexation and annual revaluation.

Our view is that we implement what the Government puts forward. As a chartered surveyor, I can see that a rolling revaluation with a third of the properties being reassessed every year might be advantageous to me in delivering revaluation. However, would that be by sector or by area? If it were to be by area, how would that impact on the national rates poundage arrangement that we have at present? The whole local taxation sphere would need to be re-examined, if we were to move to that sort of approach.

Nonetheless, I do not see any fundamental issue with having different models of revaluation. The important feature of any local taxation system that is based on property is that it is up to date with the prevailing market values, because that makes it visible and transparent to the occupiers and the taxpayers.

Andy Wightman

I think that you previously made the point that you have to have information that a property is being sublet in order for it to be on the roll as such. Is that correct?

Ian Milton

Yes. There are examples in which someone is subletting part of a property but, because it does not need planning consent and there are no building warrant concerns, we are not getting that information. If the original assessment is challenged and we find—quite rightly—that a separate rateable occupier is part of that, a new lands and heritages entry is formed, but we can make that entry only in the current year.

Andy Wightman

Just to be clear about that, are you saying that you cannot make entries between valuation years?

11:15  



Ian Milton

No. We can backdate an update to the valuation roll only in the current year—we can go back only to 1 April in the year that we are in.

Andy Wightman

If that situation happened five years ago, you could not do anything retrospectively.

Ian Milton

No, but, with three-yearly revaluations, we would hope to pick up such situations.

Andy Wightman

Okay. Does that mean that we need not think about doing anything extra in the bill to cover that?

Ian Milton

It could raise a whole raft of issues. Time probably does not permit me to answer that question, but there are certainly questions in that regard. We made the point in our response to the previous consultation that we may need to look at section 2 of the Local Government (Scotland) Act 1975 in more detail in respect of the ability or otherwise of assessors to correct errors.

Andy Wightman

I remind you that Parliament is working on the legislation, and that the bill will not look the same at the end as it does at the beginning of the process, so if you have any ideas that you may have given to the Government but that the committee has not had sight of, feel free to bring them to our attention for stage 2.

Ian Milton

Thank you.

Andy Wightman

My final point is on the financial memorandum. You have been closely involved, as has COSLA, with drafting up the numbers for that. Apart from the points that you made about additional personnel and baseline funding, do you want to draw to the committee’s attention other areas in which we should scrutinise the numbers more closely?

On the baseline funding, I notice that the gross estimated costs that are associated with the bill are £32 million and the cost to ratepayers is £68 million, meaning that there will be a £34 million net uplift in public revenue. Is there an issue about making sure that that money goes where it should and that the administrative costs are covered? I know that that is a policy decision, but there is £34 million of flexibility to cover the costs that you have said you might have to meet.

Ian Milton

There is no doubt that moving from five-yearly to three-yearly revaluations means that there will be a whole new pile of work to be done. Even if we just think about issuing paper valuation notices—if we are still issuing them in paper form—every third year instead of every fifth year, that would mean mailing 400,000 items, and the immediate costs would include stamps, envelopes and stationary.

The costs that we have estimated are based on our current understanding, and I have identified caveats in a number of areas. We do not have funding for the designated assessors, if they face challenges; there is also an issue to do with the costs of asynchronous revaluations. At present, we benefit from a lot of sharing of information. Heather Honeyman will be able to speak to that, if members are interested in what is involved for designated assessors in working with colleagues south of the border. That area is not fully covered, so the financial memorandum is not the final story.

There is no question in my mind but that we can do the job, but we need the tools to do it. We need not only the legislation, but the resources, which includes the finance and, as identified earlier, the expertise, which will be a real challenge to get. If we get those things, we should be able to do the job.

Andy Wightman

Paragraph 99 of the financial memorandum says that the Scottish Assessors Association

“did not carry out a sensitivity analysis in relation to their cost estimates (Table 4), therefore the margin of uncertainty is not known.”

That is a bit worrying. The total assessor costs are estimated at £29.1 million. If you do not know the margin of uncertainty, those costs could, in theory, be £129 million. You must have some idea.

Ian Milton

We have done the best that we can. We have not carried out a sensitivity analysis in that regard, because, in my view, there are too many unknowns at present. We will know the position only once we drill down into the detail of what we will be required to do in terms of the exchange of information through the proposal and appeals process—for example, we may have to present a complete statement of our position at the end of each proposal stage, to be used by the tribunal service, or the valuation appeal committee and then by the tribunal service, to go through the appeal. If we have to produce, in essence, the case, that would be an incredibly onerous task. The vast majority of proposals fall at that point. If we have to produce the legally backed and researched documentation to demonstrate everything that we are saying, that will be a major task for us and a major cost.

Until we see the shape of the proposal and appeal provisions, we cannot get involved in the luxury—if you will pardon my use of that term—of dealing with a sensitivity analysis, because we need to get the true size of the task specced out. Once we have done that, we will be able to put it to our IT analysts, to work out how much professional expertise we need and to get down to the fine detail. At that stage, we will be able to build up a sensitivity analysis that looks at what would happen if the values rose by more than expected at a revaluation and the appeal volume went up.

We are assuming that there will be a 25 per cent reduction in the number of appeals, but we do not know whether the measures to reduce the volume of appeals that we get from the public sector will work and be rolled out. Rateable values are now used for water and sewerage charges, too, so it is not just local government rates funding that is affected. Even if the local government finance side of things is taken care of, that might not remove the driver for someone to make a proposal and appeal against an assessment, because water charges will be levied according to the rateable value.

Andy Wightman

Okay. You are saying that you cannot know what the impact will be until the bill becomes an act and the new system is operational.

Ian Milton

It is not just a case of waiting for the bill to become an act; the secondary legislation will be critical in shaping our service.

Andy Wightman

If you have any ideas about how the bill could be improved to limit or curtail large increases in cost or to make the costs more predictable, we would be interested to hear about those.

Ian Milton

I apologise for the fact that the committee received our submission only very recently—we were working to a deadline of 30 May—but it identifies measures that we think need to be taken to get the information coming in and to reduce the volume of proposals or appeals, which we believe is what will make or break the new system. Whether they are called proposals or appeals, we are talking about an interaction, the cost of which will have to be met by public resources on our side and ratepayer resources on the other side. In my view, the extent to which we nail those two aspects of the new non-domestic rating system will make or break the system.

The Convener

I thank the panel for attending today’s evidence session on the Non-Domestic Rates (Scotland) Bill. Further sessions on the bill will be held in June.

11:23 Meeting continued in private until 11:31.  



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Third meeting transcript

The Convener

Agenda item 2 is evidence from two panels on the Non-Domestic Rates (Scotland) Bill. The first panel is made up of representatives of independent schools and the second is made up of representatives of local government. For the first panel, I welcome John Edward, director, Scottish Council of Independent Schools; Liam Harvey, headmaster of St Mary’s school in Melrose; Colin Gambles, rector of Hutchesons’ grammar school; and Martin Tyson, head of casework, Office of the Scottish Charity Regulator. Thank you all for attending and for your written submissions.

I will start the questioning by asking you to outline the difference between mainstream state schools and mainstream independent schools. Would anybody like to kick off?

John Edward (Scottish Council of Independent Schools)

In our view, there is very little difference in the education that they provide. That is our point. They are education institutions like any other in Scotland. Some of our schools teach the Scottish Qualifications Authority exams, some teach the international baccalaureate, some teach to GCSE and A levels and some teach a combination of those, plus there are Steiner and Montessori schools and all sorts of other things.

The key difference is in the management. Apart from our schools, all schools in Scotland—with the exception of Jordanhill school—are under the control and management of local authorities. Our schools are specifically under the management of independent boards of trustees or boards of governors. All of our mainstream schools in Scotland are registered charities, so they are bound by the legislation that affects charities on the independence of the directors and trustees. For us, the big difference is the autonomy for the headteacher and the senior management in relation to the curriculum, the extracurricular offer, the management of the school, the size and the location.

Colin Gambles (Hutchesons’ Grammar School)

That is a fairly good summary, although there may be different details school by school.

The Convener

On a committee visit last week, we talked about mainstream schools providing support to state schools. Will you expand on that a bit? What exactly is the support that independent schools give to state schools?

John Edward

The interaction goes both ways. What our schools do is part of their commitment to public benefit. They take their role in the community seriously, in a broader community sense and an academic sense. There may be subject and teacher sharing, the sharing of sports resources or coaches or the sharing of music or careers events. It is not necessarily about one sector helping out the other; it is about those parts of the school system in Scotland working together as best they can. By their nature, many of our schools have a slightly different offer, different facilities and different opportunities. It is about trying to make the most of them.

Of course, the Charities and Trustee Investment (Scotland) Act 2005 gave our schools a specific obligation to meet that public benefit requirement as registered charities. That changed the nature of the relations in terms of access to the schools and the provision of means-tested fee assistance to pupils who want to access the sector, since assisted places and all those other programmes had ended. It also meant that the schools began auditing their relations with the local communities that they sit in, which I am sure my colleagues can say more about.

Liam Harvey (St Mary’s School, Melrose)

We have a very good relationship with the local primary schools in Melrose. It is a small town, but we are often involved in joint ventures such as choirs that participate in charitable events and church events. Practices take place in our facilities. We are blessed with having a nice assembly hall with good acoustics. That enhances the relationship between St Mary’s school and Melrose primary school, for example. It matters to us and it matters to them, and we have a good relationship with that school.

Colin Gambles

We find the situation to be variable, depending on the headteachers of the schools that are around us in Glasgow. We would like to do more, but we do not always find that easy.

The Convener

I put on record our thanks to George Watson’s college for hosting a useful visit last week for the committee and our thanks to those who attended, who included you, Mr Edward.

We hear that independent schools offer tuition for state-school pupils on topics that are not covered in the school that they are enrolled in. How is that different from state schools that offer that to other state schools that do not cover certain topics? I know that that happens in Glasgow, and I am sure that it happens elsewhere.

Colin Gambles

One of the things that our sector prides itself on is trying to support what we might call niche subjects. Our parental body expects that we will provide the full range of the curriculum, which includes support for things such as Latin or Greek, which the state sector finds increasingly hard to support. We can provide a breadth of curriculum and of permutations within the curriculum that the state sector finds much harder to provide.

John Edward

We see that in the subject teaching. For instance, George Watson’s has developed a big programme in Mandarin teaching and has built that up in co-operation with state schools in the south of Edinburgh. One school on its own simply would not have been able to do that because of the scale. That happens in lots of places, as Colin Gambles mentioned. We see it in subject areas such as economics, business studies and design technology. For instance, one of our independent schools has one third of all the advanced higher design technology students in Scotland. That is an option for anybody who wants to do design technology and who may not have access to the appropriate laboratories or facilities in their school.

Therefore, to an extent, our schools are maintaining the breadth of subjects, but there is also the provision of more general academic opportunities. I think that the committee has heard from Kilgraston school in Perth and Kinross. The independent schools in Perth and Kinross provide an enormous amount of arts, drama and sports provision for the primary school sector in the area. That is because they have the facilities, a dedicated teacher or a background in an area and they see it as part of their purpose to extend that wherever possible.

The Convener

I have a question for Martin Tyson on that aspect of charitable status. The example of the support that independent schools give to mainstream schools is raised all the time. However, some state schools do that, so independent schools are not necessarily different from state schools in that way.

Martin Tyson (Office of the Scottish Charity Regulator)

For us, it is about the assessment of public benefit. When we reviewed the charitable status of all the independent schools on the charity register between 2007 and 2014, we looked at the total picture of public benefit that they provided. That was looking at the benefit that they provided to their students—who are generally fee-paying students—and the benefit that they provided in furtherance of education to people outwith their student body, whether that was students from schools in the local area or otherwise. That counts as part of their public benefit and it is relevant in meeting the charity test under the legislation.

The Convener

I am trying to get my head round this, because I am not sure I am following it. If a school that is in the state system now decided for whatever reason to become independent, the work that it already does in that regard—most state schools do that—would qualify it for charitable status.

Martin Tyson

If we had an application for charitable status from a state school, we would look at it in exactly the same way. I presume that it would not be fee charging, so we would not need to think about whether its fees unduly restricted access to the education that it provides. We would look at the whole picture of the benefit that it provides.

Our test is not a comparison between state schools and independent schools. It basically looks at the evidence of what a particular charity does and sees whether it meets the tests that are set out in the legislation. It is not based on a comparison with other sectors.

The Convener

To be fair, I am not here to interrogate the charitable status. I am just trying to get that anomaly clear in my head.

Graham Simpson (Central Scotland) (Con)

If an independent school has kids in from the state sector to study Mandarin, Greek or Latin, for example, do you charge for that?

Colin Gambles

No—there is no charge at all, or not at Hutchesons’ grammar school.

John Edward

I do not know of any school that charges for that. There will be community clubs or sports clubs that may be charged a minimal rent for the use of facilities after hours or whatever but, in the vast majority of cases that I have looked into for the past five years, such as shared careers events, shared music facilities and shared subject teaching, there was no charge at all.

Liam Harvey

There might be an occasion when, for example, a pupil attends St Mary’s from a local authority school to be taught by a peripatetic tutor. The peripatetic tutor might charge a fee, but the facility would be provided free of charge by the school.

The Convener

On the cost of rent, are you saying that, if somebody rents your halls after 4 o’clock, they do it at no cost or at minimal cost? How does your rent compare to the local authority charging?

Colin Gambles

What we charge is slightly above cost. It is basically the cost of our janitorial staff. We are not looking to try to make a profit from that—it is not a revenue generator for us. We want to share the facility with the local community.

The Convener

Would it be at local authority prices or less than that?

Colin Gambles

I do not know what the local authority prices are, so I cannot comment on that.

The Convener

That is fair enough.

John Edward

For instance, it would be lower than the charges that have been discussed in Edinburgh recently for the rental of local authority sports provision. As was mentioned, in some cases, the janitorial or utilities costs would be featured, but I know that some schools do not bother to top that up—they just make sure that the access is there.

Andy Wightman (Lothian) (Green)

I have a few follow-up questions, the first of which is in response to a question about whether a public school could become independent and get charitable status. I presume that it could not, because the charitable status is tied to the organisation. A local authority cannot be a charity.

Martin Tyson

That is exactly right. For us to be able to consider it for charitable status, the school would have to be a legal entity. That would raise a lot of questions about the relationship of the school to the local authority.

Andy Wightman

Can I pick up on something that you said in your submission? I want to understand this. On the consequences of removing charitable status, you say:

“There is the possibility that some schools may wish to request removal from the Scottish Charity Register under section 18 of the 2005 Act, in effect a voluntary de-registration as a charity.”

You then say:

“When a charity is removed from the Register for any reason, it must still prepare and submit accounts to OSCR for any outstanding charitable assets ... This is because the assets still need to be used for charitable purposes (but not public benefit)”.

I do not understand all that. If any entity—a school or any other charity—says that it no longer wants to be a charity, presumably on a certain date after that it is not a charity.

Martin Tyson

That is right, and it is removed from the charity register. However, the Charities and Trustee Investment (Scotland) Act 2005 provides for a bit of residual protection for the charitable assets after the charity comes off the register. Some of our regulatory powers still apply to the assets that the charity had at the time that it came off the register, and the charity continues to be under a duty to apply those assets for the charitable purposes that it had. A school would still be under an obligation to apply those assets for charitable purposes. However, the requirement to provide public benefit as defined in the 2005 act would not necessarily apply.

10:00  



Andy Wightman

Are you saying that if somebody were to bequeath a building, that building would retain charitable status?

Martin Tyson

Obviously, for a school the relevant charitable purpose would be the advancement of education. If a building had been in the possession of a charity for the advancement of education, it would continue to require to be used for the advancement of education, even after the charity had come off the register; the charity would continue to need to report to us on that asset for as long as it was in its hands.

Andy Wightman

I still do not understand.

Martin Tyson

It is a safeguard for charitable assets.

Andy Wightman

But it seems to endure forever.

Martin Tyson

It depends on the nature of the asset. A cash asset will run down fairly quickly. If the asset is something like a van or a photocopier, it will endure for the life of the asset. If the asset is a building, it will have quite a long life.

Andy Wightman

Maybe I will go away and do some further reading on that.

John Edward

The Scottish Government is consulting on an extension or an amendment to charity law. As I understand it, that would aim to extend a public benefit requirement to assets once the entity was no longer a registered charity. There would be an additional responsibility on them.

Andy Wightman

The committee might get involved in that in due course. Are there any independent schools in Scotland that do not have charitable status?

Martin Tyson

There are a number of special schools that do not have charitable status, but to my knowledge all the mainstream schools have charitable status.

John Edward

At present there are no mainstream schools that do not have charitable status; 98 per cent of pupils in the independent sector are under registered charities. There is one school that is seeking to open in the summer that is not a registered charity and does not have sole charitable status. As was suggested, probably half of the special independent schools that we work with are registered charities, or sit under registered charities such as Capability Scotland or the National Autistic Society.

There are other schools that may work under a faith organisation or whatever, but they tend not to be members of our organisation because their statutes require them to be stand-alone in the work that they do.

Andy Wightman

In your submission, Mr Edward, under the section on

“How the Government has responded to the Barclay review, in particular on those recommendations it has rejected in full or part”

you say that

“The consultation did not address any of the wider context relating to independent schools”

and you go on to set out that context. For clarity, what consultation are you referring to?

John Edward

The whole process. The Barclay review called us in to give oral evidence, and we also gave written evidence. As I intimated, there was no discussion about the impact that such a move might have on the sector and no request for any data on the wider sector. Likewise, the only consultation that was undertaken subsequently by the Government was on its recommendations following Barclay; again, that took written evidence from organisations but we were not requested to provide sectoral details and—unlike the committee’s visit last week—nor was there any direct engagement with schools.

Andy Wightman

Is your point a criticism of the Barclay review and its aftermath, up until the point at which the bill was drafted and introduced to Parliament?

John Edward

It is not a criticism as such. However, you are left with a bill and a financial memorandum that talks about a move but makes no calculation of what the potential knock-on effects would be. The consequences may be entirely unintended, but our clear evidence, in speaking to the schools, is that there will be a knock-on effect in terms of the impact on the taxpayer and also on the schools. Therefore, to simply place it as a revenue-raising exercise denies the other elements that might fall from that.

Andy Wightman

In your submission, you also say:

“it is a matter of public record through FOI that neither OSCR, nor some departments of the Scottish Government, were convinced of the wisdom of creating a small, anomalous group of charities”.

Is that freedom of information request in the public domain?

John Edward

Yes. I think that the request was made by journalists, although I am not sure from which publication.

Andy Wightman

When you say that it is in the public domain, do you mean that it sits on the Government’s website?

John Edward

The FOI submission is there.

Andy Wightman

Could you provide us with a link? Do you have that?

John Edward

I have it somewhere, yes. There are also a couple of news stories on the back of it.

Martin Tyson

To clarify, it was an FOI request to the Scottish Government, so it would have come out there in the usual way.

Andy Wightman

Thank you.

Mr Tyson, let us say that you are looking at an independent school with 600 or 700 pupils. What would be the typical things that it does to satisfy you that it is a charity?

Martin Tyson

There is a set of things in the charity test that it has to do. Typically, the purpose will be to advance education and in most cases the schools do that primarily by providing education to their pupils. They have a charitable purpose and they have activity in furtherance of that purpose.

Another thing that we need to look at, if the school is charging fees, is whether those fees unduly restrict access to that educational benefit. How much does it cost to become a pupil at the school? If those fees are high, what help is there for people who cannot afford them? We also look at the rest of what the charity does in providing public benefit, which would include things that we have already talked about here such as access to subjects for pupils from other schools, access to facilities and so on.

We would look at the whole picture of the public benefit in furtherance of that educational purpose.

Andy Wightman

You referred to the fees not being unduly restrictive. More than 90 per cent of the population could not afford to pay the fees of a typical independent school, so are the fees not prima facie unduly restrictive?

Martin Tyson

We look at the level of the fees and, where people are not able to afford the fees out of their own resources but want to avail themselves of the benefit that the charity provides, whether help is available—and at what level—to enable them to do that.

There are a few principles involved. Where the fees are higher, we expect there to be more help in the form of bursaries, discounts and so on, to enable people to get access if they want to.

Andy Wightman

In your submission, you say that

“a number of independent schools are in marginal financial positions.”

What do you mean by that?

Martin Tyson

We get annual accounts and trustees’ reports from all charities, including the independent schools. In looking at those, we have found a number of things that are common across the sector. Probably the majority of schools are running with small surpluses relative to their income. A number of schools are reporting insufficient reserves, which is an issue given that continuity of provision of education is a crucial thing for their beneficiaries. In a number of cases, rolls are going down.

The overall picture that is emerging from the evidence that we have is a sector that is managing, but which does not have a lot of cushion to deal with additional costs.

Andy Wightman

Finally, you also say in your submission that

“some schools may wish to request removal from the Scottish Charity Register”.

Presumably, that is so that they can pay the rates out of income that they might have deferred from providing the kind of benefits that give them charitable status.

Martin Tyson

This is speculation, but one option would be that if they were released from the requirements of the charity test—particularly with regard to undue restriction in the fee levels—that would free them up to look at charging at a different rate and looking at different levels of bursaries, because they would not be subject to that element of scrutiny from us.

There is a lot of complexity around that, because rates relief is not the only game in town. If a school was doing that, there would be other tax liabilities and tax reliefs that it would have to consider. Those are not things that I can comment on.

John Edward

I do not know of a single school that would want to deregister, because they see their charitable status and their charitable purpose as integral to them. I do not know of a single school that would want to reduce the level of its means-tested fee assistance. In that respect, nobody is looking to go down that road to somehow avoid their responsibilities. Quite the opposite is true.

Unlike our colleagues down south who took the Charity Commission to court to deliberately not be held to a test, the schools in Scotland embrace the test and I do not know of anybody who would want to get away from that.

David Torrance (Kirkcaldy) (SNP)

In its written submission to the committee, OSCR said:

“Allowing the creation of a ‘two-tier’ charity sector within a ‘single-tier’ regulatory regime could be damaging to the public’s trust and confidence in both the sector and charity law.”

Can you expand on how that could be damaging to the public’s trust?

Martin Tyson

Our concern is that that goes to the basis of what the charity law in Scotland says a charity is. The virtue of the system in Scotland is that it is very simple—if you are on the register, you are a charity. For a long time, the assumption has been that any tax reliefs or rates reliefs apply equally to all charities, across the board. There are not some charities that are more charitable than others.

Our main concern is that we could start getting a blurring around the edges of what a charity is and of what the public can be confident of and understand a charity to be. Drilling down a bit, we could have a system in which there is a whole bunch of charities that are set up to provide education—schools, universities, colleges—and one group from among that set of charities starts to be treated differently for the purposes of rates relief. That starts to become very hard to understand and we start to get anomalies. At the level of principle, it is not clear why we would do that.

Alex Rowley (Mid Scotland and Fife) (Lab)

I suppose that that is where confusion arises for the public. I have a 10-year-old granddaughter who attends the local primary school. What is the difference between our local primary school and a primary school in the independent sector? What makes one of those schools a charity and the other one not? I cannot remember what the rates bill is in Fife, but it is a lot of millions of pounds.

This is about public perception. What is the difference? My granddaughter is in a class of 32-plus. Maybe you could tell me what the average class size is in private schools.

You made a point about confusion, but the confusion is already there. I remember a really difficult budget round when I was the leader of Fife Council. One of the directors in education made a proposal to set up an arm’s-length school company in order to save the rates. A number of arm’s-length external organisations were already being set up in Fife when David Torrance was in the administration there. For example, Fife Sports and Leisure Trust saves about £3 million a year on rates. That is the only reason that that was done.

Had I not dismissed that proposal and made sure that it never saw the light of day, we could have decided to set up a Fife schools company at arm’s length from the council and saved tens of millions of pounds. Is that right? Can you see why the public get a bit confused about this question?

Martin Tyson

I understand the comparison that is made between the state schools and independent schools. Obviously, our priority is charity law and the integrity of the charity sector and the confusion that would be created. On the question about the potential for an ALEO, I think that we would have had to look at that on its merits if Fife had applied for that.

10:15  



Liam Harvey

Mr Rowley mentioned his 10-year-old granddaughter and her class size of 32 pupils. St Mary’s spans the primary range and two years into the secondary range. I can speak for us only, and not for the sector. We have an average class size of 14, but we have a pupil to adult ratio of seven to one. If your granddaughter had a particular need—say, for example, she suffered attention deficit hyperactivity disorder—that would matter hugely to her. Assistance would be available to her and, if need be, we could facilitate one-to-one assistance for her in that class. That is very much a part of what we do and what we believe we should be doing.

As I said in my submission, I wish that that pupil to adult ratio and average class size was available to all children in Scotland and England—in fact, across the United Kingdom. It is what we do, and what makes us special.

Alex Rowley

I understand entirely. I suppose that, for the majority of the population whose children go to state schools, the question is why Fife Council is paying rates on, for example, the very large school that my granddaughter goes to when a private school 10 miles up the road that has an adult to pupil ratio of 1:7, compared with 1:32 at my granddaughter’s school, is not. That is the public perception and why the public do not understand the difference here. You can imagine the tens of millions that Fife Council pays in rates. If it were not paying that in rates and putting that into education, perhaps the class sizes and certainly the adult to pupil ratio would be much lower. Do you understand the point of view of members of the public when they say, “Why would certain schools get rates relief when others do not?”

Colin Gambles

I am no expert on the rates system, but I have been reading the Barclay review. It states that the purpose of rates is to raise money for education. It does not seem to me to be real money. The Barclay review talks about cycling of money in that the Government gives the money to the schools and takes it straight back from them, so that they never see that money. I do not think that those schools should pay rates. I do not think that any schools should pay rates, because the Barclay review states explicitly that the purpose of rates is to generate money for education.

I have the paragraph in which Barclay states that. There are other reasons as well, but one of them is to generate money for education. No school should pay money in rates to generate money for education because it is nonsense. To then say that independent schools should pay as well is also nonsense, just as it is with universities. It is not the correct reason to generate money, because it is about providing education. That is why the rates are charged.

John Edward

To pick up Alex Rowley’s point, perceptually I think that he is absolutely right. There is a lack of understanding and some of it comes from terminology. That is why we do not use the term “private”, because it somehow gives the indication of a private business wanting to stay on its own and be isolated from the rest of the sector, whereas “independent” speaks to the school’s autonomy rather than its business status. These schools are by definition, because of what OSCR does, not for profit. They cannot raise a profit and they have no desire to.

Colin Gambles’s point is well made about local authority taxation. If I speak to state school heads, which I do all the time, none of them knows what their rateable value is, because it does not matter to them. If their rateable value triples overnight or halves overnight or goes up fivefold, as is proposed for our schools, it makes no difference to that headteacher’s recruitment of teachers and staff, to the equipment that they buy, to the subjects that they offer, to their facilities or to any of the offer that the school makes, because it is simply, as was mentioned, a cycle of money from general and local taxation going around.

Our contention would be that there are 11,000 charities on OSCR’s register whose purpose is the advancement of education, of which we are only 50. They all pay rates. All those schools pay 20 per cent in rates, all of which is new money into the system. It is not cycled taxation money; it is new money from parents every year. The anomaly and the exception in Scotland is not our schools. The anomaly is charging a nominal rate to state schools, when it makes no difference to the financial decisions that those individual schools have to make.

Alex Rowley

It makes a difference in the sense that, in the example that I gave earlier, if the deputy director of education in Fife had set up schools as an arm’s-length company, that would have saved millions of pounds. Had the budget transferred in its entirety, it would have made a difference because that money would have gone to the children. Therefore, it is wrong to say that it does not make a difference and it is just a paper exercise. It is what I am suggesting. That is why it would be difficult for parents whose children are in class sizes of 30-odd to understand that their school pays rates and a school along the road with a teacher to pupil ratio of 1:7 or 1:8 does not. That is just a fact.

Colin Gambles

I have found the note that I was looking for. In the background to the Barclay review, it states:

“Non-domestic rates are a tax based on property which is levied in order to help pay for the very wide range of services that councils deliver (such as education).”

I cannot understand why the state sector schools have to pay taxes and rates. They should not.

Alex Rowley

I will move on, but I think that we acknowledge where I am going to get to in terms of the public perception.

John Edward

To confirm your point about that money, I absolutely agree. I think that the local authority should have that money freed up. I do not understand why it is captured in a cycle, but it does not change the overall tax take of the local authority one way or the other. Our point is that, if you change the taxation rate on these schools, it has a direct and significant effect on them.

The Convener

I will let Kenny Gibson in very briefly.

Kenneth Gibson (Cunninghame North) (SNP)

It is on this issue. All Governments of all political colours have charged rates on non-domestic properties. However, rates are not collected from, say, Fife Council and handed back. They are collected nationally and recirculated based on a needs formula, so it is not quite accurate to say that the rates that are raised are immediately thrown back. For example, a local authority such as East Renfrewshire, which is more prosperous than North Lanarkshire, might put in more rates from its schools, but then Glasgow will probably put in more rates than just about anywhere else in Scotland because of its huge retail sector. For example, people from North Lanarkshire and Ayrshire, which is the area that I represent, all come in and spend their money in Glasgow. That keeps businesses going in Glasgow and the money goes to a collective pot and then gets reallocated. It is all done on a national redistribution formula. If schools were suddenly not to pay rates in the state sector, there would have to be a reformulation of the formula and that is extremely difficult, because every area in Scotland then complains about the money that it gets or does not get. That is a brief explanation of that. It is more complex than it seems.

Alex Rowley

It highlights the question about the different levels of provision of education in Scotland.

Mr Tyson mentioned the availability of bursaries earlier. Is any work being done to quantify the value of bursary provision in Scotland and the number of people in receipt of full or partial bursaries?

Martin Tyson

We looked at that when we did the reviews of all the schools. I think that, on average, around 10 per cent of schools’ incomes was going on bursary provision.

John Edward

Obviously, that is information from individual schools, but we looked at the situation before the charity test was brought in by the Parliament and subsequently. Means-tested fee assistance has more than tripled as a direct result of the bill that was brought in by the predecessor to this committee.

Means-tested fee assistance is now in excess of £30 million a year, which is derived purely from parental fee income—it is not coming from anywhere else. On top of that, there is probably about another £10 million in other forms of assistance, such as sibling or staff discounts. The bottom line is that means-tested fee assistance has tripled. By my rough calculation, if you exclude the publicity costs and other things that are done in the higher education sector to attract people in, the per capita fee assistance that is given out in higher education is now roughly the same as the fee assistance in independent schools, the difference being that ours is derived entirely from parental fee income.

Alex Rowley

If that data is available, it would be useful for the committee to have it.

Colin Gambles

Are you interested in a specific example? When Hutchesons’ was set up in 1641, it was specifically for the education of 12 male children, all orphans. We now have 40 pupils in our senior school who are paying no money at all—they have a transformational 100 per cent bursary—and we have another 90 children who are on partial bursaries. In deciding on the ratios between those types of bursary, we have taken a steer from OSCR. It has advised us that, rather than giving solely transformational bursaries, the limited money that we have in the pot will be better spent by making it available to different strata of people who need different levels of support.

The Convener

How many pupils do you have?

Colin Gambles

In our senior school we have 850 pupils, and we have about 129 who are on bursaries, 40 of whom are on transformational 100 per cent bursaries.

Graham Simpson

What do you think lies behind this move against one small part of the charity sector?

John Edward

I would love to know. We do not detect any particular desire to single us out. Going back to Alex Rowley’s point, I think that there is a problem with the general public’s perception of how the schools operate. The money that they have is purely derived from what parents turn up with every term, most of which goes straight out the door on salaries or utilities. There were a couple of news stories that some education centres were paying 100 per cent rates while schools were paying only 20 per cent, which seemed to be unfair. It comes back to the previous argument that, in our case, it is 20p in the pound new money on top of council tax and on top of income tax. Although it was an easy headline, I think that it was a slightly simplistic way of separating out 50 charities from the 23,500 on the charity register.

Our confusion as an organisation is about why this is being done after the Parliament specifically requested the same small number of charities to pass a public benefit test in detail, which no other group of charities was initially singled out for.

Colin Gambles

It seems to me to stem from a misperception of our parent body. At a typical parents evening, you will see two parents arriving pretty flustered because they are both working. They are using their salaries and are both having to work to try to afford the education that they value so greatly. They do not want to pay that money, but they feel that they need to. I do not want to go into that particularly. What we see is flustered parents arriving after working hard. They are talking to me all the time about the challenge that the fees bring and the fact that they are feeling very squeezed and that they are approaching a tipping point. You know that we have faced challenges to do with teachers’ pensions and the teachers’ pay review, which we are obviously aligned to. All those things are making the fees—it costs £12,000 a year to send a pupil to our school, which is obviously a huge amount out of post-tax income, but our parents value education so highly that they wish to spend that money. However, the tipping point is coming.

Graham Simpson

Before Mr Tyson comes in, I will just pick you up on that, Mr Gambles. Do you think that there is a perception that the parents who send their children to your school are all extremely wealthy, that they turn up in their Range Rovers with a Labrador in the back and that they can well afford to pay extra, so this will make no difference to them?

Colin Gambles

Some parents are truly affluent, but there are a great many who are struggling to pay the fees. We know that because we have a list of pupils whom we cannot give bursary support to every year but whom we offer places to, and they cannot come to us.

10:30  



The Convener

You referred to people who value education and who are being squeezed as they put their child through your school. We should be careful not to suggest that there are parents out there who do not value education as much as that.

Colin Gambles

No, please, that is not what I meant.

The Convener

I know that that is not what you meant, but that certainly could be how it is perceived. We have to make it clear that there are lots of parents who cannot afford even the amount of money that allows them to get some support from you to get their children into school.

Colin Gambles

That is why we try to broaden access to our bursary programme and try to publicise it so that everyone knows that they can come to our school. There are bursary places and we are trying our best. We are strategically committed in our documents to raising more money for bursaries. Ideally we would be needs blind. If we could save £40 million or £50 million into a fund, we could start to become a needs-blind independent school.

Graham Simpson

Mr Tyson, could you answer the original question? Why are people picking on this area of the charities sector?

Martin Tyson

Looking back at the history of our engagement with this issue since the 2005 act passed, I think that it was clear to us that there is a lot of concern about the charitable status of the schools. That was acknowledged when the charity legislation went through Parliament originally. A lot of the provisions of the charity test came out of that discussion. We put a lot of effort and resource over those years into looking carefully and rigorously at the charitable status of the schools to try to address those concerns.

Graham Simpson

We heard last week, when we visited George Watson’s and met a range of schools there—indeed, this has come out in OSCR’s evidence—that some of the smaller independent schools are on the brink. They are not wealthy; they are struggling. In your evidence, Mr Gambles—I am not suggesting that you are on the brink—you give us some figures of what this could mean to your school. There could be an increase per year of £326,000.

Colin Gambles

That is our calculation. That is our understanding of what this will do to the bottom line for us, yes.

Graham Simpson

Do any of you think that schools could go under as a result of this?

Liam Harvey

Most certainly, and the increase in employer contributions is also going to put a dent in our budgets in due course. This is just another hit that will make it very difficult for schools to operate.

We have operated quite efficiently as a business over the past three or four years at St Mary’s but, to go back to a previous point, we offer 15 per cent of our income to bursaries. We open our doors to as many people as we can financially accommodate. We have made a decent surplus and it is important that the committee knows that. We have made a decent surplus over the past three years, but our intention is to reinvest that into the community at St Mary’s. We intend to put down a sports facility that will be available for all local authority schools to use.

You may not be aware of this, but Scottish Borders Council went to the asymmetric model, which means that, on a Friday afternoon from 12 o’clock, children are not in local authority schools. It is our intention to welcome them into our facilities at St Mary’s and provide them with expert coaching from our staff free of charge. However, of course, all of a sudden our plans have been put on hold, because we are now staring at an increased bill that is coming down the line at us. It is stifling our ability to widen our scope to welcome the Melrose community and the wider community into St Mary’s.

The Convener

Further to that, Graham Simpson asked a question about schools closing. Does anybody have a name of a school that they think is under threat?

Colin Gambles

Yes, our neighbouring school has just closed its senior school after 150 years of history.

The Convener

Which one is that?

Colin Gambles

I do not like putting it on public record, but it is Craigholme school.

The Convener

Was it a small and specific school?

Colin Gambles

Yes.

John Edward

One of the attendees from whom the committee heard last week was from Hamilton college in Hamilton, which is a school that goes back less than 40 years that took over an old teacher training college. The school has said on public record, and it has been reported in the press, that it would close.

In the time that I have been at SCIS, pupil numbers have not dropped much. There has been a lot of belt tightening in the sector, but the one thing that has started to happen has been changes to the structures of schools, such as Craigholme. Beaconhurst school in Bridge of Allan closed last summer. In the projections that boards have to do six or seven years in advance—

The Convener

Are the schools that you mentioned, except for the one in Hamilton, which was a completely different type of school from the main stream, part of a cluster? Is Craigholme school part of a cluster?

Liam Harvey

The junior school at Craigholme is still operating. Craigholme sought to go into a connective days trust with Kelvinside academy, which is quite a unique model, basically so that the schools could support each other. Generally, most of the schools are almost entirely stand-alone. There are two here in Edinburgh.

The Convener

They have not really closed; they have just merged.

John Edward

Part of the school has been closed and the expectation is that most of the pupils will go to one. However, in the case of Beaconhurst school in Bridge of Allan, for instance, some of the pupils may have gone elsewhere to independent schools but many will have gone back to the state. Hamilton college is not the same as Hamilton school in Aberdeen, which closed a couple of years ago. St Margaret’s in Edinburgh closed. It does happen.

Liam Harvey

There are five remaining stand-alone prep schools in Scotland. Although I am not going to name schools, if the committee scrutinises the accounts of those five stand-alone prep schools, it will see that three of them are under threat.

Graham Simpson

OSCR has looked at the accounts, has it not? You said in your evidence that schools were struggling.

Martin Tyson

This goes back to a previous point. There will be as many individual circumstances as there are schools, but there are groups of schools that are in different circumstances from other groups of schools, such as boarding schools being in a different market from day schools. Rather than schools being on the edge, what we are seeing is a lot of schools operating without much in the way of fat to be cut. There will be some difficult decisions to be made about absorbing extra costs.

Graham Simpson

You said that schools are in “marginal financial positions.” You could say that that is on the edge.

Martin Tyson

It is the idea that there is not much to play with.

John Edward

I go around schools speaking to governing boards regularly. I attend probably two or three strategy sessions at boards per term. All we have talked about for the past 18 months is money, not challenges of education or other aspects. I know for a fact that when boards such as Beaconhurst’s have been looking ahead and taking their strategic decisions, they have had Barclay in mind.

Of course, if a school is giving means-tested bursaries to somebody in secondary 1, they are committing to five, six or seven years of education. If they are projecting into, say, 2025 and being told in 2020 that their budgets are all going to go haywire, that speeds up the decision-making process in schools quite quickly.

Kenneth Gibson

This has always been an issue. We heard earlier that there is a new independent school being opened this summer, but Allen Glen’s school and St Mungo’s academy in Glasgow went down the stank many years ago. There has always been evolution within the sector—mergers, new schools, and so on.

We are asking what the point of all this is—and we are going to ask the Government that directly. It would seem to many people that you are saying that you should have charitable status because of your involvement with the community. The schools in my constituency, none of which are independent, also allow the local community to use their halls and playing fields and swimming pools, and they have to pay rates.

One issue that we have not touched on is the fact that you choose who goes to your schools. I went to Bellahouston academy, which is near Hutchie, and we used to get all the pupils who were expelled from Hutchie. If folk were taking drugs or involved in fights or any other antisocial behaviour, they were effectively dumped on our school. You are able to select who you have at your school, and I understand that there is a vigorous selection process. The fees, according to your own evidence, are more than twice the average amount that is spent on a state pupil.

What has been the impact of recent changes in teachers’ salaries and pensions on the sector? You said that you had 850 senior pupils at Hutchie. What is the capacity?

Colin Gambles

In 2006 we had 1,720 pupils and now we have 1,220.

Kenneth Gibson

Is that the school’s choice or is that because there has been an erosion of the number of people who want to send their children there? What is the reason for that?

Colin Gambles

The pattern that I would describe is that the parents and the children still want to come to us. Our educational standards and our results are excellent. The only thing that I can see is that the fees keep going up, and the tipping point is coming for more and more parents.

Kenneth Gibson

Have you done any analysis of what you think? You have said, for example, that if 47 children—3.7 per cent of your pupils—left your school and entered the state sector, the state sector would have to fund them. Obviously, there will be economies of scale in the state sector.

If I divide the £326,000 rise in rates among your 850 pupils, it will be £400 or whatever, which would be an extra 3 per cent on the fees. Do you have any information on what impact that will have? Have you had any feedback from parents or pupils about that?

Colin Gambles

I believe that a number of parents have submitted to the committee on the issue, because they are starting to understand. A lot of our parents do not understand the import and have somehow not picked up on it—the process seems to have been a little bit stealthier. Those that have picked up on it have written to you. Remember, of course, that of those 850 pupils there are 130 who are bursary recipients and we cannot charge that money to them; we have to further subsidise them. Again, the effect is bigger than it looks.

Kenneth Gibson

How do you choose who comes to Hutchie as a bursary recipient? If, for example, 1,000 people in the south side of Glasgow who cannot afford the fees want to send their children there, how do you decide who gets in and who does not?

Colin Gambles

There is an entrance test and we rank people on their performance in that test. We go to the person at the top and say, “Do you need a 100 per cent bursary? Here.”

Kenneth Gibson

You rank people on academic ability.

Colin Gambles

Yes. We rank them on their performance in that test. It is a snapshot.

Kenneth Gibson

For many years, there has been an argument that that is effectively stripping out some of the better, more able and more capable pupils from the schools in the comprehensive sector that a lot of us went to.

Colin Gambles

I was at a state school myself.

Kenneth Gibson

Indeed.

Does it benefit the wider community if some of the more ambitious parents have their children removed from state schools? It may benefit their children, but what about the rest of society? That is one of the arguments.

The Convener

Can you all answer briefly, please, because we have a lot to get through and we have another panel coming in after this? It has been a very interesting discussion and I hate to curtail it.

Liam Harvey

I understand exactly what you are saying about people being dumped on your school because they had been expelled from Hutchie or wherever. In our means-tested bursary process, we screen children to assess their level of need.

You should not overlook the fact that we have a number of pupils at St Mary’s who are not coping in the local authority system because they have ADHD or are perhaps slightly on the autism spectrum and need one-to-one assistance. Do not overlook the fact that we provide and have in the past provided 100 per cent bursaries to children who have been isolated and marginalised by their community because they have been disruptive in their local primary schools. Those pupils have come to us and we have done our level best to provide them with a level of assistance that makes learning accessible to them, while managing their conditions.

There is an assumption that we are creaming off the more academic pupils and the more affluent people who apply for places in our schools. Do not overlook the fact that that is not the case.

10:45  



The Convener

Are there any statistics that would show the number of pupils who receive a bursary not because of academic ability but because of their level of need, such as the people that you were talking about?

John Edward

It would be slightly blunt, but we could put together figures for the selection processes for individual schools. In purely academically selective schools, there are relatively few such pupils. We have talked about the pupil to teacher ratio, and a lot of the schools’ attraction is precisely because there is a higher level of one-to-one learning support.

Liam Harvey

We have a number of pupils who are highly functioning autistic and have Asperger’s, for example. We know that parents are coming to us because those children are not coping in the state sector. They are not flourishing and that is why the parents have come to us.

The Convener

That is exactly the type of person that I am asking about.

Martin Tyson

When we reviewed the schools and looked at their public benefits, we saw that there is a separation between scholarships, which are usually awarded purely on academic merit, and bursaries, which are means tested. What we gave the weight to was the means-tested bursaries that are about need and ability to pay.

The Convener

The point that Mr Gibson makes is that both of them seem to have coalesced in the entry to schools such as Hutchesons’.

John Edward

The scholarships in that traditional model have almost died out in Scotland, apart from a nominal amount. Down south, people will still get offered places on their ability, with fee assistance attached, which is something that one simply could not do in our schools anymore. That has changed as a result of the test in the legislation that this Parliament passed.

To come back to Mr Gibson’s general point about parents, we are only 4.5 per cent of the schools sector, so it does not matter how many pupils or parents there are in our sector. We pay no disservice to the 95 per cent in the state sector who do extraordinary things.

The Convener

The issue is about public perception.

John Edward

Yes, absolutely.

The Convener

That is very important.

Kenneth Gibson

It is not an issue where I am, where there are no private schools, but 29 per cent of pupils in Edinburgh go to private schools, so the impact is different in different local authority areas.

As I said last week, I am not against the private sector at all, although I know that other committee members are. If people want to spend their money on that, it is completely up to them. What the Government is looking for is a level playing field, and that is what we are debating. We are deciding what that should look like.

Alexander Stewart (Mid Scotland and Fife) (Con)

You have talked about the marginal funds that are available and additional costs that many schools are having to manage. Many committee members have talked about some schools being on the brink. Specifically on the nursery sector, how many nursery schools that are run as part of the independent schools are likely to be affected by this removal of the rates relief?

John Edward

Every school that has nursery provision will be affected. Of course, what Barclay also did was extend 100 per cent rates relief to nurseries, irrespective of whether they were profit making and privately owned, but the proposal takes money away from those schools that contain nurseries. Some schools have nurseries that stand alone and could claim a different rates relief but, in every case, every school that has an incorporated nursery will be affected.

Colin Gambles

Within five miles of my school, there are 33 private for-profit nurseries that will get 100 per cent rates relief. A quirk of where we put our door means that we are not eligible for that.

Alexander Stewart

Does that devastate your sector?

Colin Gambles

It is inconsistent policy, it seems to me. We are for education; they are for education. They are for profit; we are a charity. However, we will pay rates and they will not.

Alexander Stewart

Do you feel that that would be penalising your sector completely?

Colin Gambles

That is how it appears to me.

Alexander Stewart

I see that you are all indicating that you believe that that would be the case. Do you believe that the relief that is being proposed for specialist music schools is appropriate?

John Edward

That is a question for the one specialist music school. The justification for doing so involves the fact that most of the places at that school are allocated funding by the Government, which goes back to the argument about whether state schools should pay rates, because it is all taxpayers’ money in the end. I assume that it is the status of St Mary’s that is the justification for applying that relief, because I am sure that every school could say that they have a huge commitment to music. I know that a piece of regulation has come before Parliament in the last couple of weeks about the fee levels at that school. I believe that the reason for the relief is because the support has come primarily from central Government.

Colin Gambles

I support what Mr Tyson said earlier about the difficulties that arise as soon as you start trying to put a different value on different charities. My understanding is that the music school is exempted because it selects on the basis of musical ability or potential. Half of our pupils in first year are taking music lessons, and all of our pupils in first year are in music classes that are designed to develop musical excellence. If you would like us to put in place a requirement that all of our children have to have an instrument, the parents would be delighted because they perceive that as a good thing for their children’s education.

John Edward

That goes back to precisely the point about arm’s-length bodies. None of these schools is existing or educating because it wants to avoid paying taxes. That is the point. These schools are paying 20 per cent rates because they have been educating, in the case of Hutchesons’, for hundreds of years.

Andy Wightman

To be clear, non-domestic rates are a tax on the rateable value of property that have been around for the best part of two centuries—150 years or so. They are a property tax. Do you agree that, in principle, every occupier of non-domestic properties should pay something because the local services assist them? For example, they provide the roads to your schools and all the rest of it. Do you agree with that, in principle?

Colin Gambles

Yes. All I would say is that the Barclay review said that the taxes are there to raise money for education, so you have to have net gain. Of course, we want to pay our way.

The Convener

Just to clarify, Mr Gambles, the review did not say “for education”; it said “including education”.

Colin Gambles

Thank you, yes.

Andy Wightman

Non-domestic rates are a source of local government revenue to pay for all the services that local government provides—social services and everything else. Obviously, your schools could not exist in isolation. You need the roads maintained, you need the sewerage in place and all the rest of it. As a matter of principle, you agree that all occupiers of non-domestic property should pay something. Currently you pay 20 per cent. Do you agree with that?

Colin Gambles

Yes.

Andy Wightman

The argument is that just taking away the 80 per cent relief is a rather blunt instrument. The Barclay report says:

“Independent (private) schools that are charities also benefit from reduced or zero rates bills, whereas council (state) schools do not qualify and generally will pay rates. This is unfair and that inequality should end by removing eligibility for charity relief from all independent schools.”

That is Barclay’s argument. I do not think that that argument has changed. I think that that is the Government’s argument as well, but we will give the Government the chance to tell us whether it is. There might be some change, but we do not know whether it will involve the complete removal of mandatory 80 per cent relief. For example, it could involve making non-domestic rates more progressive—they are a flat tax at the moment, at 48p, but you could have tax-free amounts, based on percentages such as 10 per cent and 20 per cent. Alternatively, we could do something about phasing in the change over a number of years, or we could end up with the relief being 40 per cent instead of 80 per cent.

It is important to place on the record the fact that, last week, we visited George Watson’s college, and some of the references that we have made are to conversations that were held last week in private. It was interesting to me to hear from schools what their school rolls were, how much the proposed taxes would cost them and what that meant per pupil. At George Watson’s college, that cost would be £191 per pupil and at Hutchesons’, where I think that there are 1,300 pupils, it would be £246 per pupil. However, it would be much more for the smaller schools, with the cost per pupil being £450 at Hamilton college and £500 at Kilgraston school. There is an issue about scale here.

There is also a question about your property, because the rates are being charged on your property. Are some of your schools inefficient users of property, in that, if they rationalised their estate, they could possibly reduce their non-domestic rates bill?

If we are to address the current unfairness—I know that you do not view it as unfair; we will take that as read—do you have any general ideas of how we could do that in another way? What else could be done?

Colin Gambles

I would have thought—of course, this is just an opinion—that a calculation needs to be done for charities to see what would be a fair level in relation to their rates, and that should be applied to them.

Andy Wightman

At the moment, that is 20 per cent.

Colin Gambles

Yes. If that is wrong—if that is too low—I propose that you should bring the state schools to the same level. That is, you should devise a formula that says what a charity or a state school should pay, because it makes no sense at all for a state school to be paying the full rates. The headteachers need that money; it should not be being paid in rates to raise money for things, including education. I think that coming up with such a formula would be the fairest way across the sector.

Liam Harvey

I am thinking slightly outside the box, but, from the point of view of my own personal philosophy, I wonder why nobody—I ask Martin Tyson to forgive me—has suggested what I am about to suggest. In England, with regard to the level of bursaries per independent school, a level of over 5 per cent was balked at and, I believe, challenged through the courts. Whatever level per independent school in Scotland might be deemed acceptable—whether it is 6 per cent or 8 per cent—is there a possibility that raising that level, plus a consideration of public benefit being apparent in the function of the school, might help all concerned? For example, if there was an expectation, when the Office of the Scottish Charity Regulator was carrying out its inspections, that independent schools were expected to give up 10 per cent of their income, all of a sudden that would slightly alleviate pressures on oversubscribed state schools. Most independent schools in Scotland would be able to accommodate that.

The Convener

How would they be able to accommodate it if you are telling us that they are under huge financial pressure just now?

Liam Harvey

Half a fee would help the bottom line, as opposed to no fee at all.

John Edward

You are completely right in what you say about rates. Although Barclay suggested it, I do not know of any of our schools that pay no rates at all. Possibly, some of the special schools get full discretion from the local authority but none of the mainstream schools pays no rates at all. You are absolutely right that paying rates should be part of their role in society.

I think that the trouble that the schools have had is that, in contributing that money and in relation to the charity test that is there, they are stuck with the question, “What do we do to maintain our situation as a school?” I take your point about facilities. There are no bursars on this panel, but if you ask a bursar whether their facilities are well used, they will say they are extremely overused.

Andy Wightman

I was not talking about whether facilities are well used; I was talking about whether a school’s property is efficiently managed. It might have a high rateable value because it has too much property.

John Edward

Indeed, which ultimately comes back to the question: if rates go up, where does the money come from? The money comes from parental fee income. There is independent evidence that shows that, beyond a certain point, affordability cuts in and people start to leave. Each one of the pupils who leave our sector represents, on average, a £6,500 cost to the state. Other ways of getting that money involve selling off assets—rugby or hockey pitches, land, boarding houses and so on—or getting rid of staff. I assume that, given the aims of increasing physical activity and improving attainment in Scotland, those things are not what anybody wants to happen. There are no other ways of generating that income. If you start to sell off the buildings, you have a problem.

We sit in the shadow of a former school that for 60 years has sat letting in water, because it is a grade 1 listed building that nobody can do anything with. In the mainstream and the special needs sector, we have 17 grade 1 listed buildings. I know of one school in Edinburgh that has spent £1 million on its roofs in the past two years. Those schools are making a contribution and are keeping those facilities going. There are a lot of houses in Edinburgh, Glasgow and elsewhere that are built on former playing fields. I think that most schools would not want to go any further in that area.

Colin Gambles

As a specific example from Hutchie, we have some rugby pitches but we rent them from the council. They are on a flood plain, so they are not really fit for purpose. We maintain them, we keep them looking lovely and we play sport on them, but I think that our lease is up for renewal in the next few years. That is not a facility that we own.

Andy Wightman

Mr Tyson, is it the case that OSCR believes quite strongly that it wants to retain the integrity of the charitable sector and therefore the reliefs that are associated with it as one sector?

Martin Tyson

Yes. I have been meditating on your previous question, and I think that what we would want to see is a way of looking at that question that involves a consideration of principle—that is, the basis of what the charity law is—and which bears in mind the issue of the integrity of the sector.

The Convener

I thank everyone for attending. This has been a useful session. We will suspend briefly to allow a witness changeover for the next panel.

11:00 Meeting suspended.  



11:04 On resuming—  



The Convener

For today’s second evidence session on the Non-Domestic Rates (Scotland) Bill, I welcome Cheryl Hynd, customer manager (transactions), and Fiona Law, NDR team leader, from the City of Edinburgh Council; Brian Murison, revenues manager, from Highland Council; and Jack Orr, senior property executive, from West Lothian Council. Thank you for your submissions.

I will kick off. Does the bill as introduced, along with the early measures implemented by the Scottish Government, sufficiently address the Barclay group’s findings and recommendations? Who would like to be the first to dip their toe in the water?

Jack Orr (West Lothian Council)

I am happy to respond to that. In broad terms and in many respects, the bill has been drafted with the main recommendations of the Barclay report in mind. As ever with these things, the devil is in the detail. Having looked at the bill, I think that a few points of detail arise and that perhaps we have been invited along today to elaborate on some of those detailed aspects of the bill.

Brian Murison (Highland Council)

We concur. We feel that the bill is work in progress. The details need to be ironed out.

The Convener

Do you have any views on the recommendations that the Scottish Government rejected? I refer to recommendation 28, which says that

“All property should be entered on the valuation roll (except public infrastructure such as roads, bridges, sewers or domestic use) and current exemptions should be replaced by a 100% relief to improve transparency”,

and recommendation 29, which says that

“Large scale commercial processing on agricultural land should pay the same level of rates as similar activity elsewhere so as to ensure fairness.”

There are no strong views about that—okay.

You will have heard some of the previous debate. The question of how non-domestic rates work within the state school system kept coming up. Could somebody give us an easy-to-understand explanation of that?

Jack Orr

I am happy to give a brief view from West Lothian. All our schools are subject to the valuation process, and all of them—secondary, primary, nursery and special schools—are liable to pay rates as per the rateable value that is entered on the valuation roll. There are certain exemptions from or exceptions to that through various reliefs. The most obvious are some of the special schools. Reliefs are granted in relation to physical and other disabilities, so special schools get an element of relief. Otherwise, everything that is on the valuation roll is charged. I do not have the figures for individual schools, but the total non-domestic rates bill that West Lothian Council paid last year was £8.7 million. Of that, some £2.9 million was paid in respect of primary and nursery schools. The remainder is made up of the other schools, which form by far the largest part of our estate, together with other operational buildings.

To give some context to the total bill, the £8.7 million for non-domestic rates slightly exceeds what we pay for all our energy for all our estate. As a proportion of our total revenue budget, our property revenue budget is somewhere between £23 million and £24 million, so it is a substantial proportion of that total sum.

Cheryl Hynd (City of Edinburgh Council)

As at March 2019, the total non-domestic rate bill for Edinburgh was £19.3 million, of which £12 million was for schools. That is a considerable amount of money. It has been interesting to hear discussions from colleagues in the private sector and to get a balanced approach. From some of the ideas in the submissions, it is clear that everybody is willing to have a conversation and agrees that by no means is this all set in stone. As far as we are concerned, that takes us towards the ethos of the Barclay review, which is that things are up for discussion and people’s thoughts and views should be taken forward. We might be talking about just a number on a bit of paper, but it affects people’s lives.

The Convener

Can you clarify for the record that that money does not get recycled back into the education system?

Cheryl Hynd

That is correct.

Graham Simpson

To clear this whole thing up, who pays the money and where is it paid to? Do individual schools pay? If the rates bill goes up, does that affect headteachers?

Brian Murison

Not in Highland. It is a central process, whereby the money is just taken from the top line of a service’s budget. Many headteachers will not even be aware that they pay rates for the school building.

Graham Simpson

Is that the case for all the witnesses?

Fiona Law (City of Edinburgh Council)

Yes.

Brian Murison

Yes.

Jack Orr

Yes.

Cheryl Hynd

Yes. There is a set budget at the beginning of the year, so we know the rateable value of our property roll. In Edinburgh, that includes all our buildings—for example, secure units, libraries and so on. We know the central costs for the council—that is why I was able to say that the total for Edinburgh is £19.3 million. That is an overhead and it has to be part of a council’s considerations in relation to its budget. We know that we have to pay our bill and it is taken into account, whatever funding the authority gets.

Graham Simpson

Just for the record, so that people understand the point, does every council hand over that money to the Government? [Interruption.] Mr Wightman says “To itself”—the council pays that money to itself, in effect.

Cheryl Hynd

Councils fund themselves—they have council tax and non-domestic rates—and then there are grants and so on from central Government. The money that councils get has to pay for all the services and staffing costs.

Alex Rowley

Have any of the authorities represented here today set up ALEOs in order to avoid paying rates? Have you set up ALEOs where not having to pay rates has meant a saving to the council?

Brian Murison

Highland Council operates an ALEO, but I would not say that it was set up to avoid rates.

The Convener

You should not say that, no.

Alex Rowley

No, but a consequence is that it avoids rates.

Brian Murison

The consequence is that, as a charitable organisation, it gets the 80 per cent relief.

Alex Rowley

I will move on to whether there are additional measures that could have been included in the bill. One that comes to mind is the proposal to make changes to rates for out-of-town shopping centres. I want to try to focus on town centres and the impact on rates. Is there anything that could have been put into the bill to help councils and town centres?

The Convener

I take it that the lack of response means no.

Jack Orr

Alex Rowley mentioned out-of-town shopping centres. Clearly, they are already on the valuation roll. They are in direct competition with traditional town centres and in my view there is generally only one winner, which tends to be the out-of-town shopping centre because of convenience and all the rest of it. I can think of a few places, such as Bridge of Allan, where there is a good range of independent shops and the like. However—this is certainly my experience of West Lothian—over the years, many town centres have become homes for charity shops and such like. Many of the multiples that we used to have, such as Woolworths and Poundstretcher, have failed and gone into liquidation. That has not helped.

11:15  



Alex Rowley asked whether there is anything that should or could have been in the bill to help redress the balance. It may be difficult for the bill to do this, but I think that the only way to do that would be to incentivise town centres in some way. That could be done through further reliefs, with rateable values being reduced either through specific reliefs or through some other measure. It would be difficult, and I think that there would be all sorts of intractable problems if you started to go down that road of comparing one scenario with another.

Alex Rowley

Am I right that the Community Empowerment (Scotland) Act 2015 gave councils powers to make a town centre rate free if they so wished, but that they would have to pay for that?

Brian Murison

Yes. The problem is that the measure is self-financing. The authority would have to finance any relief scheme, which would cause difficulties, given pressures on budgets and so on.

Alex Rowley

Have any of your authorities looked at doing that?

Fiona Law

We have looked at it, but due to financial constraints we have not been able to offer any form of relief.

Alex Rowley

On the role of assessors in the potential application by local authorities of discretionary relief to recreational sports clubs, concerns around playing fields seem to come up as an issue in relation to the bill. Are there changes that threaten businesses that run cafes or whatever in public parks?

Brian Murison

In our view, the difficulty with the examples that we are aware of is that they are so small in value that they would be entitled to the small business bonus. As such, you would just be creating an administrative burden. The net gain would be very limited.

Jack Orr

I concur with that view. We already have a number of individual entries for some of West Lothian’s public parks—cafes, shops and caravan sites, for example. In some ways, it is difficult to see how, without creating an administrative burden, you might bring other activities on to the valuation roll.

We have an interesting scenario in front of us at the moment, with a proposal from someone who wants to do a winter wonderland in one of our country parks—it would be modelled on the enchanted forest at Pitlochry. It is probably focused on Christmas, so it would be time limited and would not be there all year around. I suppose that that kind of thing might attract an entry on the valuation roll, or perhaps a look from the assessor to see whether it would be appropriate to include it on the roll. Other de minimis things—an archery club or an ice cream stand, for example, which are seasonal—speak for themselves, I think.

Fiona Law

The Christmas market in Princes Street gardens in Edinburgh, which is the capital city, does not go on the valuation roll. If we were to include such things, would we deter them from happening? Given the tourist attractions at Christmas, that could be detrimental to other businesses in the area. We would need to weigh that all up.

Alex Rowley

Is there anything that we could put in the bill to try to help town centres? Throughout Scotland, most town centres are struggling. As the MSP for Kirkcaldy, David Torrance knows that it is not easy to see what the answers are.

Brian Murison

We have two main issues with town centre businesses. One is the rateable value, but that is an assessor matter that is driven by non-retail businesses that are willing to pay town centre rentals. The other issue is out-of-town centres and parking, but we are trying to address that by offering free parking in town centres for a limited period.

Jack Orr

We have no parking charges in West Lothian in any of our towns.

The Convener

That is great. Thank you very much.

Andy Wightman

Have you made any evaluation of the impact of moving to a three-year revaluation cycle on the administration of non-domestic rates in your councils?

Jack Orr

As far as I am aware, we have not specifically modelled that from a property perspective. Clearly, we would be supportive of a three-year cycle, because that would help to iron out the large swings that can take place at revaluation.

The revaluation has been seven years in the making. During that time, the property market has fluctuated widely for a number of reasons. Anything that helps to iron out the fluctuations for ratepayers in general and businesses in particular has to be seen as welcome. Reducing the tone date from two years to one year in advance of the revaluation would also help that situation. I do not know whether that answers your question.

Andy Wightman

Yes. The question is more for assessors—I am just wondering whether there would be any other impacts for councils.

Brian Murison

There would be impacts. We often use revaluation years to review reliefs that are awarded, particularly the small business bonus and the rural rate relief, and obviously there would be an impact on those.

We have an automated interface with assessors, but we will still have to deal with manual rejections.

Yes, there would be an increased workload, but that is something that we would just have to manage.

Jack Orr

I should have said that there would be an obvious impact for staff in local authorities that deal with property, because we would be involved in appeals every three years rather than every five years. That change would have an impact on our day-to-day working.

Andy Wightman

You would be involved in appeals.

Jack Orr

Yes. I cannot think of any local authority that would not appeal against valuations throughout its authority, where it sees it as appropriate to do so. We manage appeals in-house, with some external assistance.

Andy Wightman

Do local authorities lodge quite a number of appeals? The non-domestic rates that a local authority pays go straight to that local authority, so why would you bother appealing?

Jack Orr

We appeal to ensure that our assessments are as fair as everyone else’s—we do not want to be in a position where we consider that our assessments or our entries in the valuation roll of rateable values are significantly different from the rest of the market.

Andy Wightman

I turn to parks. The intention with the bill seems to be to make sure that commercial activities in parks are not exempted unnecessarily and that there would be parity between what goes on in parks of a commercial nature that is similar to what goes on outwith a park. Are you comfortable with the bill’s provisions? Do you think that they are justified?

Cheryl Hynd

Yes. For Edinburgh, the issue is mainly about consistency of approach and making sure that rates are applied in the same way across Scotland.

A lot of our comments on the bill, which have been from an administrative and a ratepayers’ point of view, are about the need for consistency to be applied. Our concern is that whatever council someone falls under— whether it be West Lothian Council, Highland Council or the City of Edinburgh Council—exemptions, discounts, reliefs and so on are all applied in the same way. As I said, there needs to be consistency. We also need to make sure that people know exactly what the regulations are.

Andy Wightman

I have had a quick look at Princes Street gardens, and I note that the Scott monument is listed as a distinct historic building for example. In St Andrew Square in Edinburgh, which I think that many members will be familiar with, there is a Costa Coffee with a rateable value of £42,000. It would seem that there are premises in parks that are already on the valuation roll. The new provision in the bill would appear to be about making sure that all premises in parks, particularly local authority parks, that should be on the valuation roll are put on the valuation roll. Is that a fair assessment?

Jack Orr

If that is the intention, we would welcome that. As I said, in West Lothian Council’s case, a number of commercial activities that are in our public parks are already on the valuation roll. If the intention is to treat commercial activities consistently across the board, we would certainly agree with that. As colleagues from the City of Edinburgh Council were saying, if the provision is applied across the whole country, that would be consistent and fair to everyone.

David Torrance

Do you think that the anti-avoidance measures in the bill, especially on empty properties and holiday homes, are strong enough to close any loopholes?

Brian Murison

I think that the measures are a movement towards that, but as practitioners, our view would be that certain ratepayers would just find a new way around the measures.

I think that there will always be constant movement in that regard, but the measures would certainly help. They are very welcome, because they would give us an opportunity to close some of the loopholes. However, much of it will, in the end, come down to case law.

David Torrance

Are there any measures that you would want in the bill to close the loopholes?

Cheryl Hynd

One proposal that we have made is to have a review panel. That would allow us—whether through the councils or the Institute of Revenues Rating Valuation Scotland—as practitioners, to get together and discuss what are being called loopholes. If any new ones come up, we would discuss, as a professional group, what is happening and what the best way is of dealing with those things. We would keep abreast of matters, and if analysis comes through from the case load of a council that pinpoints to something happening, that could be used as a learning tool, to address the situation, and the panel could propose amendments to legislation and so on.

There is a need to review matters constantly and not just say, “We’ve addressed it through the Barclay review. Let’s leave it.” We have to keep our understanding fresh, and put in place committees or panels to review things, to make sure that all potential future loopholes are looked at. There has to be consistency and fairness; we have to make sure that we all approach things in the same way.

David Torrance

Phoenix companies, which are created for tax avoidance purposes, were mentioned in previous evidence. That issue is not covered in the bill. Do you think that it should be? Are there any examples of phoenix companies operating in your area?

Brian Murison

We have a particular issue at the moment. However, it is not about phoenix companies—we have moved on to shell companies, which are companies that are being created purely to absorb debt. Again, through the IRRV, we did a survey throughout Scotland and such companies owe about £2 million in outstanding rates.

11:30  



A company has taken us to court, because it disagrees with what we have done, but, I hope, that will allow us to raise the issue. In many cases, basically, we have to be challenged in the court system before we can get a decision. We want there to be a link between spurious directors of companies and the owners of the properties, because properties are being bought by owners but shell companies are operating them on their behalf.

Andy Wightman

Are you willing to name the organisation that you are talking about?

Brian Murison

They go under a variety of names. I think that you will have about four or five in Edinburgh under various names along the lines of “tartan house of Scotland” or “Cashmere”. If you trace them back, you will find that they have a single director, who is a 78-year-old gentleman from Edinburgh, who I am quite sure is unaware that he is the single director.

Andy Wightman

We previously heard evidence on this topic and I suggested that the problem is that we are trying to track occupiers and that the occupiers are liable, whether they are tenants or owners. Is there a case for revisiting the liability for rates and placing it on owners rather than occupiers?

Brian Murison

We suggested to the Barclay review that we made it an owner’s tax that the owner was responsible for. If the occupier were a charitable organisation or any other that was entitled to some sort of relief, that relief would be claimed through the owner. Highland Council suggested that and we are fully in favour of that.

Andy Wightman

Were other councils in favour?

Brian Murison

I am not aware of that.

Jack Orr

I can see a difficulty. Although you can make the owner responsible for the tax, through commercial leases and all the rest of it, ownership can be transferred to the lessee or the occupier. I wonder whether, by a circuitous route, you almost end up again with a shell company—through the commercial leasing aspect of the situation—being responsible for the payment of rates. If something could be done to reflect that situation and cast the responsibility back to the owner, that would capture it, but I cannot think what that would be.

The Convener

That is a very interesting point.

Alexander Stewart

I will ask about the potential impacts of the bill. The Convention of Scottish Local Authorities has indicated that the financial memorandum is broadly reflective of the figures that it gave the Government, but that there will be room for refinement in years to follow. Can I ask whether additional costs for local authorities will be fully funded, including any additional costs that are higher than the estimations in the financial memorandum? Do you have a view on that?

Brian Murison

It is difficult. We obviously have an estimate of initial costs, such as software changes and so on, but until we see how the bill progresses it is difficult to make an adjustment for that.

Alexander Stewart

Would the biggest administrative effect normally be for the assessors?

Brian Murison

There certainly will be administrative changes required by the assessor.

Alexander Stewart

Could that have knock-on effects as to how it is progressed and processed?

Brian Murison

Yes.

Alexander Stewart

What discussions have local authorities been involved in regarding the cost for future years? The financial memorandum mentions only what will happen initially and it may have to be refined as years progress.

Cheryl Hynd

I have not seen anything for future years. If you change something, you need to take on board learning about what needs to be amended to make the activity successful in the future. That would have to be considered.

Scottish councils are very good at sharing learning. As practitioners, we have shared learning about automation, the publication of non-domestic rates on websites and so on. That is one thing that makes me proud to be a local authority employee. The IRRV quite particularly talks about sharing learning. In relation to the administration of non-domestic rates in the future, it will not always be the case that it will be about money. It might be about how to do things in a smarter way. As authorities, we have become very good at that, because we have had to.

Alexander Stewart

You have been forced to adapt to many situations—and you will adapt to these circumstances—but there might be a knock-on effect on personnel and resources and implications for them.

Cheryl Hynd

At the minute, that is an unknown unknown.

Kenneth Gibson

Many things that I wanted to raise have been raised, but one issue about town centres that has not been mentioned—there is not a lot that we can do about it—is online shopping. There is a question about how those retailers get taxed at some future date. I know that the UK Government is at least thinking about that.

Have you noticed whether not charging for parking in West Lothian has had a positive impact? Are people not going into Edinburgh, for example, to shop? Obviously, the parking charges in Edinburgh are horrific.

Jack Orr

I would guess that people who go shopping in Edinburgh town centre mainly take the train. Although parking in all our town centres is currently free, it seems to me that that has not of itself had a positive impact. Some of our town centres—I am thinking of Linlithgow, for example—have a good range of independent shops in the high street and the occupancy rates in the high street are very high. In probably the remainder of our traditional town centres, which were formerly associated with coal mining areas and the like, that is certainly not the case. Free parking may help in some respects, but I do not think that it shows a specific positive impact. Many of the parking spaces are simply used on a daily basis by people who are perhaps the employees of the retail enterprises or whatever. Once that car is in there in the morning, it is there for the whole day.

Kenneth Gibson

In St Andrews, they have a two-hour turnaround time for parking. Studies in England have shown that that creates a 20 per cent increase in revenue, because people go and do their shopping and then they move their car. Bizarrely, in Largs in my constituency, many shopkeepers were reluctant to have something like that because they like to park outside their shop, even though it means that a customer cannot. I understand what you say.

I want to mention compulsory sale orders. In my constituency, and I believe in many places in Scotland, we have buildings that have been left derelict for many years, particularly in town centres but also elsewhere. Perhaps the owners have bought them for speculative purposes and looked to invest in them but have not had the money. The owners may be overseas or may live here, but the buildings are an eyesore and we need to do something about them. Would a compulsory sale order, whereby if someone was not willing to use a property it could be auctioned, be a positive step?

Jack Orr

There are some issues around that. I do not know what the criteria would be to assess—

Kenneth Gibson

A building would have to have been empty for three years, for example.

Jack Orr

If there were workable criteria like that, yes. We can probably all think of properties in certain parts of our authorities that would benefit from that. Certainly, I can think of one in one of our towns. It is an imposing building and it has been vacant for probably 10 years and it now has various shrubs growing out of it and all the rest of it. In principle, I see no reason why a compulsory sale order would not be a positive move.

Kenneth Gibson

What do other members of the panel think?

Fiona Law

I agree with that.

Brian Murison

I agree.

Andy Wightman

The financial memorandum to the bill estimates an administrative cost to local authorities of £2.5 million from 2020 through to 2025. It also estimates the total administrative cost of the bill to local authorities, to assessors and to the Government as £32 million and the estimated cost to ratepayers of £68 million, so it will, net, raise more money. Are you broadly content with the estimated financial implications set out in the financial memorandum to the bill?

Brian Murison

I can comment only from Highland’s point of view. We sat down when we were asked to estimate the cost of the bill to ourselves—from an administrative point of view—and I am comfortable that the figures that we provided were a fair and accurate figure of what the actual cost would be.

Andy Wightman

Who asked you?

Brian Murison

When the bill first came out, we were asked—

Andy Wightman

By COSLA, or by the Government?

Brian Murison

—by COSLA, yes.

Cheryl Hynd

That goes for Edinburgh also. All the councils were asked to sit down and have a look at it and make sure that they were comfortable and they have had a chance to feed back through COSLA.

Andy Wightman

If there are any discrepancies—if you get any surprises—will you be ready for them? The costs will be based on your figures, so will you be able to work out why they went askew?

Cheryl Hynd

Yes.

Jack Orr

We did the same exercise in West Lothian, but we had to make some fairly broad assumptions about what the costs might be, given the level of knowledge and detail that we had at that point.

Andy Wightman

I have one more question. Mr Orr wrote to us about nurseries.

Jack Orr

I did.

Andy Wightman

I do not know whether you were here for the previous panel. The witnesses were from independent schools and they also raised the issue of where they put a gate determining whether they get rates relief. Obviously that is not in the bill, and is covered by secondary legislation. Should we revisit the matter in the bill?

Jack Orr

I understand that members have had circulated to them plans that I supplied. We have raised the matter because of the nursery relief provisions that are already in place. I heard some of the latter evidence from the previous panel.

I can speak only from my authority’s point of view. In terms of provision of relief, the regulations provide for 100 per cent non-domestic rates relief from business rates, from 1 April 2018 until 31 March 2021, for properties “wholly or mainly used” as day nurseries

“within the meaning of the Education (Scotland) Act 1980”.

My reason for writing about that was to point out an anomaly or an unintended consequence of the regulations. I can give you figures to illustrate where I am coming from.

11:45  



West Lothian Council currently has 58 nurseries—from one with a capacity of 140 places, reducing to nurseries with capacity of 40 places or thereabouts, generally. The bulk of them are contained within school campuses—they are the feeder nurseries for individual primary schools. Of our 58 nurseries, only two are currently eligible for the nurseries relief. That is because they are included on the valuation roll as what we call unum quid, which means that we cannot claim the relief. That represents, across the authority, just under 4,000 nursery places.

In West Lothian Council’s area, currently only two nursery schools qualify for relief out of 26 nurseries that are eligible: the other 24 are in the private sector and are stand-alone buildings that are used specifically as day nurseries. My point in sending the committee plans was to illustrate how in many cases, although not all, our nurseries are self-contained buildings within a larger school campus. On the face of it, it seems to me to be iniquitous that other stand-alone nurseries are eligible for relief, but because of how we use our education estate, in making efficiencies, that relief from property tax is denied to us.

Andy Wightman

I clarify that the bill deals only with the Barclay recommendations that require primary legislation. The Barclay recommendation on relief for nurseries did not require that, so the Government produced secondary legislation. Would you like us to revisit the matter in the bill?

Jack Orr

I would, from West Lothian Council’s point of view; I do not know about my colleagues. I suspect that what I have said applies in other authorities. A fairly constant theme throughout the session has been the question whether anything else should be considered within the bill. I think that my answer to that would be yes.

The Convener

You have been asked to use your estate wisely. It seems to be strange that you are being penalised for using it wisely, so that is certainly something that we will discuss in our private session, later on.

David Torrance

You mentioned free parking in West Lothian. How much does that cost the council? I know that cost has restricted Fife Council, although it is implementing it in areas in Kirkcaldy. How much does it cost for your free parking?

Jack Orr

It does not cost anything because it is free. [Laughter.]

David Torrance

You have maintenance of these car parks and so on to pay for—for example, for multistorey car parks.

Jack Orr

There are no multistorey car parks that are not associated with the Livingston centre, whose parking is in private ownership. Our car parks are surface car parks and on-street parking. I cannot, unfortunately, give you the maintenance figures for the surface car parks, but inevitably there are costs, and there are rates to be paid on them. There are no rates paid for street-side parking.

The Convener

You must have done some calculations about lost income.

Jack Orr

Until a few weeks ago, the authority’s only car park in the centre of Linlithgow had for the previous 20 years, from 1995 or thereabouts, been let to a private car-parking company. The reason was that it was being used as a commuter car park. People would park there of a morning, then walk along to the railway station and go wherever they were going. Our transport people at that time—I appreciate that it is many years ago—took the view that we should go for short-term parking. The two-hour maximum in St Andrews is the obvious comparator. That principle was employed in Linlithgow, and we decided to put that out to the private sector because we did not have the expertise or resources in-house to do it ourselves.

That had three effects. First, it very quickly removed commuters from the car park. Secondly, it provided us with a commercial income of about £40,000 per annum, and thirdly, it meant that the lessees were responsible for payment of non-domestic rates. It was a win-win-win situation, from the council’s point of view.

The Convener

Why did you scrap the parking charges if there was income coming in and it had a positive impact on the town centre?

Jack Orr

The tenancy came to an end at the end of May, and the current operator decided not to renew the lease and relinquished its tenancy at that time. We currently have the car park on the market and have already had expressions of interest to do the same thing again in that location.

The Convener

There are no more questions, so I thank the panel very much for their evidence. It will be very useful. We will take more evidence on the bill at our next meeting on 26 June, then we will hear from the Minister for Local Government, Housing and Planning at a meeting in September. The committee will also visit East Ayrshire on 24 June. At a meeting there, we will discuss the bill with local businesses, enterprises and charities.

11:52 Meeting suspended.  



11:52 On resuming—  



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Fourth meeting transcript

The Convener

Under item 2, the committee will now hold its fourth evidence session on the Non-Domestic Rates (Scotland) Bill. Today’s session will be split into two panels. I welcome our first panel: Rachel Blair, the Charity Retail Association’s public affairs and communications officer for Scotland; Stuart Mackinnon, external affairs manager for Scotland for the Federation of Small Businesses; David Lonsdale, director of the Scottish Retail Consortium; and Marc Crothall, chief executive of the Scottish Tourism Alliance. Thank you all for attending and for your written submissions.

I will kick off the questioning by asking whether the findings of the Barclay review group and the subsequent bill represent a fair approach to non-domestic rates that will better support economic growth.

David Lonsdale (Scottish Retail Consortium)

We must hold up our hands: we were in the vanguard of campaigning for a review of business rates, and we strongly supported the work that was done by Ken Barclay and his group. We did not necessarily get everything out of the review that we would have liked to get, but there are many measures, both in the Barclay report and in the bill, that we can get behind and support.

The agenda to have more frequent revaluations gets a big thumbs-up from us. I can go into the reasons why that is the case in more detail. We also support the efforts to reduce the period from when valuations are undertaken to when they come into effect. That has been condensed from two years to one year.

We would like to see more being done on the business rates agenda that is not necessarily legislative. I would point to two aspects. One is the large business rates supplement. Ken Barclay’s report alights on that, and says that parity with England should be restored by April next year. I hope that the committee will broach that with Mr Barclay when you speak to him later on.

The other issue, which is pretty fundamental for us and for our members, who account for about a fifth of the business rates that are paid in Scotland, is the whole issue of how onerous the poundage rate is at the moment. It is at a 20-year high and has accelerated markedly since the start of the decade. That is a big issue for us.

There are lots of positives in the bill, but there is more still to be done.

Stuart Mackinnon (Federation of Small Businesses)

Absolutely. David Lonsdale is taking credit for the Barclay review, and I will do the same. The First Minister announced a review of business rates at the FSB’s conference a number of years ago. We were closely involved in the Barclay review. Fairly early on, it emerged that the review would be focused on modernising the current system, rather than fundamentally rethinking the business rates system. The review is aimed at doing that, and we applaud many of its recommendations.

Since Ken Barclay reported, work has been done to try and put his recommendations into practice. The bill that is before us is one part of a jigsaw of measures that we broadly support. The switch to a more frequent revaluation cycle should ensure that rateable values better reflect prevailing local market conditions. We broadly support the other bits and pieces in the bill.

We would like the Barclay review, and the focus on business rates that comes as a consequence of the Barclay review, to deliver a step change in the user-friendliness of the business rates system. I am sure that, at the time of the last revaluation, many MSPs had correspondence from local business owners who did not have a good understanding of the rates system and the revaluation process. We would like there to be a real effort to get every part of the business rates system working together to deliver a more user-friendly system. The proposed legislation is a part—but only a small part—of delivering that.

Rachel Blair (Charity Retail Association)

I am here representing the Charity Retail Association. There are more than 900 charity shops in Scotland, and we represent 85 per cent of them.

Overall, we support the objectives of the bill and the Barclay review to simplify the system for ratepayers. We were pleased that the Barclay review concluded that the mandatory level of charitable relief for charity shops should be kept at 80 per cent. That should be protected. We hope that there will be consideration, by local authorities or during the bill’s progress, of upping the mandatory level of relief to 100 per cent.

The health of the high street should be a key consideration in the bill. Charity shops increase footfall in high streets and help to fill vacant units. Our case studies—particularly the one in Margate, in England—show that, during the recession, there were a lot of empty units and there was a decline in the high street. Charity shops filled the vacant units, which allowed footfall to increase, and Margate is now quite a successful seaside destination. It is important that the bill considers the importance of the charity retail sector.

Marc Crothall (Scottish Tourism Alliance)

I thank the committee for inviting me. I am from the Scottish Tourism Alliance.

We welcome being part of this process. With our colleagues from UKHospitality and the Scottish Licensed Trade Association, we have been active in representing the views and concerns of the industry. The volume of visitors that we are enjoying brings with it many challenges. We are seeing specific declines and cost increases for businesses, which pose a big threat to many.

We were particularly grateful that the finance secretary afforded a 12.5 per cent real-terms cap on the rates at the last valuation, and that cap has been extended again. However, for many, the cap has become null and void due to the state aid caps and so on.

As others have said, we very much welcome the review of the frequency of valuations, particularly given the fluctuation in business trends and trade. Aberdeen is an obvious example to point to, given the impact of the oil industry on the tourism business.

A challenge for our sector has been the calculation methodology that is used in the current rates system. Along with colleagues from the SLTA and UKHospitality, we have had dialogue with others about Ken Barclay’s response in bringing forward a proposal that might be more satisfactory and fairer for the future. We are very supportive, in principle, of any proposals that encourage investment and entrepreneurship. The industry needs to innovate, and it needs flexibility to be able to do that.

I can talk more about other issues and concerns later. However, in summary, as others have said, the bill is a good step forward, but there is still more to do and discuss.

The Convener

Do you have any views on the two recommendations from the Barclay review that the Scottish Government rejected? Recommendation 28 said:

“All property should be entered on the valuation roll ... and current exemptions should be replaced by a 100% relief”.

Recommendation 29 said:

“Large scale commercial processing on agricultural land should pay the same level of rates as similar activity elsewhere so as to ensure fairness.”

Do you have an opinion on those recommendations?

David Lonsdale

To pick up the start of your question, I think that Ken Barclay made another recommendation that the Scottish Government rejected, which was the idea of introducing an out-of-town rates levy that councils would be able to use. The finance secretary wisely came to the view that that idea would not be taken forward, and I commend him for taking that decision. I am happy to go into more detail but, in a nutshell, that proposal would have added fresh complexity and cost to the rates system. Thankfully, he has not progressed that idea.

Stuart Mackinnon

I can understand the purists’ argument that all properties should be on the valuation roll so that we can see where tax is being lost, which is what people are getting het up about. On the other hand, having been in discussions with assessors and with the Government, I know just how slow and creaking the current system is, so to put additional pressures on assessors at a time when we are looking to move towards more frequent revaluation might not be sensible. The priority among our concerns is to get the new revaluation cycle working more quickly.

The Convener

Thank you. I place on record the committee’s thanks to everybody who helped to organise its very successful visit to Kilmarnock and Newmilns on Monday, from which members learned a lot. One of the things that came up was the cliff-edge scenario involving the small business bonus. We talked to one company owner who does not want to grow his town centre business by moving to larger premises there, because he would then lose the small business bonus and it would end up costing him too much. His options were therefore to stay small or to leave the town centre. Do our panellists have any suggestions on how such a situation could be overcome?

Stuart Mackinnon

The upcoming review of the small business bonus will be a great opportunity to kick around ideas for improving the current scheme. We hope that the review will come up with recommendations on the best way to support smaller businesses in the rates system.

At the time of the last Scottish Government budget, the FSB made representations to the Cabinet Secretary for Finance, Economy and Fair Work for an additional taper between bands. Of course, successive finance secretaries have made changes to the small business bonus. For example, when he was finance secretary, John Swinney introduced a multiple property band that was aimed at tackling that problem.

As part of the Barclay review, we recommended that smaller businesses should be allowed to keep their reliefs as they grew. For example, if a business took on a second set of premises, it would pay rates on that but retain its relief on the first set, which was an attempt to soften the edges of that change. At the same time, we recognised that we cannot necessarily ask for the moon on a stick and that we have to work within certain parameters. Trying to chew over what are pretty complex issues in order to find an optimum way to support small businesses will be very important as the bonus review continues.

The Convener

I will move on, but I am sure that we can come back to that point if we wish. We have a quite a lot to get through, so could we keep things as concise as possible?

Alex Rowley (Mid Scotland and Fife) (Lab)

I want to go back quickly to what was said earlier about the user friendliness of the system. In the panel’s view, what needs to happen? I assume that it is not legislation, but is it a matter of resources, or is a change in culture in those services required?

Stuart Mackinnon

It is all of the above. I have worked for the FSB for a number of years. There was a remarkable similarity between the last revaluation and the one before it, in which lots of businesses were caught unaware, there were data collection issues from the assessors and there was a political reaction at that point. An awful lot of such problems could be countered if we were to deliver a significant improvement in customer service. One of the more difficult things about the rates system is that lots of public bodies are involved in it: all 32 local authorities; the Scottish Government; and the assessors, all of which are semi-autonomous. An individual business owner should not need to know all that in order to interact with the system.

We propose having a digital interface for 99 per cent of cases, in which businesses could submit rental data, pay their bills and apply for reliefs. The aim would be to make it as simple to interact with the rates system as it is to pay a utility bill online. However, for that to happen we would need to have co-operation among multiple organisations, which is where the sticking point might be. Lots of organisations have many priorities. Legislation might not be needed, but if certain bodies were not playing ball, it could be a last resort on that front.

10:00  



Graham Simpson (Central Scotland) (Con)

Convener, I have a brief question on that point.

The Convener

You can ask it, then I will let Alex Rowley back in. I do not want to get stuck on that one point.

Graham Simpson

Mr Mackinnon’s written evidence describes the admin system in Scotland as “old fashioned”, and suggests that it is not old fashioned elsewhere in the United Kingdom. The committee is looking for ideas about how things could be improved through the bill.

Stuart Mackinnon

The evidence from the assessors highlighted that they would welcome a change in legislation that would allow them to communicate digitally with ratepayers. At present, the assessors feel that they have to use paper-based correspondence methods. That simple switch should help us to move slowly into the 21st century. In Northern Ireland, we can see the development of a digital spatial portal for all property and land-based services, which looks like an excellent model. Legislation is not necessarily needed to develop that, but if there are legislative barriers to that model being developed in Scotland, the bill is the opportunity to address those problems.

Alex Rowley

My experience of representing and supporting businesses at the last revaluation was exactly as you describe. I found it difficult to get enough information to understand the situation. At that point, it seemed that the hospitality sector—in particular, pubs and restaurants—was being disproportionately impacted. That is certainly how it felt from the number of companies that were going out of business. Is it the case that some industries are disproportionately impacted by the current rates system and, if so, can something be done about it?

Marc Crothall

In the tourism sector as a whole, we were aware that, when revaluation was coming round, the increase in valuation was going to be significant, so unless there was an intervention, as happened, many businesses would have been at serious risk of having to put the key away. Some businesses still have that concern, because of the current valuation levels that are on the book.

On Stuart Mackinnon’s point about simplicity in reporting of data, the assessors made the fair point that not enough data is presented back the other way for them to do their job, and that has been taken on board. I go back to the simple example of the process of getting rates relief from a cap across the 32 local authorities, in which there is inconsistency. Some local authorities were well equipped to act quickly, but others said that they did not have the correct software to conduct the transactions or make adjustments as we would have wanted. All that costs money to businesses and puts them at risk of not being able to stay alive.

David Lonsdale

For the retail sector, one of the great frustrations about the previous revaluation period was that the revaluation was undertaken in spring 2008—in a sense, at the top of the market, before we had the financial crash and the well-known travails of the retail industry in recent years. That underpins the need for more frequent revaluations. Although that would not solve every problem—as I said, business rates, the poundage rate and tax rates are too high—more frequent revaluations would smooth out a lot of the problems.

Basically, we had a seven-year or eight-year period when values were set at one level, but when bills landed on doormats, some organisations in some sectors would have experienced quite a change in their sector’s performance. Marc Crothall can speak for the hospitality sector: some elements of it were—if you like—hot during that period and did well, and therefore there would have been differences. However, for the retail sector things were challenging towards the end of that period .

Alex Rowley

You made a point earlier about out-of-town retail centres. Is there a good balance between out-of-town retail centres and town centres? A lot of retailers in town centres argue that out-of-town retailers have a lot of advantages—car parking and so on. Is the system fair as it is, or should there be another look at out-of-town centres?

David Lonsdale

We are always open to that. Town centres have a tremendous amount to offer, but like all businesses and sectors, they need to reinvent themselves, in particular because people need a compelling reason to spend time and money there.

I think that all retail destinations have been struggling: all have been ceding ground to online retail. The other day, I saw a figure that suggested that almost nine out of 10 people in this country have shopped online in the past year. The figure is much higher in this country than it is elsewhere in Europe. The situation here is much more advanced—we have bought into the idea of online retailing in a bigger way.

That reads across to a range of other sectors. For example, I am probably not the only person who has bought a holiday online in recent times. The same thing can be seen in banking and financial services, newspapers and other media, estate agents and so on. The digital revolution is touching every sector. One of the strengths of the bill is that more frequent revaluations will mean that the rating system keeps up with changes not only in individual sectors and how they are performing, but in relation to structural changes in the economy.

Alex Rowley

Town centres, in particular, are really struggling. You just need to walk around most areas of Scotland to see that. Is there more that the bill could do to support town centres? If so, what?

David Lonsdale

Again, that goes back to my earlier point. As far as we are concerned, the bill is positive in many respects, but non-legislative action is also required. Lots is being done in terms of public-realm investment and so on to get people to live in town centres—the Cabinet Secretary for Finance, Economy and Fair Work has made an announcement about a town centre fund, for example. All those things are worthy, positive and have a lot of merit but, at the end of the day, if it is too expensive for retailers and other businesses to invest in town centres—I note that the poundage rate is at a 20-year high and that the large business supplement is double what it is south of the border—then you have a problem.

There is an issue with coherence. We think that there is a lot of merit in the bill, but it is only one aspect of what must be done. There are other things that government can do—not just the Scottish Government, but local government. For the past three and a half years, councils have had the power to reduce business rates, but I am aware of only three of the 32 local authorities having done anything on that front.

Stuart Mackinnon

I would like to come in on a couple of those points. The rating of the hospitality sector has been a fairly persistently controversial issue. I suggest that, because it has been such a persistent problem, Parliament might want to take the opportunity to scrutinise the role of assessors. Historically, Parliament has been reluctant to do that, but the bill might present it with an opportunity, ahead of the next revaluation, at the very least to get assessors in to give evidence about how they come up with rating methodology.

The FSB has long been a champion of town centres and high streets. At the moment, in a lot of town centres and high streets, it feels like independent businesses are fighting the battle by themselves. Many large businesses—banks being a prime example—have left our high streets. If we want them to be successful, we need to get a wide range of organisations back into them. The right rates package would be one element of that, but it will work only as part of a wider mix of policies.

I am sure that the upcoming small business bonus review will look at place-based issues. That might not be something that has to be attached to the bill; it might be possible to consider it in another way. It is just over five years since the town centre action plan and review was launched. It is time to revisit high street policies: rates is only one part of that.

Alex Rowley

Does the panel generally support the small business bonus scheme and the review to which you will contribute?

Marc Crothall

I would echo what Stuart Mackinnon and David Lonsdale said. Tourists come to visit places in order to experience them. We are starting to shape our future tourism strategy for Scotland beyond 2020, and all the traveller trend data is showing that people want to absorb and consume. We have seen changes in behaviour in relation to how people choose to stay at and experience destinations.

We have seen failures of major restaurant chains—for example, Jamie Oliver’s restaurants—and other operators that have fallen off the high street that were offering alternatives. We have a lot of independent restaurateurs and real creative talent in Scotland. Those people are now seriously questioning whether they can afford to operate in some places because of the rates structure.

Everything that has been discussed so far is about frequency of revaluation and allowing businesses to flex, but equally we have out-of-town experiences at many destinations, which draw and attract tourists.

We have asked the Scottish Government on several occasions to really get a grip on what the assessors are doing in terms of methodology and the evaluation process. The challenge is partly due to lack of data. However, much clearer understanding is needed for the benefit of the industry, as much as for the benefit of assessors and the Government, so that we can get regular and more frequent revaluations that work for the sector. That will prompt investment: not being able to plan ahead does not encourage investment.

Rachel Blair

In terms of long-term planning, there is some uncertainty around the 80 per cent rates relief that charity shops currently get, because there is a postcode lottery in terms of application of discretionary relief. Only a third of local authorities in Scotland grant the full 20 per cent of discretionary relief, and our members tell us that where the 20 per cent relief does not exist or has been removed, that can result in lower-performing shops closing, in rural areas or in disadvantaged communities.

We are looking for a system in which there is more consistency across local authorities, which will allow charity shops to invest in high streets. As it is, that can be quite difficult.

Alex Rowley

Okay. My experience of trying to deal with assessors was a one-off, but they were—to put it mildly—certainly not helpful. I think that it is important to note in our report that concern is coming through from the panel about that, and that something needs to be done, even without legislation.

The Convener

Thank you. You have made your views known.

Andy Wightman (Lothian) (Green)

A key aspect of the bill is the move from five-yearly to three-yearly revaluations. I do not think that Rachel Blair has said anything about that, but the others have said that that move is helpful. Why do you think that that would be helpful—in particular, in the context that a revaluation is only as good as the data on which value is based? If issues about capturing data and the accuracy of the data continue to exist, will a move to three-yearly revaluation help?

David Lonsdale

From the SRC’s perspective—as I alluded to earlier, and as is set out in our evidence—we strongly support more frequent revaluations. A number of benefits will accrue from that.

There is also a provision in the bill to extend from 14 days to 56 days the time that ratepayers are given to provide information to assessors. That should help, because the short period of time is, I suspect, one of the challenges for ratepayers. When they have a window of only a couple of weeks to provide information, it is a matter of saying, “We’ll just try to appeal.” Their having more time to consider what information is required will be positive.

Theoretically, more frequent revaluations should mean that ratepayers will get up to speed on what information to provide over a relatively short time. There will be greater incentive to ensure that they provide the information, because they will be revalued more often.

10:15  



Stuart Mackinnon

My answer will be similar to what David Lonsdale said. There will be a challenge. The current system is not working very well with five-yearly revaluation, so three-yearly revaluation will mean that we will really have to sharpen up our act. Among the reasons why we support the switch are that ratepayers will become more familiar with the revaluation process, and it should necessitate the assessors and local authorities looking at how they deal with it. Those things in themselves would be helpful in making the system a little more user friendly.

Marc Crothall

When we look at what is happening around us, we see that we need to be able to flex relatively quickly. I will use the example of digital. In 2012, when the current tourism strategy was written, the word “digital” featured in it only three times, but by 2016 it was the number 1 issue for all of us.

There is also less chance that the jump between rates valuations will be as significant as it is could be with a longer period between revaluations. Therefore, we certainly support three-yearly revaluation.

Rachel Blair

The Charity Retail Association is broadly supportive of a change from five-yearly to three-yearly revaluation, but we also ask for relief to be confirmed within the three-year period. Currently, relief is confirmed yearly, which makes long-term planning difficult for our members. We also want to ensure that that is carefully considered, so that there is not an unnecessary burden placed on smaller charities, in particular.

We are also broadly supportive of a digital interface, which should—I hope—make communications better. Our members have told us that communications can be quite poor around revaluation times.

We also ask for the revaluation times to be aligned with the other revaluation times in the UK. That would help a lot of our members.

Andy Wightman

Stuart Mackinnon’s written submission on behalf of the Federation of Small Businesses says on its second page that

“FSB has concerns regarding the decision to introduce a number of changes to the proposed legislation at Stage 2, reducing the opportunity for scrutiny”.

What do you mean by that? We have not reached stage 2.

Stuart Mackinnon

I understand that the Government will detail in Parliament, at stage 2, changes to the appeals system, and that the details of those changes will be important to ratepayers in terms of understanding how that system will work. I understand that from having been part of the Barclay review group.

Andy Wightman

So, you have had advance sight of intended Government amendments.

Stuart Mackinnon

No—but I understand that that is the intention.

Andy Wightman

Okay. That is interesting.

You also said that

“FSB has long argued that the Scottish Parliament should have a role in scrutinising the activity of assessors.”

You have already touched on that. Assessors have always been independent, of course, because they make professional judgements about valuations. You have mentioned the methodology of valuation—I think that you mentioned the hospitality sector in particular. Different types of property have different valuation methods, of course. Are you suggesting that the methodology that is used to value hospitality premises, for example, should be subject to parliamentary scrutiny, such that all the practice notes would, in effect, be in secondary legislation, or are you saying something else?

Stuart Mackinnon

At the very start, ahead of a revaluation, it might be useful to have the Scottish Assessors Association at this or another committee to ask about its preparation ahead of the next revaluation, and about its consultation of key industries on its methodology. The assessors would still be independent in making up the methodology, but there should be a role for Parliament in asking how they are preparing for revaluation.

Andy Wightman

Assessors are accountable not to Parliament but to local authorities, which own the joint valuation boards, so surely such scrutiny would be done better at council level.

Stuart Mackinnon

Having entered into a discussion with local authorities and local councillors about their relationship with the assessors, I know that that particular relationship is not well understood consistently across the country.

The Convener

You say that that relationship is not well understood. Andy Wightman’s reading of the situation is that local authorities are in charge of the assessors. What is your understanding?

Stuart Mackinnon

My understanding is that local authorities are in charge of them, but it is often the case that individual councillors and local authority officials do not have a good understanding of the role of the assessor.

Alex Rowley

In Fife, during the revaluation appeals process, the assessor told me repeatedly that they were not accountable to the council and that they were an entity unto themselves, so I think that we need to look at that.

Andy Wightman

In the section of its submission on holiday homes, the FSB says:

“FSB broadly supports measures to address the misapplication of the Small Business Bonus scheme—especially when applied to non-business recipients of the relief.”

Given that the small business bonus scheme is about small, non-domestic-rated properties, some of which are not businesses—they might be in the public sector; they could include bowling clubs or whatever—are you saying that if no commercial activity is being operated from a non-domestic property, it should not be eligible for the small business bonus scheme?

Stuart Mackinnon

We are broadly supportive of the specific measure in the bill to remove what the Government describes as a “loophole”, whereby owners of second homes are applying for the small business bonus. In our view, that is a misapplication of the relief. It has been highlighted to us that MSPs’ offices are eligible for the small business bonus. Given the name of the relief, I am not sure that its application to those properties would necessarily be right. Such issues will be looked at during the small business bonus review. However, we are broadly supportive of the move to apply the small business bonus only to premises in which small businesses are being run.

Andy Wightman

That is interesting. MSPs’ offices are just offices as far as the rating system is concerned; it does not matter who occupies them.

The Scottish Retail Consortium says that it is

“firmly opposed to repatriating control over the poundage rate to local authorities.”

Given that it is a local tax, should local authorities not have control over the rate? What is the problem?

David Lonsdale

You have read our submission correctly. We are opposed to that, if for no other reason than we fear that ratepayers would be treated as a cash cow. We are conscious of the fact that council tax bills have just gone up by 3 to 5 per cent, which is well in excess of inflation. As I said in our submission, the poundage rate—the tax rate—has gone from 41 to 49 per cent since the start of this decade. It is at a 20-year high, and it is about to go up even further. I am not convinced that local authorities would do a better job of keeping down the poundage rate.

We would be more amenable to the proposal if councils had picked up on and used the local discretionary rates relief over the past three years, which I mentioned earlier.

Andy Wightman

Have you not put your finger on the key thing, which is that local authorities have the power to reduce rates? Indeed, many of them would probably like to do that to stimulate some business, but they need to have the opportunity to increase them, too—in other words, in any tax system, they need full flexibility.

David Lonsdale

We have supported flexibilities in the rates system, whether they are in the form of the business rates incentivisation scheme or the levy that can be charged in business improvement districts. As I said, we supported the local discretionary rates relief, but hardly any councils have bothered their shirt to use it. If they were to make a convincing case that they would be able to keep down business rates, they would be on a firmer footing when it came to convincing the business community that they should have such responsibilities. However, very few councils have used their power to keep down business rates, and I am not entirely convinced that they would endeavour to do so.

Annabelle Ewing (Cowdenbeath) (SNP)

I turn to some of the procedural matters. One member of the panel—I cannot remember which one—mentioned the time period for the return of information notices. Was it you, Mr Lonsdale?

David Lonsdale

Yes.

Annabelle Ewing

The period has gone from 14 days to a proposal of 56 days, plus the 28-day appeal. We have heard evidence that people think that 56 days is too long and that the initial period should be 28 days. What are your views on that?

David Lonsdale

I have not followed the rationale for the 28-day proposal. As I understand it, the 56-day period was in the Barclay review. The team studied that for 18 months and it was accepted by Scottish ministers, so some consideration and thought has been put into it. I am not sure who made the 28-day proposal and why they advocated it, so it is difficult to comment.

Annabelle Ewing

It will be covered in the evidence that was received by the committee, but I guess that the rationale is that people feel that the 28-day proposal would allow the process to be accelerated in a reasonable manner. Most people would not need 56 days to provide the required information, and the process could be sped up. Perhaps it is in all people’s interests to have a shorter deadline for providing the information that is required by the information notice.

David Lonsdale

Yes. A balance has to be struck, so that people are given sufficient time to respond but it is done in a quick and expedited way. One of the practicalities is that, in the retail industry, if someone has a good idea and a good proposition, it can be scaled up. If they have physical premises, they are often in a number of different council areas or operate on a pan-Great Britain or pan-UK basis. They probably have lots of local authorities to deal with on a range of issues.

One of the challenges that has come up in recent years through the structural change in how we shop, as well as the cost side of the equation, is that, within retailers of scale, relatively few people are there to deal with some of the issues. I appreciate that there is a balance to be struck, but giving people more time to respond to requests, as the bill does, is eminently sensible.

Rachel Blair

I agree. If our members had more time to respond to information requests, that would help them to provide what they need to provide.

Marc Crothall

I echo that. At the moment, there is a huge amount of pressure on a small business owner and operator; the bulk of our sector falls into that category. An expedient resolution is always in the best interest but, at the moment, many are asked to do a lot more. As we know, because of the labour challenges that we face, many more independent owner-operators are now at the sharp end of running a business. The balance is the right approach. If it affords a little more time, that would be welcomed, but I like to think that the business owner would look to conclude sooner than the deadline.

Stuart Mackinnon

As others have said, there is a careful balance to be struck. The policy intention is to get more data returned. The more important thing is probably for a step change in the user-friendliness of the system. Rather than asking, “When does this piece of paper need to be returned?”, the more important questions are, “Can I return it online?” and “Can I correspond with the assessor digitally?”.

Annabelle Ewing

I understand that the intention is to widen out the recipients of the information requests, so that the assessor could seek information from any other person whom they think might have information. Do you have a view on that? Is it to be welcomed or resisted?

Stuart Mackinnon

Broadly, it is to be supported. Specifically, I see it working well in better information sharing in the public sector. If someone sticks an extension on their garage, within the local authority area, the information would automatically be shared with the assessor. At present, that does not necessarily happen as a matter of course. In an ideal situation, it would be excellent to see information sharing between tax authorities—between Her Majesty’s Revenue and Customs and the assessor—so that businesses are not submitting the same data to both tax authorities.

I understand that the bill will provide for powers for assessors to get additional data from landlords, for example, rather than going to the tenant for the information. That is to be welcomed if it increases the amount and quality of the data. The only issue in that regard is that we would not want undue burdens to be placed on businesses. I hope that a sensible balance can be struck.

10:30  



Annabelle Ewing

An issue was raised with us a few weeks ago to do with legal privilege. There was a concern that its applicability could somehow be widened, although it is not clear that that is in any way the intention of the bill. Has that concern been brought to your attention? The normal understanding of legal privilege is that it extends only to communications with the person’s solicitor and therefore does not cover any part of a lease document that is deemed to be confidential. The issue was raised with us by the by and I thought that it was interesting.

Stuart Mackinnon

It is an interesting point, which I have not yet considered.

Annabelle Ewing

You might want to have a look at the evidence that we took. I suspect that if legal privilege is not to be understood in its normal context, your members might have thoughts on that.

Let us move on to the consequences of not providing information. First, the criminal penalty is being removed. It will be interesting to hear your thoughts on that; some people think that the penalty should be retained, because there has to be a sufficient imperative to provide information fully and expeditiously.

Secondly, the view has been expressed that the level of the civil penalty will be nothing more than pocket money for some of the people involved. There will be no imperative for the large players to pay heed to the requirement, because the penalty attached is de minimis.

Rachel Blair

Any fees or penalties would not be welcome in the charity retail sector. We are concerned that they would take funds away from key charitable causes—

Annabelle Ewing

I am sorry—we will come on to fees. I should clarify that I am talking about the penalty for failure to comply with an information notice. What would be the imperative to comply if there were no penalty?

Rachel Blair

I can look further into the matter and report back to the committee, but my impression is that charities would be inclined to follow the guidance and ensure that they did not face penalties. We do not support the use of fees, which would take away from charitable funds.

The Convener

At present there is a criminal penalty; the bill will replace that with a civil penalty.

Rachel Blair

I think that that is proportionate.

Marc Crothall

Stuart Mackinnon talked about the need for a simple system that enables businesses to contribute and input information. That is probably the number 1 opportunity to change culture. It could be argued that the challenges that we faced with the recent revaluation were to do with some businesses finding it difficult to communicate, respond and so on. There is a recognition that the data that is currently gathered is limited, so valuations are based on a small sample.

If we have a culture of acceptance that everyone contributes and there is access to information, through a portal that is simple, governed and protected, there absolutely should be a penalty for folk who choose not to comply. Why should there not be? What the penalty should be, I do not know. From the conversations that I have had, I think that a fair approach is needed, and to enable that to happen there should be a level playing field.

Stuart Mackinnon

Yes. A more frequent revaluation cycle necessitates the gathering of more data by the assessors. In discussions that I have had about that, we have talked about the need for sticks and carrots when it comes to gathering more data. Of course, the business groups will ask for the carrots and will argue that, if the system is made easy to use, things will get better. Communicating more effectively with the business community will bring better data, with more people returning it. We would like the fees and fines to be used only as a last resort.

At the moment, when people at a business receive a form from the assessor, whom they have not heard from for seven years—or the business might have been operating for only four years—they do not understand what the form is, or its significance. If we can improve communications between business communities and the rates authorities, we can get an improvement in data collection without resorting to widespread fines on the business community.

I was slightly concerned about some of the figures that are highlighted in the financial memorandum. There has been an attempt to estimate the amount of revenue from fees and fines using current rates for the non-provision of data. We would hope that the rates on the provision of data would improve dramatically, before we start handing out fines.

Annabelle Ewing

I hear what you are saying. The legislation has to set the level somewhere. The point has been made that, if the maximum penalty was set at £500—if the property is not on the roll—or at about £7,500, that would be a drop in the ocean for a business with a turnover of millions of pounds. What is the stick that would compel the large player to get on with it and provide the information? One of my colleagues will ask about anti-avoidance issues in due course, but we will have to wrestle with these issues as we prepare our report.

Stuart Mackinnon

There is a strong argument for any fees or fines to be proportionate, with smaller businesses paying a smaller share of their rateable value than their larger counterparts. I am sure that David Lonsdale will not agree with me on that point.

David Lonsdale

I think that being proportionate is a good basis. I am not sure why turnover suddenly comes into the mix. Why not use profits or some other metric as the basis? I am not sure what the relationship is between turnover and the point that you make.

Annabelle Ewing

My point is simply that, in separating out a small business from a multimillion-pound business, a penalty of £500 or £7,000 might provoke a response of, “Who cares?” It would not matter, would it? There would be no incentive to provide all the information required. That will be important as we get on to anti-avoidance issues, although I will leave that for a colleague.

I have one last area of questioning. A moment ago, Rachel Blair mentioned the issue of fees. There are proposals to introduce fees for appeals—that is one issue. The other side of that is the potential for retrospective increases to rateable values. Those are two very important issues. Do you have any comments on either or both of them?

Stuart Mackinnon

The switch to a more frequent revaluation cycle necessitated a massive drop in appeals. I understand that, at present, only 8 per cent or so of appeals are successful. In the experience of our members, unrepresented businesses are almost never successful in their appeals.

On the subject of fees in association with lodging an appeal, the small business community could perhaps accept it if the fee structure was proportionate, perhaps tapering down to zero for the very smallest businesses, and if it resulted in a significant improvement in the appeals process. With the new fee income, there has to be a significant improvement in customer service.

Marc Crothall

I echo what Stuart Mackinnon has just said. Being proportionate is one thing. We expect to get a good service for what we pay for within the timeline, with affordability at different levels of scale of business.

To pick up on David Lonsdale’s point about profit, as opposed to turnover, many different-sized businesses potentially make a lot more money on the bottom line, as a proportion, than larger businesses. There needs to be an agreed approach.

Annabelle Ewing

So, you would seek a differentiated fee structure, depending on criteria to do with size, turnover, profit or whatever.

Marc Crothall

Absolutely. There is such a wide scale of business base. We want to encourage future investment and growth; we do not want to penalise. As with anything, we expect a service to be given back.

There are umpteen different discussions to be had about various services that are currently provided; many would question whether they are actually worth the value that is paid out in return. Expectations are high.

The Convener

We move on to anti-avoidance measures.

Alexander Stewart (Mid Scotland and Fife) (Con)

We have touched on some of the current loopholes. In the bill, there is a section on tax avoidance and the process of how that works. It would be good to get a view from the panel on whether the anti-avoidance measures in the bill that deal with empty premises are strong enough. Will they close some of the loopholes, or will that still be an on-going problem?

David Lonsdale

We have not really touched on that in our written submission; it is not something that our members brought to our attention as one of their top issues. I am simply not aware of it being a systemic problem. It might be for others, but not for us.

Your colleague spoke about profits. In the past four years, it has been quite difficult for retailers to make a profit. The profitability of the sector has halved over the past five years. Retail is a low-margin business: the margin is somewhere in the region of 3 to 4 per cent, so it is different from a wide range of other sectors. We are not conscious that there is an issue.

Alexander Stewart

There are some retailers who do not use their premises—they ensure that their business is not live and running from that location. There are attempts to ensure that premises are being utilised if it appears that the owners are somewhere else or the building is not being used, but there are loopholes from which businesses currently benefit. We are talking about trying to clamp down on some of that in the bill to ensure that there is a change and that the issue of avoidance is taken on board.

David Lonsdale

We certainly do not have a problem with the Government or agencies clamping down on companies or other organisations, or ratepayers, that are believed to be avoiding their responsibilities.

The fact remains that the structural change in retail means that a lot of retailers have come out of retail premises. The figures that were published last week show that there has been an 8 per cent reduction in the number of shops in Scotland over the past 10 years. Retailers are in the business of making money. Where they are not making money from a particular unit or site, they hope to exit it or to change it round so that they can make money.

In recent times, there has been a shift towards much shorter lease periods than has historically been the case. Things could shift back if the economy improves, depending on various other factors. Retailers are not in the business of wanting to shell out a lot of money for units where they are not trading. As I said, quite a lot of retailers have exited properties in recent times. I am not conscious of empty properties being a particular issue.

Alexander Stewart

Does anyone else on the panel have a view?

Stuart Mackinnon

We broadly support the move to ensure that the small business bonus would no longer apply to empty properties; that is a tweak that we can live with.

Generally speaking, our typical member will not necessarily be involved in complicated tax-avoidance tactics. We broadly support the measures in the bill. The financial memorandum to the bill highlights evidence from England that, in the rates system, the level of tax avoidance is 1 per cent of the amount on the roll. In comparison with other taxes, therefore, avoidance is perhaps not as much of a problem, but it is good that local authorities will have the legal powers to address the problems that exist.

Another point that we make in our written submission is that it is all well and good for local authorities to have new legal powers, but the rates system must be well resourced if they are to be able to check whether existing reliefs are being used as they should be.

10:45  



Alexander Stewart

In managing the situation, a financial burden might be placed on local authorities, which might impact on how effective and efficient they will be at dealing with the rates situation across the piece and ensuring that the business sector is supported. What would happen if that were the case? We know that local authorities are having to do a lot more with fewer staff and resources, and that could impact on your sectors.

Stuart Mackinnon

I have real sympathy for the local authority rates teams that I chat with. Often, there are only 0.8 full-time equivalent staff in those teams, even in significant local authorities.

I would suggest automating as much possible, so that local authorities are not dealing with paper forms. Basically, the machine should run itself, and would need to be looked at only if it breaks. As professionals, the staff could then spend their time checking the data, where appropriate, and looking at things that do not look quite right, rather than processing paperwork.

Alexander Stewart

Is everyone else content? I see that no one has any other views.

Graham Simpson

I have three quick questions, to mop up some of the things that have been said and some of the written evidence from the panellists.

I will start with the Charity Retail Association. Rachel Blair mentioned a postcode lottery, in that some charity shops get full relief and others—sometimes just down the road—do not. What is the association asking for in that regard?

Rachel Blair

We want local authorities to grant all charity shops 100 per cent rates relief, so that the 20 per cent discretionary relief becomes 100 per cent. We are concerned about inconsistency across local authorities. Our members are unable to plan for the long term because of potential changes to and removal of rates relief. Recently, Moray Council chose to remove the 20 per cent discretionary relief from charity shops, which is of concern to the sector in the area. That is just one example of how change can happen quite quickly, which is not sustainable.

Graham Simpson

In your evidence, you mentioned that one shop gets the relief, but another shop just down the road does not. Is that because councils are zoning the relief? I was not clear about that.

Rachel Blair

Different councils have different policies. It is up to councils what to do. Some will grant relief to all charity shops, whereas others will set criteria—for example, that the charity must be local or have a certain number of shops. It is up to the council to decide its policy on the existing 20 per cent figure.

Graham Simpson

Your suggestion is that the bill should include a mandatory 100 per cent rates relief for charity shops

Rachel Blair

Yes.

Graham Simpson

I turn to the FSB’s written submission, which mentions the appeals system, which could be moving to the tribunal system. Are there any thoughts on whether that is a good thing? That is for anyone to answer.

Stuart Mackinnon

The idea of moving appeals to the tribunal system predates Barclay. Again, our members’ experience of the appeals system has not always been brilliant. That is especially true of unrepresented ratepayers, who have not forked out for professional property advice. With the move to the tribunal system, the process will probably be much more formal, which has its drawbacks. At the same time, it is likely to be more professional. Again, my understanding is that the move to the tribunal system—

Graham Simpson

I am sorry to interrupt you, but in what way is the process not professional now?

Stuart Mackinnon

Members’ feedback on their experience with the current appeals system is that it varies from place to place, it can be inconsistent and how assessors discharge appeals is at their discretion.

People can only really understand the process if they have tried to follow the rates system for some time. The lay business owner is not necessarily very familiar with it. We hope that moving the process to the tribunal system will provide better information about how the system works for people who do not have a specialist understanding.

I highlight that the move to the tribunal system also necessitates there being fewer appeals. If the volume of appeals is still the same at the next revaluation and we have moved into the tribunal system, we will probably be in trouble. I recommend that the committee assesses the robustness of the changeover to the more frequent revaluation cycle.

Graham Simpson

Just so that we are clear, is it correct that, currently, appeals are dealt with locally?

Stuart Mackinnon

Yes, but at present there is a pre-appeal stage during which someone can have discussions with their assessor—again, that is at the discretion of individual assessors—followed by the formal appeal system. Also, a share of the appeals that are lodged fall out of the system before they are seen. The data can be a bit foggy in that regard. As I understand it, only the appeals that end up at the final stage are counted in the official statistics.

Graham Simpson

Does anyone else have any thoughts on or experiences of the appeal system?

The Convener

I have a question about a point that Stuart Mackinnon just made. You said that the pre-appeal meeting is down to the assessor. Are you suggesting that people in some areas do not get that opportunity, or is it the outcome that is down to the assessor?

Stuart Mackinnon

Most of those discussions happen at the point of revaluation, so I can speak only to people’s experience at the last revaluation. Many people phone up their assessor when their new valuation comes through, and different assessors have taken different approaches. I know that the assessors have their own programme of reforms and are working on standardising their approach. The test of that new approach will come at the next revaluation, but, historically, our experience is that different assessors have taken different approaches to that discussion period at the point when people receive draft rateable values.

Marc Crothall

I echo that. Some of our members have said that the pre-appeal discussion has literally involved a phone call, sometimes even from the car. Providing the security of a last stop through a tribunal process may be the way forward, but the volume of appeals would have to diminish. That could happen with an electronic approach.

Graham Simpson

I have a final question which is based on something interesting that the Scottish Retail Consortium said in its written evidence. The consortium mentioned that

“business rates are already paid on ... parking spaces”.

Often, particularly in business parks, the car park is closed off and people cannot use it, so business rates are not paid. The consortium mentioned another piece of legislation that cuts across the issue—the Transport (Scotland) Bill, which we are not here to talk about, and the potential workplace parking levy, which you describe as “double taxation”. However, sticking with business rates and not moving on to the workplace parking levy, is the consortium suggesting that something needs to change?

The Convener

Beautifully done, Graham.

David Lonsdale

I was in front of the Rural Economy and Connectivity Committee a few weeks ago to discuss the workplace parking levy. As I understand it, the fact remains that, if the legislation is passed and councils get that power, they will charge a levy on part of the valuation roll for which business rates are already paid, so that is double taxation. There may be other examples of double taxation in both the devolved and reserved taxation systems in the round, but it does not seem to be a particularly sensible way forward.

We have a number of other concerns about the workplace parking levy, but in relation to rates our concern is that adding to the burden is probably not sensible. As I said, the poundage rate—the tax rate—is at a 20-year high, and a number of workplace parking spaces, depending on the property or building with which they are associated, will already be subject to the large business rate supplement, which in Scotland is twice the rate that applies south of the border.

We are in the fourth year of the large business rate supplement having been doubled and, over those four years, ratepayers in Scotland have paid an extra £250 million. In retail alone, somewhere in the region of £45 million to £60 million extra has been paid because of that doubling.

Kenneth Gibson (Cunninghame North) (SNP)

The UK Government charges VAT on top of taxes—I am thinking of tobacco, alcohol and fuel duty, for example—so double taxation is quite common and is done on a large scale. We all probably pay huge amounts of money in that way. That does not make it right, but it is not uncommon.

I want to touch on a couple of things. Mr Lonsdale, I found paragraph 26 of your written submission particularly interesting. In it, you said:

“Ministers are forecasting that the annual cash value of rates reliefs will have increased by £159 million over the 4 years until 2019/20, to £750 million, a 27% uplift. The value of reliefs as a share of the total take from business rates rises over the same period, from 21.6% to 26.9%. The system only seems to function through myriad exemptions and reliefs that continue to grow as an overall proportion of the total amount paid in business rates. The use of these sticking plasters underlines the need for more regular revaluations”.

You talked about the poundage rate being at a 20-year high. It seems bizarre that we have rates relief at a record high and a poundage rate that is at its highest level for 20 years. Would a better way to address the issue be to have fewer reliefs and lower overall poundage? If so, which reliefs should be removed?

David Lonsdale

One aspect of the bill is that of putting the business growth accelerator on a strategic footing. Our colleagues down south have picked that up and are saying that there should be something similar in England, but it should be over a three-year period to allow firms to recoup the cost of commercial property investments and so on.

We fully accept that there will be rates discounts and reliefs, but the broader principles of having more regular revaluations and keeping down the overall poundage or tax rate are a sensible starting point for looking at these things.

There will be cases for which there must be reliefs. Stuart Mackinnon talked earlier about there being a review of the small business bonus scheme. We have been supportive of the scheme, but it is right and proper that we look at individual reliefs from time to time and check whether their rationale is still pertinent and whether they deliver value for money. The Barclay review, which we have been broadly supportive of, did that.

Kenneth Gibson

It almost seems as though the poundage rate is being increased to take account of the number of reliefs. What do other panel members think?

Stuart Mackinnon

The FSB strongly supports the small business bonus and the help that it gives smaller firms. The most recent survey work that we did on it suggested that, if the scheme were abolished, about a fifth of the recipients would amend their growth plans, a fifth would cancel planned investments and a fifth would close their doors completely. Going into the small business bonus review, we will stand up for our members who currently get that important help from the Scottish Government.

I note that a small number of our members pay the large business supplement, and some work might be required to ensure that small and medium-sized firms do not accidentally fall into that tax bracket.

We have tried to be as constructive as possible and we have talked about tweaking the small business bonus. For instance, we have suggested that it should not apply to empty properties. We want to ensure that it goes to the right businesses, and we will continue to take that approach.

11:00  



Marc Crothall

Many of our members are small businesses. We support the review of the scheme but, as you will have seen in my written submission, we have caveated that quite heavily by saying that we need to recognise the importance of tourism businesses in communities and what they do for the wider economy. The other side of the coin to consider is that we have long argued that for many properties in the hospitality sector a rateable value of £51,000 does not mean that the businesses in those properties are large—they tend not to operate at that scale. Perhaps we need to look at the scale across the valuation measures. Overall, to go back to what has been said several times, the frequency of the revaluation process will, we hope, mean that the sort of increments that we have seen are not required.

On the small business bonus scheme review, there needs to be fairness across the approach. The review is timely. Are the incremental increases in poundage funding the small business bonus scheme? Arguably. To what extent would changing that make a significant difference? The review is justifiable.

Kenneth Gibson

My next question is for Rachel Blair, so I will ask it and then she can perhaps answer it and the question that I have already asked. You said at the beginning of your evidence that there are 900 charity shops in Scotland, and that about a third have, in effect, 100 per cent relief. How many of the remaining 600 get support from the Scottish small business bonus scheme? Do you know what the average is for the rates that those shops pay?

Rachel Blair

I do not have the exact figure, but I can try to get it and send it to the committee after the meeting. Rates relief is essential to the vitality and viability of the charity retail sector. The sector provides economic, social and environmental benefits, so the relief is cost effective for the taxpayer. The Scottish Government’s business rates review in 2012 showed that charity shop rates relief cost £9.3 million, which equated to only 1.7 per cent of the total business rates relief applied. I am not sure how the small business bonus fits into that but, ultimately, we would say that rates relief is vital to us.

Kenneth Gibson

You talked about town centre footfall increasing because of charity shops, which is undoubtedly true. The FSB and others might argue that charity shops that are run by volunteers and that get 80 or 100 per cent relief are providing unfair competition to some businesses. Has the FSB or the charity sector done any assessment of that?

Rachel Blair

We would say that charity shops are not in competition with other high street players; they are partners. Our shoppers want variety on the high street, which is what charity shops provide. We should also look at the environmental benefits that charity shops provide. They can play a role in developing a circular economy and allowing consumers to look at more ethical ways of shopping. It is important that we do not see charity shops as enemies or competition; they are just another partner on the high street.

Kenneth Gibson

Is that the view of the FSB?

Stuart Mackinnon

Broadly, yes. Charity shops have a role in our high streets and town centres; on the other hand, there is no doubt that a high street where there are a huge number of charity shops feels like a symptom of a place that is in decline. The way that we fix that is by having more organisations competing for the units on the high street. It is about getting other players rather than just independent businesses and charity shops. We need to get big business and the public sector back into the centre of our towns to take the spaces that independent shops and charity shops are trying to fill at present.

Kenneth Gibson

When the committee visited Kilmarnock, we were informed that some providers of retail space have allowed charity shops to move in rent free, simply because they cannot get other businesses in, and those shops add something to the high street. Would you broadly agree with that? In her submission, Rachel Blair said:

“As a result of charity retail, 330,000 tonnes of textiles ... were kept out of landfill, reducing ... carbon emissions by ... 7 million tonnes”.

Therefore, there are other benefits. Do you acknowledge that charity shops fill up spaces that would otherwise be empty?

David Lonsdale

The retail industry is changing and will continue to evolve. If you or I were a landlord—you may be, when you do not have your political hat on—it would be very understandable for us to look to others to take on the space. If that adds to the footfall in a high street or a town centre, that is great.

However, the fact is that public policy in the round—at Scottish and UK levels—is pushing up the cost of having a store footprint, whether it is the cost of the premises or of employing people. We are in an era of profound change. Growth in consumer spending is weak and costs are rising, so something has to give. As I said, the number of shops has decreased.

I am conscious of the time, and I know that you will seek to wrap up soon, convener, but what I have just said links to what you said at the outset about your trip to Kilmarnock. You met firms that were concerned about the cliff edge, as you put it, in relation to rates relief for small firms. There is also a cliff edge of sorts when it comes to the large business rates supplement. As soon as you go above a rateable value of £51,000, because it is a slab tax, you pay rates on every pound, from zero right up. That is another issue. As Stuart Mackinnon said, and as Ken Barclay said in his report, that tax applies to many small and medium-sized businesses. The name is a bit of a misnomer, because the supplement does not apply only to large organisations.

Kenneth Gibson

To be fair, we heard from a company in Kilmarnock that was directly affected by that. It wanted to stay in the town and employ an additional number of people, but it felt that it was unable to take the risk because of the lack of tapering in the slab.

The Convener

If only you had been paying attention earlier, Kenny, you would know that I brought that up.

Kenneth Gibson

I know that, but David Lonsdale specifically mentioned the issue, and it was part of my questioning.

The Convener

Okay. That completes our questioning. I thank the panel for attending today’s session. I suspend the meeting to allow for a change of witnesses.

11:07 Meeting suspended.  



11:09 On resuming—  



The Convener

We continue today’s session on the Non-Domestic Rates (Scotland) Bill, and I welcome Ken Barclay, the former chair of the Barclay review of business rates. I appreciate that there was a late change to the agenda, given that Mr Barclay’s attendance was confirmed only yesterday. We are really grateful to Mr Barclay for attending today’s meeting.

We move straight to questions. I ask Andy Wightman to kick off the questioning.

Andy Wightman

Thanks very much for coming along at short notice, Mr Barclay.

Broadly speaking, do you feel that the recommendations of your review group have been put into practice through the non-legislative measures that the Government has announced, and through the primary legislation that it has introduced in the bill?

Ken Barclay

I am not sure that I am in a position to respond to that. Over 14 months, we consulted many people and determined what we thought was in the best interests of the brief that we were given by the Scottish ministers. I have not been involved in the process for the past two years. It is up to the Scottish ministers to determine how many or how few of the recommendations that we made are brought to bear, and how much is done through primary legislation.

Andy Wightman

Fair enough. The Government decided not to take forward two of the group’s recommendations, one of which was recommendation 28, which said:

“All property should be entered on the valuation roll”.

Currently, agricultural land, foreign military bases and embassies are excluded. I presume that you still think that the recommendation is a good idea, but the Government is not taking it forward. Do you have any thoughts on that?

Ken Barclay

At the time, the panel felt that it was important that all property be put on the register. That was certainly the view of the review group. That would allow the public to see the extent to which public subsidies are given to certain elements of industry that we highlighted. It is entirely for the Government to decide whether it wants to pursue the recommendation.

Andy Wightman

The other recommendation that the Government has decided not to take forward relates to large-scale commercial processing on agricultural land. I am not asking you to name individual businesses, but what kind of examples did you look at to come up with the recommendation?

Ken Barclay

An example is that an abattoir that was on agricultural land would be exempt from paying tax, but an abattoir that was on a brownfield site would be subject to tax. In order to level the playing field, we felt that it was appropriate to make that recommendation in our paper.

Andy Wightman

Would the same situation arise with, for example, ice cream factories or biscuit-making factories?

Ken Barclay

If agricultural land was being used for that purpose, the answer to the question would be yes.

Andy Wightman

You provided formal recommendations, but you also considered other issues. Annexe C.7 in the review report is interesting. It is entitled:

“Ensuring that every ratepayer pays something”,

but you do not go into what the “something” should be. Will you elaborate on the principle behind that thought?

Ken Barclay

It came about as a consequence of many small businesses that we spoke to feeling that there is a disconnect in the understanding of what non-domestic rates are for. The rates contribute to provision of local services. When I was on the road, someone said to me that some high streets have become rates deserts—basically, no one on the streets pays any non-domestic rates.

Many of the small businesses that we spoke to said that they would be prepared to pay something towards the local services that they were, in effect, in receipt of, but we did not get to the point of determining the level that people would be comfortable paying. One of the challenges that we found was determining what a reasonable amount would be and determining the costs of collection. If the costs of collection were to outweigh the amount that was collected, that would clearly be a false economy. Ultimately, we felt that we could not make a recommendation to ministers on that issue.

11:15  



Andy Wightman

Were you not able to recommend that because you could not reach a resolution of the cost benefit analysis rather than because the principle was in doubt?

Ken Barclay

We were unable to determine whether the cost benefit analysis made any sense. That is why we ultimately decided that it was important that the overarching review of the small business relief scheme was a far more important way to go about things.

The Convener

I think that you were in the room when the previous witnesses talked about your call for the large business supplement to be brought into line with that in England. What was your rationale for that?

Ken Barclay

Our view was that it was important that Scotland was seen to be the best place to do business in. That had been expressed by ministers, and one way in which we could recommend that that could be done was by reducing the large business supplement to the same level as that in England.

The Convener

The review was a while ago. In the time that has passed since, have you taken a view on whether developments in local taxation and the economic context have led to a need for further non-domestic rates reform?

Ken Barclay

All that I can say to that question is that I stand by the recommendations that I made in 2017. I have not been involved in rates in any way professionally or privately since then, and I discharged my duties to the best of my ability.

The Convener

Do you have a view on the Government’s approach to implementing relief for day nurseries and the perceived unfairness in non-profit nurseries that are co-located on school grounds still paying rates?

Ken Barclay

I am afraid that I do not, convener. I am not able to respond to that question.

The Convener

Right. That is not an issue at all.

Alex Rowley

The previous panel talked about dealing with the whole process and the user-friendliness or otherwise of the system. As I said to that panel, as an MSP, when I have been trying to help small businesses in particular, I have found contacting the council and just understanding things to be quite difficult. Do you have a view on that? The previous panel seemed to suggest that there could be a better dialogue if an improvement service and customer relations were put in.

Ken Barclay

We felt that a number of things could be improved, and we highlighted them in the report. I understood that some of those things are now in a consultation process involving the end users and the assessors. I am afraid that I really cannot add more than that, Mr Rowley.

The Convener

Graham Simpson has questions about schools.

Graham Simpson

I, too, thank Mr Barclay for coming to the meeting. I know that your attendance was confirmed at the very last minute, and I really appreciate your being here.

The committee has looked at the idea of removing rates relief for independent schools. That stemmed from one of your recommendations—it was your idea. Where did it come from?

Ken Barclay

The idea stemmed from the fact that we adopted the guiding principles of transparency and fairness and ensuring that people are on a level playing field with one another. It was quite apparent to us that, as state schools pay rates, it is entirely appropriate that independent schools should do so, too.

I can anticipate the next question: perhaps the state or public sector should not pay rates? We spent a considerable time with people from the public sector—from the health service, the Scottish Prison Service, Scottish Water and the enterprise agencies—and asked them whether the public sector should pay rates, because that is a fundamental point. People argued that, effectively, that just represented money going around in circles. For context, we are talking about 15 per cent of the total rates bill, or £1 billion at the time that we presented our report to ministers.

When we spoke to the Scottish Prison Service, it said that it did not think that it was appropriate for it to pay rates. The conversation evolved into an acknowledgment of the fact that there are private prisons that are in competition with state prisons, and that private prisons pay rates. The SPS accepted that it is therefore appropriate that it should also pay rates, so that there could be a level playing field, which was one of the principles that we adopted at the outset. Likewise, the enterprise agencies that we spoke to said that it would be entirely inappropriate for them not to pay rates, given that they are talking to businesses that pay rates. When we spoke to Scottish Water, it said that, to all intents and purposes, it is treated like a private company, albeit one that is in state ownership, which means that it is entirely appropriate that it should pay rates. Similarly, the health service recognises that it is in competition with private hospitals, that private hospitals pay rates and that the health service should pay rates.

That brings us back to the point that I mentioned at the outset about whether schools should pay rates. The answer is that, if you are treating everyone equally, it is entirely appropriate that independent schools should also pay non-domestic rates, because state schools do.

Graham Simpson

Right, except for the fact that independent schools are classed as charities. If we are to be consistent across the charity sector, we should not discriminate between one part of the charity sector—which I note represents only 0.5 per cent of that sector—and the rest of it. However, that is the upshot of the proposal. The Office of the Scottish Charity Regulator told us that that would create a two-tier charity sector. Do you accept that? If so, do you accept that that has implications for charity law?

Ken Barclay

All that I can do is reiterate what I said earlier, which is that it is for ministers to make their recommendations and decide what is appropriate to put into primary legislation. I think that I have fulfilled my duties in making the recommendation; it is for ministers to determine whether they want to proceed with it.

Graham Simpson

It is, but the idea came from you and your review. Do you accept that if your recommendation becomes law, it will create a two-tier charity sector?

Ken Barclay

I am not convinced of that. We considered the issue on the basis of fairness, and we felt that it was appropriate to level the playing field between the state sector and the private sector.

The Convener

If independent schools did not pay rates, would that not create a two-tier education system or a two-tier rates system?

Ken Barclay

I am sorry; could you clarify that point?

The Convener

Independent schools do not pay rates, so does that not, in itself, create unfairness in the education system or the rates system?

Ken Barclay

That is my point. I was trying to level the playing field between the state sector and the private sector, and that is the recommendation that we made. You could argue that there is an unlevel playing field at the present time, and I was endeavouring to level it.

Graham Simpson

I would like to continue my line of questioning, if that is okay.

Given that the proposal has big implications for the charity sector and potentially for charity law, I presume that you spoke to the charity regulator, OSCR. Is that correct?

Ken Barclay

At the outset of the process, we invited OSCR to comment. As far as I can recall, I do not think that it replied

Graham Simpson

You had witnesses appear before you. Did you invite OSCR to come to see you?

Ken Barclay

We invited OSCR by email to submit a proposal to us. However, when we were seeking evidence from multiple individuals and organisations at the outset of the process, in 2016, OSCR did not respond.

Graham Simpson

I accept that you will not have heard the evidence that we have heard from some players in the independent school sector who say that they are on the brink. They are struggling. If the change is introduced, it could push them over the edge and we could see schools closing. Given that—I am sure that that is not what you want to happen—and with the benefit of hindsight, would you change your mind on that recommendation?

Ken Barclay

I am afraid that I can only respond to the basis on which I was instructed to give my brief. It is entirely inappropriate to ask what I think now in relation to changes that have taken place. My responsibility was to submit that report to ministers by the late summer of 2017, and I did so. If my opinion has changed in the intervening period, as a result of changes that have taken place in the wider economy—where multiple changes have taken place—it is not my place to come back and suggest that alternative arrangements should be made.

Graham Simpson

You must have an opinion. As a result of something that you have recommended, schools could potentially close. You must have view on that.

Ken Barclay

I am not going to be drawn into something that I think is inappropriate. I have made my point very clear. It was entirely appropriate for me to make my opinions known at the time. It is up to Government to take account of any changes that have taken place in the intervening period.

Graham Simpson

Let me put it this way: school closures would not be what you were trying to achieve.

The Convener

I think that we have finished with that line of questioning. Mr Barclay has made it clear that he is speaking as the head of the review.

Andy Wightman

Following on from that, I am curious as to how you approached the schools issue. You said that your aim was to level the playing field, and I notice that you agreed at the outset to embed as far as possible principles of fairness, consistency, transparency, simplicity and accountability. Presumably, levelling the playing field comes under the heading of fairness.

Ken Barclay

I am not sure that I allocated a principle to every recommendation.

Andy Wightman

No, but the recommendation was about levelling the playing field. Were you looking across the whole rating system to see where there could be uneven playing fields, as it were—between similar properties in the same sector, for example—or did independent schools arise as a specific issue? Did someone suggest that they should pay rates, or were you looking at all the different reliefs to see how much money could be generated by changing them? How did you arrive at considering the question?

Ken Barclay

I cannot remember whether there was a specific moment when it was felt that levelling the playing field was an appropriate basis on which to put the issue on the table, as it were. Although we were aware of all the available reliefs, we did not start to reverse-engineer solutions into wherever the largest reliefs were. It was a question of what facts were available to us. It was a simple matter of asking whether it was fair. Is it fair that independent schools and state schools are treated differently on the payment of non-domestic rates? We concluded that they should be treated the same, and therefore we made that recommendation to Mr Mackay.

Andy Wightman

I put it to you that your remit included the instruction that your recommendations should be revenue neutral, broadly speaking. Some of your key recommendations that were designed to boost economic activity involved a reduction in rates liability, which would therefore lead to a reduction in income, so you had to find some money to make up that reduction to ensure revenue neutrality. If I put it to you that you looked at all the existing reliefs to find out whether they were capable of being tweaked, abolished or partly abolished, would that be a fair characterisation?

Ken Barclay

I think that that is a reasonable characterisation of the process that we went through. We looked at all reliefs and had to determine whether they were providing an appropriate level of economic stimulus or whether they were fair.

11:30  



Andy Wightman

Would it also be fair to say that you did not go into huge detail in your examination of the reliefs, presumably given the amount of work that that would have involved? For example, with the small business bonus scheme, you decided that, rather than tinker with it, you would recommend that it should be reviewed.

Ken Barclay

It depends on what you mean by “huge”. It might help if you could give me an example, so that I can respond to a specific question rather than a generalisation.

Andy Wightman

Take the empty property relief, for example. Did you gather a wide range of evidence, analyse the numbers and look at the relief over time? In other words, did you do all the analytical work that would be required to evaluate whether it was still a justified relief?

Ken Barclay

That is a fair point. In addition to the report that you have no doubt seen and read, a plethora of information is publicly available. There are reams of reports that you can review to establish what work has been undertaken.

It would be fair to say that we looked back to establish some facts, but we were not reviewing something over a long period; at 14 to 15 months, the review period was relatively short. Some of the other recommendations that we felt that we could have made but did not—they are at the back of the report—would undoubtedly fall into the category of requiring significantly longer to determine. For example, we could not possibly have come up with a fully blown recommendation to change the fundamentals of non-domestic rates to a land value tax in the timeframe that we had available. That is because that would need to be looked at alongside council tax, for example. Coming to a conclusion on crossover issues such as that—many of which we have mentioned in the annexes of our report—would clearly have required significantly longer.

Alex Rowley

In some ways, given the challenges, the bill should not be seen as the end of the process. I do not know whether you looked at town centre retailers versus out-of-town retailers. Is there anything in the non-domestic rates system that could assist? The previous panel talked about the powers that local authorities have to exempt areas in town centres, but that, of course, costs money and they do not have that money. Can the rates system, or some form of taxation, help town centres?

Ken Barclay

We recommended the expansion of the fresh start relief, the purpose of which is to encourage the use of empty properties in town centres. My recollection is that Derek Mackay adopted our recommendation—in fact, I believe that he may well have gone further than we did. We might well have gone further with our recommendation at the time, but we were not in a position to do so, because that would have cost us more money than we had available from the changes that we were making. I think that our recommendation on the fresh start relief is a very good example of where we were endeavouring to find ways of occupying empty premises, particularly in town centres.

Alex Rowley

When the Convention of Scottish Local Authorities gave evidence to the committee, it was keen to stress that there is a review looking at council tax, which was announced by the finance secretary. Although this bill is going through at the moment, do we need to look again at this? Should non-domestic rates be looked at as part of a wider review?

Ken Barclay

A decision to look at devolved taxes in the round would clearly be one for the Government of the day. It is certainly not my position to give a view on whether a further review of non-domestic rates needs to be undertaken.

Alex Rowley

You made a recommendation on arm’s-length external organisations. I return to your earlier point about the principle of fairness. I will not ask whether it is right for ministers to pick and choose what is fair. However, my understanding is that the main reason why the Government did not proceed with that recommendation is that its impact on local authority budgets would have been devastating. What is your take on that?

Ken Barclay

Are you asking why we made the recommendation?

Alex Rowley

Yes.

Ken Barclay

I think that I can best capture that by referring to what is, admittedly, an anecdote. I will come to the facts in a moment, if I remember. We held an evidence session that was attended by the deputy leader of a fairly significant council. She was very clear in saying that the only reason why the council puts those public assets into ALEOs is to reduce the tax rate that is payable on them. Otherwise, it would not do so. To my mind, there was an opportunity for us to look at the current situation and ask whether it is fair. We concluded that it needed to be addressed, and we made recommendations to ministers.

I go back to the facts. One of the charts in the report—I am afraid that I cannot remember the exact paragraph; if I had been able to go through the report several times in the time that I had available, I would remember it—shows that charitable relief has increased. We charted the amount of relief that had been made available in the various categories over several years, and far and away the biggest category was charitable relief. It is not the kind of charitable relief that Rachel Blair spoke about; it is relief that is going to ALEOs. A considerable amount of assets were moved from local authorities into ALEOs over a relatively short number of years, and we felt that that was not appropriate and needed to be addressed.

Alexander Stewart

I will pick up on the schools issue and then move on to something else. I understand and acknowledge why you chose to make the recommendations that you did. You talked about fairness and how to ensure that there is equity across the piece between the independent sector and the state sector. During all your work, how much analysis did you undertake of the potential knock-on effects on the state sector if some private schools were to close? As my colleague Graham Simpson indicated, the change may have an effect on the viability of some independent schools.

Ken Barclay

I did not think that it was appropriate for us to do an analysis of individual independent schools to determine whether the impact of the change was going to have such a devastating effect. It is probably worth while for me to give some context. At the time of writing the report, there were approximately 35,000 pupils at independent schools in Scotland. Our assessment from the work that was done—which, again, is publicly available in the archive—was that the change would bring in around £5 million. That equates to approximately £150 per pupil per annum in addition to the fees that are payable. The average fees in Scotland are approximately £12,000 a year, so it is 1.25 per cent over and above what is currently paid. That context was enough for us to say that the impact should not be enough to make schools unable to pass on the fee or absorb some of it themselves.

Alexander Stewart

Some locations in particular may be affected. Edinburgh, for example, has a much larger percentage of private and independent schools, so there would be a bigger potential burden on the local authority there if things did not work out in the private sector. That would also apply to Perth and Kinross, which also has a larger private sector. Did you look at that when you were looking at matters in the round?

Ken Barclay

I think that I have explained what we looked at. If further analysis was needed following our recommendations, I believe that it would ultimately have been for ministers to determine what was appropriate.

Alexander Stewart

I will move on to another subject with regard to your recommendations. As we have gone through this process, some people have talked in their submissions about additional burdens that may well fall on local authorities and on the assessors. Was that your intention? Did you envisage that by making some of those recommendations, you would be adding extra burdens, such as pushing on local authorities a requirement for information?

Ken Barclay

We made 30 recommendations. Some of them include a quantifiable amount that either involves a cost to or a relief for the taxpayer. Many of our administrative recommendations are exactly that—administrative. We make a comment that says that, although the impact is not material, we recognise that there will be additional administrative burdens placed on either the assessors or the local authorities to ensure that the recommendation is implemented.

Kenneth Gibson

Good morning, Mr Barclay. Following on from what we heard from the previous panel, I am interested in the issue of charitable rate relief for charity shops. What was the thinking behind your decision to retain the level at 80 per cent and not either put it up to 100 per cent or drop it to 60 or even 50 per cent? You would have heard the evidence of those who had enthusiasm for it being 100 per cent. Why did you feel that 80 per cent was the right figure?

Ken Barclay

As I recall, central Government agreed that it would subsidise down to the level of 80 per cent and it would then be up to the local authority to decide whether the additional 20 per cent would be given. As far as I was concerned, that was okay. We concluded that that was a perfectly legitimate rate to alleviate the charity shops’ position, so we recommended that there be no change.

Kenneth Gibson

You did not feel that there was a strong enough argument for going to 100 per cent relief, for example.

Ken Barclay

We spoke to the charity shops in an evidence session and they put forward their point of view, but we decided that the status quo was entirely appropriate.

Kenneth Gibson

Why was that your conclusion? On the previous panel, Rachel Blair, speaking on behalf of the sector, said that that meant that some local charity shops struggled to pay rates even at 20 per cent where the council does not provide relief.

Ken Barclay

To be honest, Mr Gibson, I am struggling to remember the reason for our determining that 80 per cent and not 100 per cent was the right figure. If you will forgive me, it might be appropriate for me to respond to that formally, through Mr Dornan as convener, to clarify our thinking.

Kenneth Gibson

That would be helpful.

Ken Barclay

It happened two years ago and I have now forgotten the exact details.

Kenneth Gibson

I fully understand. Thank you very much.

Annabelle Ewing

Good morning, Mr Barclay. I have two relatively quick questions. One is about an issue that was raised in the Scottish Retail Consortium’s written submission to the committee but was not discussed today. Given your expertise, I though that it might be in order to pose the question. The consortium talked about the deposit return scheme and the consequent need for shops to have refits and possibly to purchase reverse vending machines. It said that it was

“concerned these ... changes could be classed as improvements and consequently affect the rateable value of ... premises”.

In broad-brush terms, is that a realistic concern, or does it overegg the situation?

Ken Barclay

I am not sure that I know the answer to that question, to be honest. The commission recommended that the Government review plant and machinery in considerable detail. I do not know whether anything has happened on that, but we felt that the issue of improvements was very complex and that expertise to determine the right way forward did not exist in our group. The last time a review of plant and machinery issues took place, it took the Government two or three years to reach the conclusions and recommendations that it did, so I did not think it appropriate for us to try to cram such an exercise into the time that we had available. That is why we made that recommendation. If the Government should decide that it wants to pursue that process, it seems entirely appropriate that the example that you have given should be included in the plant and machinery review for all businesses.

Annabelle Ewing

Thank you for that—it was very interesting.

My last question is about timescales. We have had your report with your recommendations and we are now going through the bill. I imagine that there might be some tweaks to the legislation—as is ever the case with the parliamentary process, as our aim is to achieve the best version of it that we can—and then it will be passed. How long will it be before we need to have a Barclay 2 review?

Ken Barclay

Taking your question in the spirit in which it was intended, I trust that it will not be Barclay at all. [Laughter.]

Annabelle Ewing

Thank you.

Graham Simpson

I want to go back to the issue of schools. In your review, you used the word “fairness” quite a lot. One of your recommendations, which I think became part of the bill, is that some independent schools, such as music schools, should retain relief. Why should that be the case for some schools and not others? Why should the relief not apply to schools that specialise in sport or science, for example?

Ken Barclay

That might be a question for the Government, Mr Simpson. I do not remember identifying a music school—or the only independent music school in Scotland—as deserving particularly different treatment. That might be something that you could ask the ministers when they speak to the committee.

Graham Simpson

Does it pass your fairness test?

Ken Barclay

I reiterate what I have just said. I made my recommendations to the Government at the time. Whatever it has decided to do or change in the intervening period is a matter for it. My brief was to deliver the review within 14 months, which I did. I am here today to answer questions about the recommendations that I made rather than about the opinions of others that have been expressed subsequently.

The Convener

Thank you very much for attending today’s session, Mr Barclay. Your evidence was very helpful indeed.

A further evidence session on the bill will take place at the committee’s next meeting on 4 September, when we will hear from representatives of the Scottish Government.

I now suspend the meeting briefly, to allow the witness to leave the table.

11:45 Meeting suspended.  



11:47 On resuming—  



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Fifth meeting transcript

The Convener

Agenda item 4 is the committee’s concluding evidence session with the Scottish Government, as part our scrutiny of the Non-Domestic Rates (Scotland) Bill. I welcome Kate Forbes, who is the Minister for Public Finance and Digital Economy. She is accompanied by Anouk Berthier, who is the NDR policy lead; Colin Brown, who is a senior principal legal officer; and Ian Storrie.

I believe that the minister would like to make a brief opening statement.

The Minister for Public Finance and Digital Economy (Kate Forbes)

It will be very brief. I thank you, convener, and the committee for allowing me to come and speak to you today.

The bill is an important stepping-stone on the way to implementing the recommendations of the Barclay review, which we have progressed as quickly as possible. The bill’s purpose is to establish a legislative framework to enable a number of those recommendations to be implemented. We are also making good progress on the other recommendations that have not required primary legislation.

With, I understand, more than 360 written submissions and six oral evidence sessions, plus a number of committee visits, committee members have, I am sure, been given much food for thought, so I look forward to the discussion later.

Before taking questions, I want to touch on what I believe to be the most critical aspect of the bill—the proposed changes to the appeals system. We are not the only ones who believe that it needs reform. We have looked at other places, including south of the border, where there have been significant difficulties that have resulted in few appeals being able to progress through the system, which has informed our consideration. We have learned from that in making every effort to get our reforms right.

Quite simply, convener, I believe that if we do not get reform of the appeals system right, that will negate the benefits of every other aspect of the proposed NDR changes. I appreciate that the appeals system is a complex area to reform and that there are no easy solutions, as the rating experts on the Barclay implementation appeals sub-group have discovered during their deliberations. I look forward to receiving soon their report containing recommendations on potential changes to the appeals system, which I will reflect on carefully. I am happy to arrange for a copy of that report to be sent to the committee.

Finally, my letter of 3 September to the convener outlined my proposed approach to consulting on illustrative appeal regulations, which I hope members found useful and helpful. I am happy to contribute to the debate by answering any questions that the committee deems are important.

The Convener

Thank you, minister. I will kick off. Could any additional measures have been included in the bill, such as changes to rates for out-of-town retailers? We have found that one of the big challenges for town centres is the fact that they are fighting against the out-of-town retailers. Kenny Gibson might want to go into that in more detail.

Kate Forbes

The bill’s purpose is to put in place the legislative framework for a number of recommendations, as I said earlier. Not all the recommendations are in the bill; some have been progressed already, others will be progressed through guidance, and others we have decided not to progress after listening to stakeholders. One of that last group is the out-of-town levy. We decided after careful consideration that it would have created greater complexity and uncertainty for business. An important remit of the Barclay review was to make Scotland as competitive as possible to support the economy, and it deemed that certainty for business was one of the most important aspects. That is why the levy recommendation did not make it to primary legislation.

The Convener

I might come back to that issue.

Kenneth Gibson (Cunninghame North) (SNP)

Good morning, minister. I have just written down your comments; you said that you want Scotland to be “as competitive as possible”, with “certainty for business”. Committee members have done a couple of visits—to Kilmarnock and, yesterday, to Stirling—and what was remarkable was that we heard almost exactly the same story from businesses and community organisations. They view current rates policy as restricting sustainable economic growth. How will the bill make progress on that? For example, a property that has a rateable value of £15,000 pays zero, one that has a rateable value of £18,000 gets a 25 per cent discount and pays £6,615 a year, and a property that has a rateable value of £20,000 attracts a 49p poundage, which means that it pays £9,800.

We have been told that the small business bonus scheme has been great for small businesses and has stimulated interest in smaller properties, but an individual from the property industry has said that has helped to push up rates—although his colleague was keen to damp that down and said that it increases turnover of properties. Either way, it has been good for smaller properties.

However, businesses that try to expand and employ new people often find that the jump from a small property to a medium-sized property is too great, because of the additional rates burden. There is a cliff edge in the increases from £15,000 to £18,000 and £20,000. People have said that there is no pressure under the £15,000 zero rate, and that tapering might have been better than trying to persuade businesses to move.

That example has probably made my questions more long-winded than I would have liked. How will the bill help to promote sustainable economic growth? Will the Scottish Government try to tackle such bottlenecks in the system?

Kate Forbes

There was a lot in that, which I will answer with three points. First, we recognise that the small business bonus scheme needs to be reviewed, which is why we progressed that recommendation ahead of the Barclay review schedule. After a tender process, the review was given to the Fraser of Allander institute, with a view to publication in spring 2020. It will examine the question about establishing whether the scheme is the most effective way to support business growth, particularly for small and medium-sized enterprises.

Secondly, although the bill is quite technical, that does not stop us from taking forward a number of initiatives for town centres and business growth through the annual budget process, which we did last year with £50 million support for town centres. We accepted all seven Barclay recommendations that would directly support the economy and economic growth. That can be seen through our reliefs package, which is one of the most generous in the United Kingdom.

Thirdly, some matters are outside the substance of the technical bill that is before us, but we have accepted recommendations for economic growth and where we have been able to embed them in the bill, we have done so. A good example is the business growth accelerator; we implemented that relief as soon as possible and have put it in the bill.

Kenneth Gibson

Thank you for that.

Even if the bill has been put together with a view to stimulating economic growth, unless there are changes in respect of the cliff edge that I talked about, other policies that are layered on top will militate against that.

The minister talked about how the out-of-town levy recommendation was rejected because of complexity and uncertainty. However, for many small towns—such as those that I represent—out-of-town retail stores have effectively killed their high streets. There is one out-of-town store where everyone does their shopping, so we no longer have fruit shops, butchers, bakers and all the things that people grew up with. Although convenience is obviously important for people, there has to be a level playing field.

I will move on to a related issue that was mentioned in Stirling yesterday. The matter is reserved to the UK, so has the Scottish Government been lobbying the UK Government on imposing tax rates—or whatever we want to call them—on online retailers?

Kate Forbes

That is a great question; obviously, the digital economy is also an element of my brief. One of the points that was made in the Barclay review was that, although out-of-town retail is a challenge—that is why there was a recommendation on that—digital and online retail are probably putting more pressure on the high street.

We were considering that, then last October the former Chancellor of the Exchequer, Philip Hammond, announced that the UK Government was going to progress plans on a digital sales tax. At present, we are awaiting further details of what the UK Government is going to do. We have certainly considered the issue, and we will continue to consider it, to ensure that there is a level playing field.

However, none of those things is a magic bullet to support high streets. They have to be taken together with initiatives in the budget to support high streets—to help retailers to access new markets, to encourage footfall and to make sure that retailers are supported by the rates regime. Of course, a lot of the small businesses that are on our high streets will be in receipt of the small business bonus, which enables them to reinvest in growth.

Kenneth Gibson

Yes, it does. I hope that, if online taxation comes through, there will at least be a Barnett consequential.

Another issue that came up is that there have, as the minister will know, been concerns over the past year or two that the hospitality sector has been disproportionately affected. How will the bill positively impact on that sector?

Kate Forbes

Apart from the bill, and specifically in relation to the hospitality sector, we have introduced transitional rates relief. To give certainty to the hospitality industry, I announced last November that transitional rates relief would last until the next revaluation. I understand that the hospitality industry also has particular concerns around the methodology: it is discussing directly with assessors how the methodology could be improved. That is separate to this technical bill.

Kenneth Gibson

There is concern that properties are overvalued—that is certainly what the hospitality sector is saying.

I will ask one last question, convener, because I know that a lot of other members want to come in. The minister talked about how fundamental the appeal process is. Given that some 72 per cent of businesses automatically appeal, what thought went into whether appeals should be charged for? Businesses think that it is not going to cost them anything, so they might as well fling an appeal in, which clogs up the system. There is a difference between what happens in Scotland and what happens in England; what is your view on that?

Kate Forbes

If we do not get the appeals system right, proposals such as the one to move to three-yearly revaluation will be nigh on impossible. That is how critical it is that we get the appeals system right.

As Kenneth Gibson said, most businesses and organisations automatically appeal. A lot will be fleshed out in guidelines and subordinate legislation after the appeals sub-group has published its recommendations, but we are proposing a two-step process in which there is a proposal and then an appeal. At the moment, businesses automatically appeal. The appeal goes into the system and there is a long drawn-out process, which is why it is so challenging to get through the volume of appeals.

We are suggesting that there should be a proposal first and then an appeal. A proposal will, in essence, be a discussion with the assessor. During that discussion, either the assessor will deny that the appealer has a case—if so, it can then move to a formal appeal—or the issue will be dealt with at that initial stage and there will be no need to go to an appeal.

10:00  



We also suggest strengthening of assessors’ information-gathering powers. The Barclay review was clear that provision of information by ratepayers is relatively poor and that more information comes out during the appeals process. If assessors have much more information up front, they can get the valuation right initially and there will be no need to appeal.

Those two elements are critical to improving the appeals process, which will enable us to move to a three-yearly revaluation process.

Kenneth Gibson

So, there will be no fee to disincentivise spurious appeals.

Kate Forbes

There is such a fee in England. That would have to be balanced with access to justice. I await the findings of the sub-group on appeals and do not want to pre-empt them, but my position at the moment is that, if we can ensure that there is access to justice for everybody while reducing the number of appeals, we should do that.

The Convener

Should we consider a charge being made at the point when a business that has made a proposal for which the assessor has said it does not have a case, goes against what the assessor said and goes to appeal? I accept the minister’s point that the system of proposals will probably get rid of a lot of appeals, but people could still decide to chance their arm and appeal because it will not cost them anything.

Kate Forbes

I will consider all the issues. I will consider the committee’s findings on improving appeals and the recommendations of the sub-group on appeals. I will consider everything that is recommended in order to reduce the quantity of appeals while maintaining access to justice. I imagine that that will, now that you have raised the point, form part of the committee’s report. I do not want to pre-empt anything now, because I want to get this right.

Sarah Boyack

I will ask about the current huge backlog of appeals. There is an argument about the move to three-yearly rather than five-yearly revaluations, but how will you deal with the current backlog and where are the resources to allow the system, which is not working, to catch up before we move to the new process?

Kate Forbes

Sixty per cent of revaluation appeals have now been resolved. One reason why we do not want to bring forward the next revaluation date to 2021 is that we want to ensure that all appeals have been dealt with in advance of the next revaluation. As 2017 revaluation appeals may be cited up until December 2020, that would not be a manageable timescale if we moved straight to a three-yearly revaluation.

To help assessors to prepare for the implementation of the Barclay recommendations, we included at their request an additional £2.5 million in last year’s budget. That will go directly to assessors, rather than go elsewhere to await redistribution. That will help the assessors to prepare for implementation of the legislation while they have that backlog.

Sarah Boyack

You are confident that, when we hit 2022, there will not be any outstanding appeals from 2017, so that will not be a problem.

Kate Forbes

It would be difficult to move to a revaluation if we still had outstanding appeals. The assessors will have a year or so to deal with the backlog.

Graham Simpson (Central Scotland) (Con)

If there are outstanding appeals in 2022, what will you do?

Kate Forbes

There are a very small number of outstanding appeals from 2010, which involve particular challenges and complexities that need to be dealt with. However, they must be dealt with in advance of 2022.

Graham Simpson

What will happen if they are not dealt with?

Kate Forbes

We will ensure that the assessors have adequate resources to deal with them.

Graham Simpson

So, that is a guarantee that those appeals will all be dealt with.

Kate Forbes

Anouk Berthier has a point to make.

Anouk Berthier (Scottish Government)

Revaluation appeals can be cited until December 2020. Although it is true that we have resolved only 60 per cent of appeals in the 2017 cycle, compared with 69 per cent in the 2010 cycle, there are a number of reasons why that could have happened, including the seven-year gap between the two revaluations, and there being more complex cases and more litigation.

We are still on track in the appeals resolution cycle and are confident that all appeals will have been cited by December 2020, except for the small number of complex cases that will go to the Lands Tribunal for Scotland.

Graham Simpson

That is fine, but the minister said that if there are outstanding appeals in 2022 she would not want to move to revaluation.

Kate Forbes

No—I said that I would not want us to be in a position where we are moving into the next revaluation with outstanding appeals, so we will do everything that we possibly can, while recognising the independence of assessors.

The point that Anouk Berthier made is important. Inevitably, where there are legal proceedings, that is out of my control. We will do everything that we can to make sure that the vast majority of appeals, if not all of them, have been dealt with, but I cannot give a hard-and-fast guarantee because I do not have control over the courts.

Andy Wightman

The committee’s job at stage 1 is to scrutinise the bill and recommend to Parliament whether we approve of its general principles. What are the general principles of the bill?

Kate Forbes

The general principles of the bill—this was originally Barclay’s remit—are to improve the rates regime, to give more certainty to ratepayers and to make improvements where we recognise that there are current challenges, particularly to do with appeals, which are unsustainable.

Andy Wightman

So the general principles of the bill are about improving the system.

Kate Forbes

Yes.

Andy Wightman

I have the consultation that Barclay issued, and it asked only one question of consultees, which was,

“How would you redesign the business rates system to better support business and incentivise investment?”

Basically, you are saying that that question lies at the heart of the general principles of the bill.

Kate Forbes

Yes. We want to reform the rates regime in this country to ensure that there is economic growth and that we have a level playing field.

Andy Wightman

Given that non-domestic rates are an important tax and the second largest devolved tax by tax yield, that we have had no primary legislation on the subject in the 20 years of devolution since the first piece of primary legislation, that rates belong to local government and are its tax and not ours, and that setting of non-domestic rates was centralised in ministers’ hands by Mrs Thatcher in 1992, why did you not take this legislative opportunity to have a rather more wide-ranging review of the rates system—for example, to reform who sets the rate—rather than the narrow focus on businesses?

Kate Forbes

The Barclay review considered whether non-domestic rates should be devolved to local authorities but did not recommend that, because it was clear that ratepayers value consistency across Scotland. One way in which that consistency would be lost is if every local authority was able to implement its own poundage rate. The argument in favour of consistency across Scotland is based around efficiency—ease of administration of payment—and ensuring that rates do not affect investment decisions between different areas.

I understand that the committee had the Convention of Scottish Local Authorities here on 22 May, when it commented that we are looking at how we devolve powers and rebalance the fiscal relationship with local authorities when developing the fiscal framework. COSLA commented that NDR should form part of those discussions on local fiscal empowerment. Although the bill gives an element of fiscal control of the rates system to local authorities—we will see that at stage 2 with the empty property relief—because of that point about consistency I do not believe that its role is to go further on devolution to local authorities.

Andy Wightman

You say that it is about consistency across the country. If the UK Government wanted to centralise all the Scottish Parliament’s tax powers for consistency across the UK, would you be happy with that?

Kate Forbes

I recognise Scotland as a country in that respect. Taxes should be set at an appropriate level. When it comes to non-domestic rates, the bill will not devolve powers over poundage to local authorities.

Andy Wightman

One issue that has come up in evidence is that economic conditions across Scotland are varied. Indeed, one of the problems with the non-domestic rating system is that it is quite complex. There is a range of reliefs, some of which have been introduced specifically because of economic conditions in certain parts of the country, such as those in relation to the hospitality industry in the north-east. Does that not suggest that poundage should be set according to local conditions? There is no such thing as a national rate in relation to economic conditions, when economic conditions are very different.

Kate Forbes

That suggests that the bill should not introduce additional complexities to an already complex system.

Andy Wightman

Fair enough.

Recommendation 28 of the Barclay report was about including all non-domestic properties on the roll, which was a recommendation that you rejected. In the context of land reform, in 2014, the land reform review group cited the fact that, as far back as 1976, the Layfield committee said that it could see nothing in the nature of agricultural land that would take it outside the scope of a very widely based tax. The 2011 Mirrlees review recommended that agriculture should pay non-domestic rates. Have you had any discussions with the Cabinet Secretary for Environment, Climate Change and Land Reform about the extent to which including the properties that are currently exempt would be helpful?

Kate Forbes

Our position has not changed since September 2017, when we chose not to accept the particular Barclay recommendations that Mr Wightman refers to in relation to levying rates on commercial agricultural properties or farms. There are three main reasons for that. First, it would create a significant administrative burden on assessors at a time when their focus needs to be on improvements elsewhere. Secondly, we recognise, as does the Cabinet Secretary for the Rural Economy in particular, the valuable contribution that agriculture makes to our economy. Thirdly, I know that there are proposals that such properties should all be added to the roll and then exempted through reliefs to recognise the contribution that they make, but that would be very challenging given the low state aid de minimis level for agriculture, which is about £20,000 over a three-year period.

Andy Wightman

So you think that it is quite okay for a multimillion-pound business on the edge of a town to pay no rates, when the baker and the butcher are paying contributions to local authority services?

Kate Forbes

We need to look at where we can create more level playing fields. In principle, such things should be considered—and they have been. In applying that consideration, we have made the judgment that it is not wise to progress with putting farms and commercial agricultural properties on the roll, given that we would inevitably have to exempt some, because of the important role of agriculture, and given that reliefs would not go terribly far.

Andy Wightman

I will leave it there for now.

Sarah Boyack

I want to pick up on the details of the provision requiring parks to be entered on the roll. There were a few comments about that and people were nervous about potential unintended consequences, such as Christmas fairs being abandoned and the possible impact on keep-fit initiatives. Are you likely to indicate a policy direction or give clear guidance on how people should implement the recommendation?

Kate Forbes

I accept that what may have appeared simple at the beginning has become incredibly complex to legislate for to ensure that there is understanding and security that there will be no unintended consequences.

I look forward to the committee’s report in that respect. I am happy to consider issuing guidance on parks, if local authorities would find that helpful because of the current situation. The bill provides that all activity that is not free or unrestricted will be rated, which covers the commercial activity that the Barclay review stated should be liable for rates. However, I recognise that there could be unintended consequences in implementing that, so guidance will be required.

10:15  



Sarah Boyack

You think that guidance is definitely needed but that there is no need to change the bill.

Kate Forbes

I am open in that respect. Anouk Berthier might want to add to that, because I think that that is her favourite area.

Anouk Berthier

I echo the minister’s view that we look forward to the committee’s recommendations on the matter. The key is to ensure that there is as level a playing field as possible for commercial activity in parks and activity outside parks, while respecting the Barclay review’s view that parks, like other public infrastructure, should remain exempt. There is an intuitive vision of parks that does not necessarily correspond with the rules on rating and valuation. As the minister said, the area is complex and we are reflecting on the views that we hear from assessors and other stakeholders in that regard.

The Convener

Reliefs for new and improved properties will apply when buildings have been split or merged. How will that work?

Kate Forbes

Does your question relate to the fact that splits and mergers do not qualify for the business growth accelerator?

The Convener

Yes.

Kate Forbes

Splits and mergers do not qualify for the business growth accelerator, because we do not necessarily consider them as improvements. The BGA was intended to incentivise the expansion and improvement of the non-domestic property stock in Scotland. In relation to improvements, the BGA focuses on, for example, extensions and refurbishments rather than splits and mergers.

The Convener

We will move on to independent schools.

Graham Simpson

We have taken a lot of evidence on that issue. The proposal to remove reliefs for independent schools, all of which are classed as charities, is one of the most controversial areas of the bill. Irrespective of what the Barclay review said, which was not very much—the committee quizzed Ken Barclay, but he did not have a great deal to say on the matter—what was the Government’s thinking behind the proposal?

Kate Forbes

The proposal stemmed from the Barclay review. There is no getting away from the fact that we have been informed and influenced by the independent Barclay review, which concluded that the current situation, in which independent schools can benefit from a reduced or zero rates bill while state schools cannot, is unfair and should end. We accepted that recommendation.

We have considered the impact of potential policies, and we do not believe that there will be a significant increase in demand for state school provision. We will happily support ratepayers through the transition process following the implementation of the recommendation. It is not a question of charity law; it is a question of rating law.

Graham Simpson

I will come back to charity law.

You have said that you do not think that there will be much impact on the state sector, but there is nothing in the financial memorandum about the matter. When the bill was drafted, no analysis had been done on the possible effects on the state sector, such as kids being moved out of private schools into the state sector, and extra costs for councils, particularly in areas where there are large numbers of independent schools, including Edinburgh and Perthshire. No analysis was done whatsoever. Why was that? Given that no work was done, how can you sit there and say that there will not be much of an impact?

Kate Forbes

I dispute the assertion that no work was done. There was analysis of the potential impact in the business and regulatory impact assessment, which was published in June 2019. To take one example, it cited the fact that, in 2018, the Scottish state school sector had average spare working capacity of 30 per cent. That would be more than enough to absorb pupils. I am going off at a tangent here; we have analysed the impact. That is not to say that we do not recognise the important role that independent schools play in our education system.

Graham Simpson

Let us go back to the charity angle, on which we have had written and oral evidence from the Office of the Scottish Charity Regulator. In its submission, it said that

“Removal of charitable relief from non-domestic rates from the majority of independent schools has potential to undermine”

the statutory test of charitable status. It also said that

“a number of independent schools are in marginal financial positions.”

We heard that in evidence, too. In addition, OSCR stated:

“There is the possibility that some schools may wish to request removal from the Scottish Charity Register”.

In other words, those schools would no longer be charities and would not operate in the way that they do now.

We also heard from the Charity Law Association, which said:

“The key principle underpinning the tax treatment of charities is that charities should be treated equally by tax legislation.”

It is clear that your proposal would do away with that, because charities would not be treated equally. Do you recognise that there is a real issue here?

Kate Forbes

I go back to the comment that I made earlier: it is important to distinguish between charity law and rating law. We are not trying to interfere with independent schools’ charitable status through the back door, as some have suggested. The bill does not deal with charity law at all. Independent schools will retain their charitable status and all the benefits that flow from it, such as access to gift aid. The bill will not affect their charitable status.

I understand that Ken Barclay indicated that he had at least spoken to OSCR and others about his report.

Graham Simpson

Actually, he did not—unfortunately, he did not invite them in. That is not the case.

OSCR’s concern is that we will be left in a situation in which a small number of charities will be dealt with differently from the rest of the charity sector. Why on earth would you want to bring about such a situation?

Kate Forbes

We want to do it for the reason that Barclay set out—we want to create a level playing field among schools. Local authority schools currently pay rates; historically, independent schools have not done so. We are addressing that anomaly.

The Convener

I will let Kenny Gibson in, after which I will come back to Graham Simpson.

Kenneth Gibson

The minister has just made the key point. Graham Simpson talked about the impact on the viability of independent schools. According to evidence from Hutchesons’ grammar school, it understands that the requirement to pay rates would result in a 2.4 per cent increase in the school’s fees. Given that the fees are about £12,000 at the moment, I am not convinced that people would withdraw their children and pile them into the local state schools; I have certainly not seen any evidence that that would happen. I do not think that my old school, Bellahouston academy—where Hutchie used to dump its antisocial pupils when I was at school—or Shawlands academy would be inundated.

Is there any evidence that any independent schools would be financially threatened? When the committee was at George Watson’s college, we were told that the increase in teachers’ salary had more of an impact on the fees—a rise of around 6 per cent in a year was mentioned—than any potential increase relating to the payment of rates. George Watson’s is, of course, the school with the highest pupil roll in Scotland—it has more than 2,000 pupils. Many of the schools that we are talking about are doing very well.

Kate Forbes

The impact of our proposals would be equivalent to about 1.3 per cent of current average fees. We recognise that we need to support ratepayers through the process, but I find it difficult to accept that that magnitude of change would be sufficient to lead to a mass exodus of pupils, for example. I believe that it can be accommodated within the average cost increases.

Graham Simpson

I am grateful to Kenny Gibson for that line of questioning, which I will follow up on. At an evidence-taking session, I asked witnesses:

“Do any of you think that schools could go under as a result of”

what is proposed? Liam Harvey of St Mary’s school in Melrose said:

“Most certainly, and the increase in employer contributions is also going to put a dent in our budgets”.

In addition, John Edward said:

“One of the attendees from whom the committee heard last week was from Hamilton college in Hamilton, which is a school that goes back less than 40 years ... The school has said on public record, and it has been reported in the press, that it would close.”—[Official Report, Local Government and Communities Committee, 19 June 2019; c 17-18.]

I have visited Hamilton college, which is in the region that I represent. It is not a wealthy school. The proposal could have a real impact on some schools—perhaps the smaller schools in the sector—although I accept that it would not impact all schools. Would not it be best to drop the proposal altogether and commit to a full review of charity law?

Kate Forbes

I will answer that in two ways. First, we are not prepared to drop the proposal, but I am prepared to listen to the committee’s recommendations on how we can support the sector at this time. I am very sympathetic to your point about smaller schools, where the fees are, on average, much lower.

Secondly, independent schools deal with a host of additional costs. One example of those costs is the UK Government changes to pensions. I recognise that independent schools are having to deal with the cumulative effect of those additional costs and that it is a challenging time for them. Therefore, although we are not prepared to ditch the proposal, I am very willing to listen to suggestions or ideas about how we can support the sector through this time of change.

Graham Simpson

Okay. In that spirit, I offer a couple of ideas. You could delay implementation of the changes until the next revaluation, or you could have a staged introduction. I do not want to commit you to those ideas, but are you prepared to look at them?

Kate Forbes

I am at the committee this morning to look at its recommendations on how we can support the sector. On timescales, the Barclay review was published in August 2017 and the accepted recommendations were confirmed by the Government in December 2017, with a view to stakeholders ideally being given as much notice as possible. However, where the committee makes recommendations for supporting ratepayers through this time of change, I will listen.

Graham Simpson

Okay.

Andy Wightman

I have a couple of follow-ups. You said that you want to create a level playing field. Some parts of the charitable sector, such as charity shops, get the same relief, yet other shops are struggling because of competition from the charity shops. Why did you not look at other aspects of the charitable sector where the rates issue is perhaps more acute in relation to there not being a level playing field?

Kate Forbes

I accept that, in the spirit of trying to create a level playing field, there are still areas to which we need to give further consideration. Sometimes it comes down to a judgment—for example, we have decided to propose exemptions for specialist music schools and independent special schools. However, I still believe that Barclay was correct in saying that creating a level playing field between state and independent education, as far as possible, is important.

Andy Wightman

You mention music schools and you are providing for the retention of charitable relief for one music school in the independent sector, but there are four public music schools. One is in Plockton, which is in your constituency; one is in Dyce; one is the City of Edinburgh music school; and another is Douglas academy in Bearsden—or is it Milngavie? They will still be paying rates, so that is not a level playing field. Why? I do not understand. It seems to be inconsistent.

Kate Forbes

There might be only one independent music school at this time, but, if there were any others, they would be eligible for that exemption as well.

Andy Wightman

You said that there should be a level playing field. Those schools would not be paying rates, yet the public music schools would.

10:30  



Kate Forbes

If the committee recommends removing the requirement to pay rates from those public music schools, I will look at that. However, we are at grave risk of increasing complexity in a system with which assessors are already struggling. Wherever we might add reliefs would add to that element of complexity, which would create an administrative burden. Creating a level playing field, as far as possible, is important for administrative ease, but judgments have to be made about where we draw the line. Scotland’s independent music schools are assets that make an enormous contribution to our culture.

Alexander Stewart (Mid Scotland and Fife) (Con)

I want to continue on that theme. At the moment, relief is given to stand-alone nurseries. However, a number of nurseries are co-located with independent private schools. Do you intend on there being a level playing field for nurseries?

Kate Forbes

No distinction is currently made between private and public nurseries for the purposes of relief: day nursery relief is available for all such nurseries, whether they are in the private or the public sector and whether they are run for profit or not. The bill makes no change to that position, so independent nurseries would still be eligible for that relief.

Alexander Stewart

Thank you.

The Convener

Kenny, do you want to come in?

Kenneth Gibson

My question has been partially answered, convener. We might ask why music schools should be exempt. My old school has been designated as one of sporting excellence. Given the Scotland football team’s 4-0 home defeat by Belgium on Monday, one might argue that we should exempt that school from paying rates. Why should music schools receive special treatment? I appreciate music’s impact on our culture, which is, of course, positive, but many other aspects of Scottish life also have a beneficial effect, so I am just wondering why that specific anomaly exists.

Kate Forbes

The independent music school that we have discussed provides a classical music education and makes an enormous contribution to our culture. It gives young people an opportunity based on their ability and potential for musical excellence, and most of them go on to advanced musical studies that lead to careers in our national orchestras. Therefore, it has been well proven to have made a significant contribution.

I am unaware of there currently being specialist football schools—

Kenneth Gibson

They are sports schools, as I was saying.

Kate Forbes

On the evidence that was in front of us, the independent music school was deemed to have made an enormous contribution and it was considered that it should be supported as much as possible.

Graham Simpson

I do not get why you are saying that an independent music school is more valuable than one that specialises in, say, science, sport—as Kenny Gibson said—or the arts generally, or, indeed, anything else. Why just music?

Kate Forbes

If we look at the contribution of the particular music school that we have referred to, and at the students that it accepts by virtue of their ability and potential and the contribution that they make to our national orchestras, I do not think that anyone can deny that the Government should support it as much as possible to ensure that there is investment in it.

Graham Simpson

No one is denying that.

Kate Forbes

At some point, we have to make a judgment. While, as far as possible, the Government wants to create a level playing field—

Graham Simpson

Minister, no one is denying that. We are saying—what I am saying, as I cannot speak for the rest of the committee—

Kate Forbes

I understand what you are saying: you are asking why other schools should not—

Graham Simpson

Why not a school of sporting excellence, which is just as valuable?

The Convener

The minister has been asked that question a number of times and she has answered it. Committee members will have a conversation about the issue later, after which we will agree on our recommendations. We are going round and round on a point that has already been well made. We will move on to our next question, which is from Annabelle Ewing.

Annabelle Ewing (Cowdenbeath) (SNP)

Good morning, minister. I want to turn to the more administrative provisions of the bill and look at information notices. You will be aware that concerns have been expressed in our evidence sessions that the maximum civil penalty that is provided for is too low, given that many big players are involved, for whom the amount would be a drop in the ocean and no deterrent. What is your thinking on that, given the evidence that has been presented to the committee?

Kate Forbes

To clarify, are you talking about the penalties for non-provision of information being too low?

Annabelle Ewing

Yes.

Kate Forbes

There are a couple of points to make on the civil penalty for non-provision of information. First, the person has 56 days to respond, after which the assessor can serve a penalty notice of £100. It is important to say that it is not a money-making exercise. It is intended as a means to incentivise people to provide the information, and it goes hand in hand with the new powers for assessors. If there is a further lack of information, the sum will increase and the person has an additional 21 days to respond.

Secondly, the proposed penalties are on a par with what is applied by the Valuation Office Agency in England.

Annabelle Ewing

I hear what the minister has said, but a point was made about the need to motivate and incentivise people to provide the required information promptly. For the big players, the ceiling of £500 is not really an incentive at all. That point was reasonably made to the committee. It will be for the committee to decide what to put in our report, but I hope that the matter will be reflected on further. The key thing is to improve the system, which means, inter alia, getting the requisite information in a timely manner. Surely we all want to do what we can to secure that end.

The time limits were also raised with us. There was recognition that the current provision of 14 days is unrealistic, but people consider that the proposed period of 56 days plus a further 28 days is far too long. As a compromise, they suggest that 28 days would be reasonable. Do you have any thoughts on that?

Kate Forbes

I am happy to hear what the committee has to say on that and will consider it. In all these aspects, we are trying to strike a balance. There will be large and small businesses for which a £100 or £500 fine would be significant and there are others for which that would not be significant. We are trying to balance access to justice with recognising that the provision of information is just not good enough at present. If the committee thinks that we could tighten up the timescale, in particular, I will look at that.

Annabelle Ewing

I understand that a criminal sanction is available, but we obtained evidence that highlighted concerns that that will be removed. Will you clarify why that approach is being proposed?

Kate Forbes

Anouk, do you want to answer that?

Anouk Berthier

Yes, and Colin Brown might want to comment as well. We have heard the assessors’ call for the criminal penalty to be maintained and, like all the other suggestions that they have made, that will be considered. The criminal penalty has rarely, if ever, been used and we felt that introducing a civil penalty would be more appropriate in the modern world. However, we accept that there may be a case for retention of the criminal penalty.

I think that there is a legal point to be made, too.

Colin Brown (Scottish Government)

There is the basic question of whether we should have two different systems—one for the criminal bit and one for the civil bit—or whether it would be clearer for everybody to have one system so that everybody knows where they stand.

Annabelle Ewing

Okay. I take that point, but there are many other areas of economic life where there is a dual approach. It is not a new thing to have both a criminal penalty option and a civil penalty option. However, as Anouk Berthier said, if we raise the matter, it will be looked at further.

The Institute of Revenues Rating and Valuation suggested that, where the non-domestic rates payer is a limited company, it would be useful to be able to approach company directors when seeking information. That point was also made by others, but it is not foreseen in the current proposals. Would the minister be prepared to look further into that issue?

Kate Forbes

I am prepared to look into it further. Obviously, the bill would make the information-gathering powers far wider, and would provide assessors with the ability to seek information from somebody other than the proprietor, tenant or occupier. To go back to Barclay, I note that if the provision of information to assessors by ratepayers is poor, it is important to look at how the assessors can get information. One good example of the need to seek information from a third party relates to local authorities and public-private partnership schools. Until now, assessors have been able to go only to the local authority, as the tenant, to get information on the cost of the maintenance contract. However, under the bill, the assessor would be able to go to a third party, which could be the builder, to find out the actual build costs. That would reduce the time taken to get information and ensure that the valuation is more accurate.

Annabelle Ewing

For my final question, I will take advantage of the minister’s dual portfolio and the fact that she has responsibility for the digital economy. We have discussed with a number of witnesses the current approach in which valuation notices must be issued on paper and the question of how we get to a 21st century process. The assessors and others seem to be up for a digital approach. In light of the minister’s work on the bill, where does that project stand? What needs to happen so that the process can go from a mixture of a bit of digital and a lot of paper to a streamlined digital approach, which would be of great assistance to all users?

Kate Forbes

I would like us to have a digital process with the occasional bit of paper where that is deemed to be appropriate. That is not just because we should be moving into the future; it is because, if we are to move to three-yearly revaluations, we need to work a lot smarter. I am aware that assessors are keen to use electronic means to gather and share information. As the member said, they currently send valuation notices by post. The bill provides that those notices could be sent electronically with the agreement of the ratepayer, but I am minded to consider stakeholder feedback and examine whether we can remove that requirement for prior agreement so that notices are issued electronically by default, unless a ratepayer does not have access to electronic means.

We are also looking at improved software, and the assessors are taking forward their plans for a portal. In conjunction with COSLA and the digital office for Scottish local government, we are looking at how we can move to a digital platform like the one in Northern Ireland. However, doing so relies on having accurate data, and there is a process to go through to gather all the data that would be required for the system to work well.

Annabelle Ewing

That is positive. I hope that it indicates that, in introducing the legislative provisions and the context in which they will operate, that aspect will be a priority for the Government and for the assessors working together, and that it will actually happen. My experience of information technology and digital is that we always talk about what we would like and have very good ideas, but the implementation is slow, tortuous and frequently fails. I hope that that will not be the case here.

The Convener

Thank you for that positive ending.

10:45  



Alexander Stewart

You talked earlier about devolving powers to local authorities under the bill, and one area that you have already mentioned for which that might happen is empty property relief. What discretion might local authorities have in applying empty property relief? To what extent would they have the opportunity to extend that relief in the event of illness or repair work? What are your views on that?

Kate Forbes

Our commitment in the budget was to devolve empty property relief—there is a full stop there, as it were, because that is our commitment. However, there are on-going discussions with COSLA on that process and what local authorities want to see in relation to devolution of empty property relief. I am happy to say that those discussions will come to a conclusion relatively soon, as I mentioned in my letter to the committee of 14 June. I will be happy to provide the committee with an update once those conversations have completed.

Alexander Stewart

It would be very useful if we could have that update.

I want to move on to phoenix companies, which is an issue that has been identified in several locations. Individuals and organisations create phoenix companies to enjoy relief. Local authorities are dealing with that through anti-avoidance tactics. COSLA noted that increased costs from anti-avoidance procedures should be outweighed by the additional fees that are recovered. It welcomed the measures, but noted that it would be left to subordinate legislation to tackle some of the wider issues. What are your views on what needs to be done to resolve that?

Kate Forbes

I am very aware of the concerns that have been raised in relation to phoenix companies. However, it is a company law issue as opposed to a rating law issue, therefore there are challenges in it being reserved. That has not stopped us from liaising with rating colleagues in the Welsh Government and at Westminster to see what more we can do to deal with some of those concerns.

Kenneth Gibson

Last year we passed the Islands (Scotland) Act 2018. Has the Non-Domestic Rates (Scotland) Bill been island proofed and if so, in what way?

Anouk Berthier

I am happy to answer that. We considered the impact on islands, although I believe that the bill was introduced before the Islands (Scotland) Act 2018 was passed. One of the areas that we took on board from the consultation responses was local authority discretion over the definition of a self-catering accommodation. That might be superseded by the conclusions of the short-term lets working group. The group’s work is currently on-going and we will reflect on its conclusions. We identified that, on certain islands, where there are issues with ferries and people cannot get to self-catering accommodation, councils should, in some circumstances, have the power to vary the definition of self-catering accommodation.

Kenneth Gibson

I was contacted by an organisation from one of the islands in my constituency that expressed real concern about the hundreds of holiday homes that are pretending to be self-catering accommodation. There is a real issue there and the Scottish Government needs to look at that in detail.

Looking at the wider picture, only this week, Scottish ministers have talked about how fragile rural Scotland is. Rural depopulation, the lack of ability to attract migrants from other cities and towns in the UK and overseas, and the low birth rate in those communities are leading to increased fragility. Given that fragility, has the Scottish Government given any thought to looking again at the value of properties in rural areas relative to those in urban areas? I know that there are rural reliefs, but businesses in rural areas have a limit to how much they can grow in relation to those in towns and cities. It is an important issue in the minister’s constituency.

Kate Forbes

Yes, and, as you say, there are already several reliefs that are specifically targeted at rural areas. If we consider the percentage of businesses that are in receipt of the small business bonus, for example, we can see that it is much higher in rural areas than it is in some urban centres. There is a proportionate benefit.

On tax avoidance, the proposals, particularly those that would tighten up the potential for people to avoid paying tax by pretending to let a holiday home, would have a significantly positive impact. I know that some people would like the bill to go further, and we will see what comes out of the short-term lets delivery group. I know for a fact that, in a certain rural area—not that I would ever refer to my constituency when giving ministerial evidence—where it is critical that people have access to housing, the holiday home situation is one aspect of trying to ensure that rates legislation serves rural areas as much as it serves anywhere else in Scotland.

Kenneth Gibson

How would the bill specifically help island and rural Scotland?

Kate Forbes

It would provide the certainty that people and businesses are looking for across Scotland, including in rural areas. There is one aspect of tax avoidance that I cite more often than any others in relation to rural areas. If a person in a rural area cannot access a house, it does not matter whether they have a job or access to other services. People need somewhere to live. The prevalence of second homes is disproportionately affecting areas such as my rural constituency.

Kenneth Gibson

There also seems to be a disproportionate number of empty homes in rural areas. In west Arran, 6 per cent of homes are empty, as opposed to being holiday homes, self-catering accommodation or occupied. Surely that issue also has to be addressed.

Kate Forbes

Yes, but it would not be addressed through the bill, because it is about non-domestic properties.

Kenneth Gibson

I know; I appreciate that. The committee also has an on-going empty homes inquiry.

Kate Forbes

This bill, along with a number of other initiatives, would go some way to resolving those issues.

Kenneth Gibson

If we were to impose rates on agricultural holdings, that would have a negative impact on rural Scotland, would it not?

Kate Forbes

Absolutely. I do not believe that we can properly and fully exempt the properties that we would wish to exempt in order to support rural Scotland through reliefs, given that the de minimis levels are so much lower for agricultural properties.

The Convener

When will the short-term lets delivery group report?

Kate Forbes

I cannot answer that off the top of my head—that is not my area—but I can provide that information to you.

The Convener

If somebody could provide it, that would be very helpful.

Andy Wightman

I want to follow up on tax avoidance on second homes. My understanding is that the only statutory provision made in the bill is section 5, which covers the discretion of local authorities to determine whether certain properties fall in a class. Is it not the case that the intention is to handle anti-avoidance issues separately?

Kate Forbes

That is my understanding, too.

Andy Wightman

There is still considerable work to be done on that issue.

Kate Forbes

Yes. If the committee wants to help inform and shape that, I look forward to reading its report.

Andy Wightman

Various strands impact on the issue of tax avoidance, and we have been handling some of those. For example, we have passed an instrument on the repairing standard, which contains, for the first time, a statutory definition of a short-term let. That was surprising, because that was not core to the instrument. We need to pull together all those strands, so that the policy is consistent. Obviously, tax policy is a very important driver of and influence on how people use properties, so it is fair to say that this committee would be very interested in engaging in the necessary follow-up work to implement that Barclay review recommendation.

What was I going to ask about, convener? Was it finance?

The Convener

Yes, it was finance—that was first mentioned such a long time ago.

Andy Wightman

In our evidence-taking sessions, we asked the assessors, COSLA and others quite a bit about the financial memorandum and the numbers behind the legislation. It is clear that COSLA and the assessors have been very involved with you in advance of the bill in assessing the likely implications. Nevertheless, there still appear to be uncertainties.

The financial memorandum states that the administrative cost of the bill to assessors, the Government and local authorities—in other words, to the public sector—is £32 million and that the income assessed to be derived from ratepayers as a result of the changes is £68 million. Given the state of public finances and local government, which obviously funds and runs the assessment service, are you keeping a close eye on those figures? There is a lot of work to be done by assessors, and they are not directly accountable to you; they are accountable to local government. Any challenges that they face in terms of budgets will be critical in meeting some of the timescales that you envisage. Where are you with the numbers and the costs, and do you still regard them as accurate?

Kate Forbes

As you say, we have kept quite close to the assessors through this whole process, as has COSLA. Local authorities have helped to shape and provide information about the figures.

You make a good point, because it makes the case for ensuring that we reduce complexity as much as possible and that the administrative burden is as light as possible. However, I often speak to the assessors, and they face two challenges, one of which you identify, which is funding. That is why we provided them directly with an extra £2.5 million in last year’s budget. The second challenge is around the number of assessors who are employed in the system. That is as much to do with encouraging young people to choose a career as an assessor as it is to do with anything financial.

That was a long-winded way of saying that I am keeping an eye on the figures. We want to make sure that the costs are as low as possible, but we recognise that there will be a need to support the assessors through this process, and I am staying close to them to understand the challenges that they face, which can be financial but, more than that, can be about the number of assessors out there.

Andy Wightman

It is clear that the intention of the bill is to try to streamline the system, and that the system should operate more efficiently when it is fully implemented. The question is whether there should be a transition in order to implement this. It will be implemented in a relatively short space of time against the time pressures of a new revaluation and many other changes happening at the same time. It is a question of making sure that there is the flexibility to support assessors to do the job that they need to do and to deal with any unexpected hurdles that they encounter.

I am wondering particularly about the digital transformation. The public sector does not have an outstanding record on implementing digital transformation. Are you confident that the kind of changes that you would like to see are going to be implemented smoothly, to cost and on time?

Kate Forbes

That is an example of a cost to save in the long run.

COSLA, the Government and the digital office for Scottish local government are pursuing a joint scoping study to explore the opportunities to improve existing IT infrastructure. That is separate to what the Scottish assessors are doing in developing their own online portal to incorporate a mapping element to improve accessibility.

My understanding is that that work should conclude by the end of the year. In the work that we are doing with COSLA, we will take the point about costs into account. We have tried to do as much as possible of that work in-house.

The Convener

A number of comments from the business sector were about bringing the large business supplement and revaluation years into line with those in England and Wales. What is your response to that?

Kate Forbes

The large business supplement is a question for each budget. Barclay was quite clear that it should be reduced in light of affordability, so we will consider it at every budget.

What was your second point?

The Convener

It was about bringing the revaluation years into line with England and Wales.

Kate Forbes

Bringing the revaluation forward by one year means that we are, at least, giving the ratepayers the certainty of a 2022 revaluation, unlike the UK Government. My understanding is that the Prime Minister’s decision to prorogue Parliament appears to have caused the Non-Domestic Rating (Lists) Bill to fall, and it was required to bring forward the revaluation date. There is a question there.

11:00  



We want to ensure that all the changes that need to made are made in advance of the next revaluation, particularly those relating to the information-gathering powers and the penalties, to ensure that the data that is collected is as robust as possible. As the committee has highlighted, those are challenging changes. I believe that bringing forward the revaluation date would jeopardise the robust implementation of those powers.

The Convener

Aside from the fact that the prorogation has meant difficulties down south—by the way, the Court of Session has just found the prorogation of the UK Parliament to be unlawful—do you, in principle, agree with the idea that it would be easier for businesses working across the border if both Governments worked to the same revaluation timings, or do you oppose that idea?

Kate Forbes

The feedback that I have had from businesses is that they would much rather have a fair rating system in Scotland that ensures sustainable economic growth, and that is what we are committed to. That certainty requires us to take forward the provisions in the bill and to do it properly, without rushing things and getting it wrong.

Graham Simpson

To be fair, I do not think that you really answered the question, minister. Earlier, you mentioned the need for consistency across the board. You also talked about consistency across Scotland when you answered Andy Wightman’s question about devolving rates to local councils. Many businesses operate on both sides of the border. In fact, many operate across the whole of the United Kingdom. They want consistency. I can see why there would be difficulties in having the next revaluation in 2021—I get those difficulties—but is there not a case for committing to at least moving to a situation whereby, at some point, the revaluation timings would be the same?

Kate Forbes

That is a fair question. I am not opposed in principle to that at all. However, in my discussions, particularly with rating agents, when I asked whether they would rather have a shorter or longer period before the next revaluation, or whether people would rather have the next revaluation brought in line with the date for England, they were clear that they would rather have certainty about the dates. If the next revaluation takes place in 2022, the three-yearly revaluation period would start, so the next revaluation would take place in 2025 and so on and so forth. They are clear that they would rather have the certainty of knowing when the next revaluation date is than have it brought into line with England. However, I do not dispute the fact that there have been calls to bring the revaluation date in line with that in England.

Graham Simpson

One way to do that would be for the rest of the UK to fall into line with Scotland.

Kate Forbes

I would be delighted if the UK did that. As I said, I am not opposed in principle to that, but the rating agents have been quite clear that they would rather have the certainty of the dates than have us rush or prolong matters.

The Convener

Might that be a future matter of discussion between the Governments?

Kate Forbes

I am sure that we will continue to discuss those matters.

The Convener

Section 11 is apparently intended to apply only to sports clubs. If that is the case, might the draft legislation be amended to make the policy intention clearer? Culture Counts wrote to the committee to raise its concerns that that section is not clear enough.

Kate Forbes

Section 11 would apply only to sports clubs, as it covers properties that are used only

“for the purposes of a club, society or other organisation not established or conducted for profit and used wholly or mainly for the purposes of recreation.”

Section 11 would give ministers the power to issue guidance to rating authorities. It would not apply to properties that are occupied by organisations that are not established or conducted for profit and whose main objectives are charitable or otherwise philanthropic, religious or concerned with education, social welfare, science, literature or the fine arts.

I do not see any need to amend the draft provision, but I would be happy to ensure that the proposed guidance made that point clear. I hope that I have made the position as clear as possible in my response.

The Convener

Yes, that is helpful. Will you outline the proposed commencement policy for all the main parts of the bill?

Kate Forbes

Section 30 sets out the Government’s thinking on commencement. As drafted, there would be early commencement for a number of provisions, which would come into force the day after royal assent. In essence, those relate to the assessors’ information-gathering powers, and they require early commencement on 1 April 2020, which would be the tone date for the 2022 revaluation. It is obvious why that would be the case. One could not have assessors operating to two different standards when gathering information over the revaluation period.

Reforms to the appeal system and the entering of parks in the valuation roll would be elements that we intend to commence on 1 April 2022, which is the next revaluation. I have not come to a concluding view on the other remaining provisions.

The Convener

As no one has any final questions, I thank the minister and her officials for attending today’s session. As I mentioned, this is our concluding evidence session on the bill, and the committee will consider a draft report to Parliament at a later meeting.

11:06 Meeting suspended until 11:10 and continued in private thereafter until 11:45.  



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22 May 2019

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29 May 2019

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19 June 2019

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26 June 2019

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11 September 2019

Committee Findings

Local Government and Communities Committee Stage 1 report 

What is secondary legislation?

Secondary legislation is sometimes called 'subordinate' or 'delegated' legislation. It can be used to:

  • bring a section or sections of a law that’s already been passed, into force
  • give details of how a law will be applied
  • make changes to the law without a new Act having to be passed

An Act is a Bill that’s been approved by Parliament and given Royal Assent (formally approved).

Delegated Powers and Law Reform committee

This committee looks at the powers of this Bill to allow the Scottish Government or others to create 'secondary legislation' or regulations.

Read the Stage 1 report by the Delegated Powers and Law Reform committee published on 26 June 2019.

Debate on the Bill

A debate for MSPs to discuss what the Bill aims to do and how it'll do it.

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Stage 1 debate on the Bill transcript

The Deputy Presiding Officer (Christine Grahame)

The next item of business is a debate on motion S5M-19336, in the name of Kate Forbes, on the Non-Domestic Rates (Scotland) Bill.

15:54  



The Minister for Public Finance and Digital Economy (Kate Forbes)

I am pleased to open the debate on the general principles of the Non-Domestic Rates (Scotland) Bill, which was introduced to Parliament on 25 March 2019. I will set out the background to the bill and then move on to its substance, although I will keep my remarks short because I recognise that members want as much time as possible to offer their views.

The Government is committed to using the limited economic powers at our disposal to create a tax environment that supports economic opportunity. As Scotland’s second-largest tax, non-domestic rates plays a key role in balancing the need to deliver a competitive and sustainable taxation environment, while ensuring that we have sufficient resources to fund the public services that we all rely on.

The remit of the independent Barclay review was to ensure that the rates system supports business growth and long-term investment, as well as better reflecting changing marketplaces. The Barclay review made 30 recommendations. As our implementation plan outlined, we accepted the majority of the recommendations and have already made moves to implement them, including the recommendations on the business growth accelerator, which was warmly welcomed by the business community, and the fresh start relief to support town centres.

We said that we would introduce primary legislation by 2020 and the bill that we are debating today fulfils that commitment. The bill contains meaningful reforms to the rates system, with the notable inclusion of a three-year revaluation cycle. That has been welcomed by many, including the Royal Institute of Chartered Surveyors and the Scottish Retail Consortium, because it delivers justice by more closely aligning valuations with the market. The bill also gives new powers to assessors, local authorities and ministers to improve the administration of the system and to tackle tax avoidance.

A lot of hard work has been undertaken by a range of stakeholders prior to today’s debate. I pay tribute to the members of the Barclay implementation advisory group, the sub-groups that looked at billing and appeals and the working group that considered sports club relief guidance. Members of those groups have given, and continue to give, freely of their time to help ensure that these rates reforms—subject to the will of Parliament—can be implemented as efficiently and effectively as possible.

I turn to what is perhaps the most important area of the bill, which is the appeals system. Our proposed reforms to the appeals system are the most important and ambitious of the reforms that we are implementing, but they are also the most complex. If we fail to reform the appeals system effectively, we risk negating any benefit from all the other proposed rates changes.

I understand that the recent reforms to the appeals system in England have delivered a system that is bogged down in bureaucracy and red tape, resulting in possibly millions of ratepayers being unable to access a fair rates hearing. We must learn from that and make every effort to get our reforms right.

The report of the appeals sub-group, which was established to inform advice to the Scottish Ministers, was published today and offers views on the potential design of a new appeals system. I received the report this morning and a copy has been sent to the lead committee considering the bill. I look forward to reading the report and reflecting carefully on its contents.

It is fair to say that not all the provisions in the bill have been universally welcomed; I refer specifically to the removal of charitable rate relief from mainstream independent schools. I recognise that the independent school sector is a well-established part of the Scottish education system that promotes choice for parents. However, we agree with the Barclay review that the current difference in rates treatment between independent and local authority schools is unfair and must end. I stress unequivocally that that is a change to rating and not to charity law.

I am grateful to the convener and members of the Local Government and Communities Committee for their scrutiny of the bill at stage 1. I welcome the committee’s support for the general principles of the bill. This morning, I wrote to the committee to respond to the various issues that were raised in its report. I will comment briefly on some of those points.

I welcome the committee’s recognition that the bill’s provisions aim to address weaknesses in the current appeals system. I agree with the committee’s view that getting the detail of the new appeals process right will be critical in enabling the move to three-yearly revaluations. That is why I wrote to the committee on 3 September to say that, towards the end of this year, we will produce a set of illustrative draft appeal regulations, which will allow the committee and other stakeholders to see and comment on our detailed draft proposals.

The committee considers that fees should be introduced at both the proposal and appeal stage of the new appeals process. Although I have yet to reach a conclusion on the matter, I welcome the committee’s position and views. I will reflect further on the matter, and I am sure that I will also be informed by the comments of the appeals sub-group.

I will touch briefly on assessor and local authority information-gathering powers, on which the committee supports the bill’s overall direction of travel. It is important to say that the issue is not all one-way traffic. Assessors accept that they need to get better at providing information to ratepayers in the first place to help them better understand how the valuation assessment has been derived.

The committee’s report comments on the divergence of views expressed on some key issues, such as the level at which civil penalties have been set. We recognise that, and I look forward to further discussions on those important issues during the bill’s amending stages.

I will end there to give back some time to the debate.

I move,

That the Parliament agrees to the general principles of the Non-Domestic Rates (Scotland) Bill.

The Deputy Presiding Officer

Thank you—you caught me on the hop, there.

I call James Dornan to open on behalf of the Local Government and Communities Committee, as that committee’s convener.

16:01  



James Dornan (Glasgow Cathcart) (SNP)

I thank the Local Government and Communities Committee clerks and the staff from the Scottish Parliament information centre for all their support. I also thank the minister and the Scottish Government for their generally supportive response to our stage 1 report. Most of all, I thank the committee members—those who are presently on the committee and previous members—who worked hard to produce the report.

The committee began its scrutiny of the bill during the spring of this year. We took evidence at five meetings and our call for views generated a high volume of responses. The committee went on three visits. One visit was to an independent school and the other two were to Kilmarnock and Stirling high streets, where we met local businesses, charities and other employers to get a snapshot of local views on the rates system. The high level of informed engagement helped the committee enormously in our role of reporting to the Parliament on the general principles of the bill.

Turning to the report, I say at the outset that the committee unanimously endorsed the bill’s general principles. We took that position because of the clear support from diverse sectors—the public and private sectors and from business and the third sector—for the overall direction of travel.

I will single out two reforms for comment. The first is the proposal to speed up the revaluation cycle from five to three years and to bring the date at which revaluations are calculated—the tone date—one year closer to the date on which revaluation actually takes effect. Put simply, that means that, for those who pay rates, the amount that they pay should more closely reflect the actual current value of their property. It is hoped that that will result in fewer appeals against revaluations. Just about everyone agreed that there are far too many appeals at present and that they clog up the system, eating into the resources of councils and assessors. Appeals can take an extraordinary amount of time to resolve, which of course does not help ratepayers either.

The second reform that I want to mention relates to the appeals process. Those new provisions, too, were generally welcomed. There was a general consensus that the current system is unsustainable. However, the committee had some caveats of which the Parliament should be aware, and I will mention two. First, the switch to a three-year cycle will undoubtedly mean more work for assessors, and the profession already has a recruitment problem. That needs urgent attention, so we have asked the Scottish Government what plans it has to address the issue. Secondly, the new appeal provisions simply create a framework for a revised process but leave the details for later. The committee understands why the Scottish Government has taken that approach but, as the minister said, it means that the next steps will be crucial to ensure that we end up with an appeals system that is more efficient than the one that we have now.

I do not say this lightly—because the committee, like the Government, appreciates the importance of access to justice, especially for smaller enterprises—but, given the evidence that we received, we ask the Government to give careful consideration to introducing fees for appeals. I am delighted that the minister said that she will give the matter serious consideration. It became clear to us that the absence of fees is one of the primary factors contributing to a climate in which speculative appeals have become normalised.

The most contentious proposal is in section 12, which removes from most independent schools the right to claim mandatory charitable relief. I expect that issue to be widely discussed today, so my comments on it will be brief. The majority of responses to our call for evidence were about section 12; generally, they were from parents, teachers and, occasionally, young people with a direct connection to an independent school. They expressed their views with sincerity and strength of feeling, and set out their concerns about what they felt the change could mean for their school.

I want to mention the visit by committee members to George Watson’s college in June. I thank the college for hosting a discussion with representatives of the independent sector. As members will imagine, they put their views across to us forcefully, clearly and courteously; by the end of the meeting, the committee knew well where the independent sector stands on the issue.

However, it is important to be clear that there was a strong welcome for the proposal, including from councils. They shared Barclay’s view that the change would bring to an end an anomaly and help to level the playing field between independent and state schools. In the end, a majority of committee members were more persuaded by the latter point of view. The independent sector has been around for a long time and has always shown an ability to adapt to change. It did so last decade when the Scottish Parliament agreed reforms to charity law. Most of us believe that this is another change that the sector will adapt to.

I want to expand on the committee’s comment in its stage 1 report that the bill is “inevitably piecemeal”. That was not intended as negative commentary, but as a simple reflection on the fact that, of the 27 Barclay recommendations that the Scottish Government has largely accepted, most do not require legislative intervention. The bill is limited to those recommendations that do.

We should all take note that the bill is just one part of a wider effort to meet the Barclay goal of having a ratings system that is fairer, more efficient and more business friendly. Much of the evidence that we received was about the bigger picture beyond the parameters of the bill. The committee agrees that there is benefit in continuing the debate about how well the current rates system, including its supporting architecture of reliefs and supplements, reflects modern commercial realities.

To pick one example, we might ask whether there are aspects of the ratings system that could be re-engineered to address the problem of struggling high streets and to enable a town centre renaissance. Perhaps that is a discussion for another day, but we should keep the bigger picture in our sights over the coming months and years as we judge the effectiveness of the whole package of reforms that has emerged from the Barclay review.

Given the tightness of time today, I merely repeat that the committee welcomes the bill. I look forward to the rest of what will be a very interesting debate, particularly for the members of my committee.

The Deputy Presiding Officer

Members are all being very generous with their time. Mr Dornan had another minute, as did the minister, but there you go.

16:07  



Murdo Fraser (Mid Scotland and Fife) (Con)

I feel that I must reiterate some of the comments that I made this morning in the chamber about the timing of this debate, because we have been left with one hour and 20 minutes for a stage 1 debate on an important bill, which a large number of people outside the Parliament—stakeholders, businesses and those involved with independent schools—are concerned about. It is an issue that we need to address as a Parliament. The primary purpose of Parliament is to scrutinise legislation—we are here to make laws. We do many other important things, but they are not as important as that, and Parliament needs to learn a lesson about timetabling debates such as this one.

Having got that off my chest, I want to give a general welcome to the Non-Domestic Rates (Scotland) Bill. In some areas, it does not go far enough, and we have concerns about what is being proposed in other areas but, overall, its measures are welcome.

As we have heard, the bill seeks to implement the findings of the Barclay review on non-domestic rates. It does not implement all the Barclay review recommendations. For example, Barclay recommended a change in the tax treatment of arm’s-length external organisations—ALEOs—whereby local authorities provide leisure and cultural services by means of an independent vehicle, thus making a business rates saving. The Scottish Conservatives vigorously opposed the original plan to remove that tax concession and, last year, I was pleased when the Scottish Government announced that it would not proceed with the introduction of what we called the swim tax. I am proud of that particular slogan.

There is much in the bill that we welcome. We welcome the move from five-year to three-year revaluations, which is supported by the business community. All members will have had the experience of hearing the concerns of businesses about the increases in business rates through revaluations that are set five years apart. Although there is an appeal process in place, that has led to specific reliefs being introduced to deal with the changes arising from revaluations. Reliefs were introduced for the hospitality sector, for example, and for premises in Aberdeen and the north-east. A move towards a three-year revaluation schedule should reduce the demand for specific reliefs in the future.

The Barclay review’s proposals for a business accelerator, which would create an incentive for businesses to expand and remove the existing disincentive for speculative development by landlords, is also a positive step. The relief is intended to stimulate growth and investment and it is one that we very much welcome.

However, we have concerns about certain areas of the bill. The first is the fact that the date of the next revaluation is set at 2022, which leaves a five-year gap since the last one. It is at least worth exploring whether the next revaluation can be brought forward a year, to 2021, which would bring us into line with the situation south of the border. If it is technically possible, that move would be welcomed by business.

Kate Forbes

Will the member take an intervention?

Murdo Fraser

If it is brief.

The Deputy Presiding Officer

There is time for interventions, if you wish to take them.

Kate Forbes

Does Murdo Fraser accept that, in respect of the tone date, if we are to deliver all the Barclay recommendations, we must allow adequate time to implement the reforms correctly?

Murdo Fraser

I am sympathetic to that view, but I think that there is interest in the business community in exploring how achievable it would be to bring forward the date of the next revaluation.

The second area of concern is the tax treatment of independent schools. My colleague Liz Smith will say more about that later in the debate, but I will highlight three concerns that I have about the measure. First, there seems to be a degree of inconsistency in proposing the removal of a charitable relief from independent schools, which are constituted as charities and do not make profits—indeed many of them are in a precarious financial position—and, on the other hand, granting a new relief to private nurseries, which do make profits. There is a clear inconsistency, in that charities that are running a nursery as part of an independent school will have their relief removed, while other profit-making charities will have a new relief granted to them.

Secondly, the Office of the Scottish Charity Regulator has made very clear its strong opposition to what is being proposed. It stated in evidence to the committee that it has

“a long held general concern that treating any group of charities in a differentiated way for tax or other purposes, as proposed by the Barclay Review and now the Bill, introduces the potential for confusion in the minds of the public as to what it means to be a charity.”

If the Scottish Government wants to review the charitable status and tax treatment of independent schools, in my view, it should be doing so as part of a wider review of charity law, and not in the context of the bill. I know that my view is shared by OSCR.

Finally on this point, I simply cannot believe that the financial memorandum that is attached to the bill makes the assumption that there will be no additional cost to the public sector from introducing this tax grab of £7 million a year from independent schools. That money will be found only by increasing fees to parents, by cutting bursaries, or by a combination of both, which is bound to impact on the number of parents who choose to send their children to independent schools, which will put an additional burden on local authorities. That will particularly be the case in areas such as Edinburgh and Perth and Kinross, which I represent, where relatively high proportions of the pupil population are currently in the independent sector.

The last area that I will talk about is the large business supplement. The Barclay review recommended that the LBS, which is currently set at a rate that is nearly double that set south of the border, should be made competitive with the rest of the United Kingdom, to ensure that Scotland is the best place to do business. Barclay recommended that the LBS be reduced in 2020-21, or sooner if affordable.

It is disappointing that the measure is not addressed in the bill. We consistently hear from the business community that it is a major disincentive for businesses to invest in Scotland. In a parliamentary written answer that I received last week, it was revealed that there are more than 5,000 retail businesses in Scotland paying the LBS and cumulatively contributing nearly £14 million annually. It is a tax that is payable on business in Scotland and is not payable elsewhere in the UK. As David Lonsdale of the Scottish Retail Consortium stated in The Herald two days ago, it is a levy that

“sticks out like a sore thumb.”

I hope that the issue can be addressed either in the bill or separately.

We have therefore identified those three issues as problems with the bill. More generally, business rates continue to be a major source of complaint, and it remains our view that there should be a broader look at the business rates regime and business taxation. I was encouraged by the remarks of the committee convener that perhaps we need to consider whether a tax that is based purely on property values is still appropriate when so much business is conducted in cyberspace.

We welcome the bill overall. We have some reservations about it, but we will support it at stage 1 to allow it to continue through the parliamentary process, during which we will look to see how it might be improved.

16:14  



Sarah Boyack (Lothian) (Lab)

Non-domestic rates are a vital part of the funding that enables our local authorities to deliver the local services that people rely on. In the Local Government and Communities Committee’s evidence gathering in advance of this year’s Scottish Government budget, a key issue that was raised by witnesses was the financial cliff edge that local government faces. Therefore, ensuring that non-domestic rates are effective, that they enable funding for local services and that they are fair for our businesses and those organisations in the public sector that pay them is crucial.

Scottish Labour welcomes the broad thrust of the legislation, because it will make the system more effective and fairer in terms of its coverage. However, we believe that the legislation is a missed opportunity. It could have delivered more to incentivise culture change and address the challenges that our businesses and communities are facing.

The majority of the provisions in the bill are welcome: for example, the move to three-year valuations; the removal of charitable relief from independent schools; and measures to cut down on speculative appeals. However, the details of many of those areas will be left to Government to develop and implement after the bill has been passed, and their success will depend on consultation right across Government and with stakeholders, and on joint working with local authorities.

In some instances, the Government has given itself too much power and Scottish Labour believes that the bill should be amended at stage 2 to allow Parliament to scrutinise any further actions that are taken on business rates. Furthermore, we think that the bill represents a disappointing lack of ambition from the Government. It is limited to the scope of the Barclay review, which was itself too narrow.

I highlight that the bill should have engaged further with the current struggles that our high street is facing and evidence from the business community that aspects of the rating system deter growth. I particularly commend the representations of the Union of Shop, Distributive and Allied Workers—USDAW—to the minister. Those are worth taking on board.

Kate Forbes

Will the member take an intervention? It is a constructive one.

The Deputy Presiding Officer

Oh! Who could resist?

Kate Forbes

There are many recommendations from the Barclay review—ones that support the high street, for example—that have already been implemented because they do not need primary legislation. Is Sarah Boyack making the point that there is further work that we can do outwith the legislative process, or more that we can do that requires to be in the law?

The Deputy Presiding Officer

Ms Boyack, you will get your time back.

Sarah Boyack

We can do both, I think, and I thank the minister for her constructive intervention.

Another area is the urgent need for incentives for low-carbon investment. We urgently need to see new infrastructure for local heat and power schemes to create new opportunities for investment and to deliver new affordable low-carbon heat projects. Last month, Glasgow’s Councillor Anna Richardson made the point that

“the way district heating systems are treated in the local tax system acts as a deterrent to them being used more widely. Unfortunately, under present rules, installing district heating systems brings in significant new non-domestic rates and that adds unduly to the cost of heating homes.”

Her point is that homes that are heated by a district system are penalised in effect. How can it be right, when we need low-carbon community networks that are affordable, that there are disincentives that make them uncompetitive with the higher-carbon technologies that we are trying to move away from?

The Barclay review called for an examination of the effectiveness of the small business bonus scheme. I understand that work on that is now being carried out. It would be helpful to hear from the minister when that will be published.

There are key reforms that Scottish Labour supports. I have already mentioned moving property revaluations from five to three years; increasing the relief available to properties that have undergone improvement or expansion; reforming the appeals system to try to cut down on speculative appeals and enable earlier resolution; and removing charitable relief from most independent schools.

We also welcome sections 23 to 27, which give the Scottish ministers the power to introduce general anti-avoidance provisions for non-domestic rates. As the committee has noted, tax avoidance corrodes public confidence in the tax system and the shared sense that everyone plays by the same rules, especially when it is carried out openly and blatantly. We need to see clarification from the Scottish Government on whether it has considered the amendment of reliefs or the small business bonus scheme to ensure that we have an approach that prevents repeat offenders from acting, and we need to see what conclusions were reached.

We also want to see implementation of the change to the revaluation cycle from five to three years. That is a business-friendly change that, if implemented effectively, could also lead to a reduction in the number of speculative appeals against revaluation. A critical issue that has emerged is that the benefits of that proposal will be realised only if the Government has a plan to address problems of recruitment and retention in the assessor profession. That came through loud and clear in the evidence that the committee received.

We are also supportive of reforming the appeals process. The current system is unsustainable and leads to lengthy and resource-sapping backlogs that are not in the interests of ratepayers or administrators. We need more action to ensure that we have the staff to deliver the changes that are required.

The committee accepted that there is no good reason in principle why businesses in most public parks should continue to enjoy automatic exemption from the business rates regime. However, there are uncertainties about the scope of section 4 and how it will be implemented, and more clarity needs to be provided when we reach stage 2.

We agree with the committee that the ending of mainstream independent schools’ eligibility to claim charitable relief is to be supported. We believe that it is crucial that there is a level playing field for the state and independent sectors. The proposal will also generate more revenue for councils. We also support the intentions behind section 5, which seeks to close the loophole that enables some second home owners to avoid council tax and rates, and section 12, which seeks to address the problem whereby an empty property is purportedly being used for a particular purpose simply to allow relief to be claimed. There is much in the bill that we support, but more detail needs to be provided when we come to stage 2.

I want to end by commenting on the discretionary powers that are aimed at granting relief to sports clubs. It is good to see acknowledgement of the positive role of sports clubs in our communities, but there needs to be parliamentary scrutiny of the guidance that the Scottish Government intends to produce.

Given the range of issues on which further clarity is required, it is crucial that stage 2 is handled in a constructive way and that ministers can answer a lot of our questions. If that is not the case, there will be a great deal of uncertainty for business. There is much that we can support in the bill, but there are changes that need to be made and opportunities that can be taken.

The Deputy Presiding Officer

You must end there.

Sarah Boyack

I thank the witnesses who gave evidence to us and those who supported the committee’s evidence-gathering work.

The Deputy Presiding Officer

I call Andy Wightman to open for the Green Party.

16:21  



Andy Wightman (Lothian) (Green)

Thank you, Presiding Officer. Do I have five minutes or six?

The Deputy Presiding Officer

You have five minutes and a wee bit extra, but do not overplay your hand.

Andy Wightman

I will not. Thank you, Presiding Officer.

I note that this is the first time that the Scottish Parliament has considered primary legislation on non-domestic rates. Indeed, there has been no reform in more than a quarter of a century, since the Local Government Finance Act 1992. That is very telling. It demonstrates how little interest there has been in Parliament in local tax and how much power the 1992 act gave to the Secretary of State for Scotland—that power now lies with the Scottish ministers—in relation to detailed design of the non-domestic rating regime, including the rates themselves, the reliefs and other details, all of which are pushed through Parliament in secondary legislation. For a tax that, as the minister pointed out, is the second-highest-yielding tax under devolved powers, that is a remarkable state of affairs.

Therefore, the fact that we have a bill is welcome, but it is not welcome that it is so narrowly focused on a series of technical measures and that it leaves a vast number of questions unanswered. It is worth briefly reflecting on why that is. In September 2013, Derek Mackay—who was in the chamber a few moments ago—the then Minister for Local Government and Planning, published a response to a consultation document in which he said that the Scottish Government would

“conduct a thorough and comprehensive review of the whole business rates system”

by 2017, which would deliver

“a fairer, simpler and more efficient business rates system.”

That review never took place. Instead, we had the Barclay review, which asked only one question:

“How would you redesign the business rates system to better support business and incentivise investment?”

That is why OSCR, for example, never paid much attention to the review. It was only after the review had been completed that organisations such as OSCR suddenly realised that the findings had some relevance to them. The review was instructed on the basis that its recommendations would be revenue neutral. In practice, that meant that any proposals that were made to reduce liabilities in any way had to be balanced by measures that would make up for the lost yield. It is no coincidence that many of the measures that are in the bill to make up for the lost yield were plucked from thin air—the Government simply looked at a list of reliefs to find out where it could get the money to pay for the review’s recommendations.

The Barclay review was not the comprehensive review that was promised in 2013; that review has still to take place. It is in that context that Green members approach the bill. I will outline our key objections and proposed reforms before concluding with a more fundamental objection. At stage 2, Green members will lodge amendments, on all of which I undertook a consultation in the summer recess. I will say a few things about some of them.

First, members will be aware that non-domestic rates are a local tax, and yet, in 1992, Mrs Thatcher’s Government removed councils’ powers to set the rate. Since then, the rate has been set by negative instrument with next to no parliamentary scrutiny. We will lodge amendments to return the rates to the level of government to which they belong—local government. There will be issues of timescales and all sorts to debate in relation to that.

Secondly, it is bizarre that we have an incomplete tax base. Barclay recommendation 28 is that all property should be on the valuation roll and those currently exempt could then be granted reliefs, which would increase the transparency of, for example, the unjustifiable tax breaks afforded to agricultural holdings.

That recommendation was made as far back as 1976 by the Layfield committee, the Mirrlees review drew Government’s attention to the issue in 2011 and the land reform review group made a very clear recommendation on that topic in 2014.

In the past two years, more than 13,000 new entries have been added to the valuation roll, to cover shootings and deer forests. The vast majority of those will be registered agricultural holdings. We are well on the way to a complete roll, and we should commit to completing the task.

Thirdly, the non-domestic rate is a flat-rate tax—it has one rate of 49p or thereabouts—that is applicable to all properties, regardless of their value. We propose that there be a progressive rate, with a tax-free allowance, just like we have for income tax.

Other changes that we will be seeking include either removing the exemption that is granted in the bill for specialist music schools that are in the private sector, or retaining it but also applying it to the four specialist music schools that are in the public sector, such as the City of Edinburgh music school.

We also want the localisation of reliefs, and the provision of backstop powers to force owners to pay, rather than forcing occupiers to pay where the owners cannot be found. We also want there to be reforms to stop multibillionaires such as Sheik Mohammed bin Rashid Al Maktoum, the ruler of Dubai, being eligible for the so-called small business bonus scheme, and to ensure that all ratepayers pay something, which would eliminate what Barclay calls the “rates deserts”.

We have one major concern: the removal of the NDR tax base from the control of its historic owners—local government—is, in our view, a violation of international law. That breaches article 9 of the Council of Europe’s European Charter of Local Self-Government, which provides legal protections for the autonomy of the tax base of the local state. This situation cannot be allowed to persist. However, because it does—at the moment, anyway—we cannot support the bill; neither will we stand in its way, so the Greens will abstain on the motion this evening.

The Deputy Presiding Officer

I call Liam McArthur to open for the Liberal Democrats. You also have a generous five minutes, Mr McArthur—that is so that I am fair to everyone, as I always am.

16:27  



Liam McArthur (Orkney Islands) (LD)

As you always are, Presiding Officer—thank you very much, indeed.

I, too, thank James Dornan and his colleagues on the Local Government and Communities Committee for their work to date; I also thank those who contributed to the consultation.

I find myself in agreement with Andy Wightman’s analysis and many of his concerns. The bill includes a set of fairly modest proposals stemming from the Barclay review. That, too, was hobbled in terms of its breadth and its scope. We have been left with a bits-and-pieces bill.

I understand that we are dealing with a policy area that is uncomfortable territory for this and previous Governments. I remember well the business rates revaluation in 2010, which left many businesses, particularly in the hospitality sector, facing massive increases of up to, I think, 1,000 per cent in some cases, with no transition. At the time, ministers seemed largely unconcerned, and they were not concerned enough to delay the revaluation until 2016. In the bill, however, we see the imperative for having regular revaluations.

After 2010, we had the business rates incentivisation scheme, which got off to a fairly inglorious start. The Government and the Convention of Scottish Local Authorities were still arguing in 2014 about what the baseline for 2012 should be and about what the outcomes, performance and payments for any year should be.

Eventually, ministers had to fiddle the figures, short-changing Aberdeen to the tune of millions of pounds. Then they cancelled the scheme anyway. The risk in trying to fake localism is that more of a mess is created. I would rather this bill set about giving control of business rates to local authorities, for many of the reasons that Andy Wightman set out, which would give them the opportunity to form meaningful and strong partnerships with businesses in their area.

Linking to the existing roles in economic development and to business support into local colleges, each authority would have the clout to shape a more successful community. I accept that the same economic and taxation blueprint does not necessarily work in every region, and the bill does not provide for that.

The Scottish Government is scrabbling around to work out how to avoid taxing people who improve their properties, invest in machinery and install renewable energy. All those issues are inherent problems in the business rates system, and it is fundamental that the system be based on rental value.

Andy Wightman

This might seem to be a pedantic point, but the member has persistently referred to “business rates”. He and I are members of the Scottish Parliamentary Corporate Body, and I do not think that he regards us as business people in that respect. I have just looked it up and found that this building has a rateable value of £6,965,000. The non-domestic rating system is a rating system of the occupational value of non-domestic property. Conflating the system with the interests of business has been damaging to the debate that we have had over the past decade. I am sure that the member agrees with me.

The Deputy Presiding Officer

It is all right, Mr McArthur—you will get your time back.

Liam McArthur

I am happy to take Andy Wightman’s reprimand in the spirit in which it was intended. Having been a member of the corporate body for some eight years, I certainly bear the scars of the impact of the non-domestic rates of this building.

The issues that I mentioned are not tackled in the bill, which is why the Scottish Liberal Democrats believe that a move to a land value system could generate economic advantages and Government efficiencies, if it is linked to council tax reform. However, we do not have a major bill before us; we have a small bill.

Scottish Lib Dems hope that the bill, if it progresses, will close the loophole that allows second home owners to declare themselves a business and get rewarded with a Government tax cut. Willie Rennie has spoken strongly about concerns that holiday rental owners in parts of the east neuk of Fife are not paying their fair share.

Some of the consultation responses are right to point to the large burden that will be placed on local authorities to police the bill’s provisions, as they are currently worded. The respondents suggest making changes to the small business bonus, and I hope that the minister will respond to that. I would like to know how the review of the small business bonus and the review of micro-letting will impact on the ground. The Scottish Government has chosen one approach in the bill, while embarking on two reviews of two other approaches. Ministers are not so much putting the cart before the horse as setting three carts rolling downhill, all on their own accord. I would be interested to learn what timetable the Scottish Government thinks will best allow the three processes to be considered together.

I wish James Dornan and his colleagues on the committee all the best as they take forward their stage 2 scrutiny of the bill.

The Deputy Presiding Officer

We move to the open debate. I ask for speeches of a generous four minutes.

16:32  



Kenneth Gibson (Cunninghame North) (SNP)

I agree with Liam McArthur about the loophole in relation to second homes.

The bill will update Scotland’s non-domestic rates system and create a more modern and equitable ratings structure. In terms of revenue, non-domestic rates are the second most important devolved tax, behind income tax. In 2018-19, non-domestic rates accounted for £2,847 million; by comparison, last year’s council tax income was £487 million less than the revenue from non-domestic rates.

The Barclay review outlined 30 recommendations that were intended to make the ratings system fairer, make the ratepayer experience better and enable economic growth. I am pleased that the Scottish Government accepted the majority of the recommendations—not least, the one on three-year revaluations—and acted decisively to implement those that do not require primary legislation.

The business growth accelerator should be welcomed across the chamber. Under the current system, when a new property is built, or when an improvement or expansion of an existing property takes place, the rateable value increases. A key business objective is to grow, which is often done by improving or extending premises, but a property expanding so that it had a rateable value of £15,001 to £18,000 would result, in effect, in a payment of rates at 36.75 pence in the pound, and 49 pence in the pound if the rateable value was more than £18,000. Therefore, if the rateable value is £15,000, nothing is paid, but if the rateable value is £18,001, £8,820.49 is paid. That cliff edge can only inhibit expansion and dissuade owners from taking long-term growth decisions due to cost. The Barclay report stated that that

“penalises ratepayers who make environmental improvements (e.g. solar panels), face requirements to improve their properties as a result of regulation ... or invest in plant and machinery.”

Although the small business bonus scheme is not being considered in the bill, its positive impact in saving businesses from going under during a recession could be improved, to allow businesses to not only survive but grow. The Federation of Small Businesses has said that repeatedly.

In addition, the demand for small business premises, which benefit from the small business bonus, has led to overheating in the rental market for cheaper properties. That incentivises companies to take their business away from high streets, where costs are usually higher. The business growth accelerator will incentivise investment and growth, introducing a 12-month delay in rate increases when an existing property is expanded or improved. Entirely new properties will become liable for rates only after 12 months. I agree with Murdo Fraser that if the UK Government were to consider taxing online retailers, that would also help our town centres and shops.

The bill includes provision for reforming the rates revaluation appeals system to reduce speculative appeals and to enable earlier resolution. In 2017, 75 per cent of appeals resulted in no change to specific rateable values. Therefore, I welcome the committee’s conclusion that the existing system incentivises the making of appeals. That is primarily due to no fees being charged for appeals and the ease with which appeals can be lodged. Accordingly, I believe that an applicant who has initially been advised that an appeal has little chance of success should have a fee imposed to militate against the lodging of a spurious appeal.

Independent schools with charitable status are currently entitled to 80 per cent mandatory relief from non-domestic rates. I agree with the majority of committee members, who considered that all independent schools should pay rates and should no longer be able to claim charitable relief. Not only would that end an unfair and unequal practice in relation to state schools; it would generate more revenue for councils to spend on local services. I simply do not accept that independent schools would suffer, because the impact on fees would be only around 1.3 per cent across the sector—far less than that of recent teachers’ salary and pension changes. I believe that that approach should apply to the entire independent sector. It is simply anomalous and inconsistent to exempt one music school from paying rates.

Scotland has the most comprehensive package of rates relief in these islands, which is worth more than £750 million in the current year, and more than 90 per cent of properties pay a lower poundage compared with those in the rest of the UK. The bill puts us on track to achieve our goals of improving our non-domestic rates system, helping businesses to grow and encouraging long-term investment.

16:36  



Liz Smith (Mid Scotland and Fife) (Con)

I place on the record that I have been a governor of two independent schools.

I agree whole-heartedly with my colleague Murdo Fraser, who earlier in the debate raised Scottish Conservatives’ very serious concerns about the element of the bill that will affect independent schools. We will need to see that being changed before we can agree to the bill at stage 3.

I entirely agree with what Andy Wightman said about there being serious anomalies in respect of treatment of specialist music schools.

I also want to pick up on the point that James Dornan made about the Charities and Trustee Investment (Scotland) Act 2005 on reform of charity law. At the time of that act’s passage, some members believed that no independent schools should have charitable status, because they felt that such schools were elitist, so that special treatment should be removed. However, when the bill was voted on, it was passed unanimously because all parties agreed that the evidence that had been presented to Parliament showed that independent schools play a very valuable role, regardless of whether it was measured by educational, social or economic criteria. It is good to hear the minister agreeing with that.

The other point about the 2005 legislation is that Parliament also agreed—again unanimously—that the charity test should be tightened so that all independent schools were made much more accountable in respect of the public benefit that they offer and, crucially, that they were made much more accessible. That is an important point to remember, because it is relevant to the debate on the current proposals to remove charitable relief from such schools.

Fees in the independent sector will, unquestionably, rise by more than has been the current average annual fee increase, thereby increasing the likelihood that more parents will be unable to choose independent education. In turn, that will mean that the state sector—which is already very hard pressed when it comes to resource provision—will be asked to accommodate more pupils. The second part of the equation is that, by definition, that would then cause independent schools to become more elitist.

James Dornan

Will the member take an intervention?

Liz Smith

If James Dornan does not mind, I will not take his intervention because we are so short of time.

As I mentioned earlier, that is surely the exact opposite of what the Parliament unanimously decided in 2005 and of the Scottish National Party’s stated ambitions for education in Scotland. It would also put Scotland’s independent schools at a competitive disadvantage compared with those in England.

Also, does Parliament really want availability of independent schools’ facilities to be restricted because they will face much more serious financial constraints? Does it want one in which independent schools are no longer quite so able to offer assistance to state school pupils to study subjects that are not in their own schools’ curriculums or are unable to support local primary schools with arts, drama or sports provision?

Does the Parliament want a situation in which the independent sector is not so able to contribute to the target of 1,140 hours of nursery provision, or not so able to provide marking assistance for the Scottish Qualifications Authority, as was stated in one of the warnings that was issued to the committee?

Those are all possible scenarios, each of which would serve to undo all the excellent work that has been done by both state and independent schools to bring the sectors together to enhance education for all young people.

Worst of all, does the Parliament really want a situation whereby some smaller independent schools would close down altogether, which would adversely affect employment in local businesses as well as among their own staff? The Local Government and Communities Committee has been well told that that is a real risk.

There are some serious anomalies in the bill, and I do not think that the Scottish Government has thought them through. We will bring up those issues at stage 2. I am sorry that they have not been thought through, as is evidenced by the fact that there has been no accurate assessment of the effects of the bill. No assessment has been forthcoming in the financial memorandum, which says nothing about the true costs.

Kate Forbes

Will the member take an intervention?

Liz Smith

I am just about to close.

The Deputy Presiding Officer

The member is closing.

Liz Smith

The Scottish Government must review the situation. If that is not done, that will give a completely one-sided and biased view. Those are serious objections, so we will review the matter at stage 2.

16:41  



Alex Rowley (Mid Scotland and Fife) (Lab)

First, I apologise for being a few minutes late to the debate.

The committee’s report captures many of the key issues that were raised by people who gave evidence and submitted their views. I congratulate the committee’s convener and its members. I am pleased that the committee has focused on the concerns that were raised about the transparency of the revaluation process. It is ridiculous that, as many businesses do, a business would struggle to understand the process, and to understand how revaluation of its property has been done. The process for revaluations should—indeed, must—be totally transparent. If it is too complex and difficult for the majority of people to understand, it is clearly failing and should be challenged. I hope that we will see a culture change that puts people, and the need for them to understand the process, at the heart of revaluation.

In its report, the committee states:

“We also note widely shared views that the more transparent and intelligible the revaluations process is, the fewer appeals there will be, and invite the Scottish Government to confirm whether it sees opportunities, as the Bill continues through the Parliament, to ensure that the process will be more transparent in future.”

Whether the process is intelligible or unintelligible, we surely need to address that issue. From my experience of dealing with businesses in Fife, I can see that there has been no commitment to explaining properly how evaluation is done. That needs to change.

On staffing, many people in valuation talk about the pressure of work and the fact that while staffing levels are falling through pressure from cuts, the workload is increasing. I am pleased that the committee identified that point, and I look forward to hearing how the Government intends to address the workload pressures that contribute to retention challenges in particular. The move to three-yearly revaluation is welcome, but the committee asks what additional pressures that will put on an already overstretched service.

It is important to restate what the committee said about modernising the system for administrating revaluations and appeals. It said:

“We welcome the small steps taken so far in the Bill but urge the Scottish Government to seize the opportunity to consider further ways to streamline and modernise the process.”

I hope that the minister will pick up on that point, and on the many other well-made points in the committee’s report.

On arm’s-length organisations, I think that all members welcome the decision not to proceed with the Barclay recommendations. In reality, the recommendations being implemented would have led to massive pressure on services, and many council services that have been put into ALEOs would have collapsed.

However, the Government needs to clarify whether it is introducing a new policy that ALEOs that are being set up would not qualify for the same relief as the current ones do. I know from having been council leader at Fife Council about the pressure on the education department from many people to make cuts by making savings from putting all the schools out to an ALEO. Where would that stop? The Government recognises that there is a problem, but it needs to state clearly what its policy will be and give local authorities a clear understanding of that.

Once again, Presiding Officer, I apologise for being late for the debate.

The Deputy Presiding Officer

Thank you very much, Mr Rowley. You are a true gentleman.

16:45  



Joan McAlpine (South Scotland) (SNP)

I welcome the bill, but before I comment on it in detail, it is worth reminding members that under the SNP Scottish Government Scotland leads the way on rates relief. Scotland already has the most generous package of reliefs in the UK, which is worth more than £750 million in 2019-20, and more than 90 per cent of properties in Scotland pay a lower poundage than other parts of the UK this year.

Andy Wightman

Joan McAlpine mentioned the generous package of reliefs. Why does she think that Sheikh Mohammed bin Rashid Al Maktoum, who is one of the richest men in the world, qualifies for the small business bonus scheme on his estate in Kintail?

Joan McAlpine

I do not know anything about that gentleman’s property, and it would not be appropriate for me to comment on the details of someone’s personal tax affairs without looking into the matter further. However, I will certainly go away and do that.

I am pleased that the Scottish Government has already acted decisively to implement the Barclay review recommendations that do not require primary legislation. Those include expanding fresh start relief to help town centres, which is very important to my constituents in the market towns of South Scotland.

The bill reflects the Barclay review’s recommendations that are intended to overhaul and modernise the ratepayer’s experience of navigating the system, which was judged to be poor, in order to increase fairness and, of course, to promote economic growth.

The bill will put in place ambitious reforms to the appeals system, which will improve decisions and build trust. The new two-stage appeals system will facilitate better and earlier information sharing, and it will enable a “right first time” valuation in order to reduce the number of changes on appeal, and to build trust in the system.

The Barclay report acknowledged the

“strong consensus among stakeholders that 3 yearly revaluations ... would provide a better timeframe.”

I note that the briefing for the debate from the Union of Shop, Distributive and Allied Workers says:

“We believe that these changes will ensure that the rates system better reflects market/trading conditions and provide a more effective ‘natural stabiliser’ against cyclical economic effects as well as economic shocks.”

I want to say something about the measures in the bill that are aimed at tackling tax avoidance, with regard to empty properties in particular. Empty property is one of the biggest problems that we face in urban and rural regeneration, so I welcome the attention that has been given to the matter by Barclay and the bill. For example, it was suggested to the Barclay review that a well-known avoidance tactic to reduce an empty property’s rates liability is to occupy only a small part of the property as storage. That allows the owner to qualify for another relief or allows a new period of empty property relief to begin after a set period.

Section 12 of the bill deals with the first of those aspects. I will watch closely to see how that works in practice. I understand that the second aspect will be dealt with through subordinate legislation. Either way, it is important that councils use the new powers to tackle the scourge of empty property and, indeed, that they use the powers that they already possess to deal with the problem.

I note that Barclay recommended reform

“to restrict relief for listed buildings to a maximum of 2 years and the rates liability for property that has been empty for significant periods should be increased.”

The Government’s consultation said that, after two years, relief should fall to 10 per cent and that a surcharge should apply after five years, from 2020.

That would deal with a problem of which I have direct experience. I have been approached by constituents in the town of Annan who are directly affected by listed buildings that have been left to crumble. I pay particular tribute to William Hogg, who is a local resident. He led on a petition that asked for action to be taken on properties including the Albert hall, the Central hotel and Erskine church. Because I was not on the committee that scrutinised the legislation, I am unable to ascertain whether that Barclay recommendation on listed buildings will be enforced through the bill or through regulations. However, I note that the consultation proposed that it would take effect from this year, so I hope that the minister can confirm that that is the case.

16:50  



Alexander Stewart (Mid Scotland and Fife) (Con)

I am pleased to take part in today’s debate on the Non-Domestic Rates (Scotland) Bill.

As a member of the Local Government and Communities Committee, I thank all those who have supported us during our evidence sessions and given us information.

As a former councillor, I am aware of the impact and importance of non-domestic rates. The Conservatives welcome many parts of the bill. However, we also have to think of the consequences that councils are suffering because of the budget reductions from Government. In this financial year alone, they have already had a real-terms budget cut of £168 million. The Scottish Government is making political choices, and that is the context in which we should see the bill. Many changes are proposed; some go far but some do not go far enough and will not address the chronic underfunding of our councils.

Scotland has one of the lowest growth rates of any country in the European Union and a lower employment rate than other part of the United Kingdom. If Scottish employment had grown at the same rate as the UK’s over the previous 10 financial years, more than 300,000 more people would be in work in Scotland today. That is a staggering and sobering statistic.

On our high streets, retail has been hit particularly hard; Scotland continues to fall behind the rest of the United Kingdom. The committee visited some locations and it was harrowing to hear views from retailers about how they cope with the demands in city centres.

There has already been talk this afternoon about online businesses. As we go forward, they need to be looked at.

When we looked at the amounts that are being ploughed into rates, we found that the hotel and hospitality sector are finding the situation difficult. The renewables sector is also suffering. In Aberdeen and Aberdeenshire, the Government had to support businesses because their rates bill had doubled, trebled or, as we heard, gone up by 1,000 per cent. It is unsustainable for businesses to be put in that situation. I am delighted that the Scottish Conservatives were one of the groups that forced a U-turn, as result of which £40 million was put into the hospitality sector in Aberdeen and Aberdeenshire.

Andy Wightman

Alexander Stewart has gone on at length about the situation in Aberdeenshire. Does he agree that it would have been better for Aberdeenshire to have had the powers in Aberdeenshire to deal with that problem years before it happened or shortly after it happened, rather than having had to come to central Government, in the national Parliament, to invoke a complex relief scheme?

Alexander Stewart

We have to balance the economy and ensure that there is growth across the sector. I hear what Mr Wightman is saying but I do not agree with it completely.

We know that the Government has looked at the Barclay review’s recommendations on revaluations. One of the biggest benefits will be that revaluations will take place every three years rather than every five years. That is important.

It is disappointing that, despite the long-standing promises to reform business rates, there is no firm timescale to reduce the large business supplement, which means that Scottish businesses are uncompetitive.

Kate Forbes

Will the member take an intervention?

Alexander Stewart

No. Time is pressing.

When he was Cabinet Secretary for Finance and Sustainable Growth, the current Deputy First Minister acknowledged that. He said that the SNP Government was

“committed to setting the poundage rate no higher than that set in England”.

However, seven years on, we have still not caught up with that. The commitment rings hollow.

We have already discussed the independent schools sector. I come from Mid Scotland and Fife, which has a large number of independent schools. I echo the concerns of my colleague, Liz Smith, on the proposal to remove their charitable relief. The comparison with the rates that state schools pay is misleading; it is only cycling money through different parts of the public sector. That should not in itself be looked upon as an area for discussion.

As my colleagues have indicated, we will support the general principles of the bill, but we have missed some opportunities to make progress and improvements. The bill fails to take Scotland’s business forward in a competitive way, and it does not give us the system that we want. We will support the general principles of the bill at this stage, but we will be seeking to amend it at stages 2 and 3.

16:55  



Rhoda Grant (Highlands and Islands) (Lab)

We welcome the bill, as do organisations such as the Scottish Retail Consortium and USDAW. We will support the bill at stage 1, and we will seek to work with the Government and colleagues to improve it as it goes through the Parliament at stages 2 and 3.

We welcome the powers for Scottish ministers to introduce general anti-avoidance provisions for non-domestic rates. As Sarah Boyack said and as the Local Government and Communities Committee noted,

“Tax avoidance corrodes public confidence in the tax system”.

We need to see tax as a good thing: our contribution towards building a better society. Tax avoidance is often seen as something that should be promoted and, in some instances, tax evasion is encouraged.

Kenneth Gibson spoke about having to deal with the whole tax system. When we see large companies offering miniscule amounts of money in lieu of their tax liability, that devalues the whole of the tax system. Indeed, it encourages others to avoid paying the tax that they are due to pay.

We agree with the committee about the change to end the exemption for mainstream independent schools that claim charitable relief. That is very much welcomed by us, as it creates a level playing field between the state and independent sectors. As many members have said today, that will give local authorities more funding. Along with the committee, we are not persuaded that there is a case for treating independent specialist music schools any differently from other independent schools.

Liz Smith

Would that case not be enhanced if there was a much more detailed financial memorandum?

Rhoda Grant

Indeed. There needs to be more detail on many aspects of the bill. As far as independent schools go, this matter has been a cause for angst for some time, and it is important that independent schools are treated the same as other schools and are not allowed rates relief based on charitable status. While there are independent schools providing specialist musical tuition, there are the same types of schools in the public sector, such as Scotland’s national centres of excellence. I should perhaps register an interest, as I am a former pupil of Plockton high school, which is now a centre of excellence in traditional music. It was not when I was there—and I cannot sing a note, so that is perhaps just as well. In any case, we will consider lodging amendments to strengthen that part of the bill.

Murdo Fraser spoke about further clarity being required on private nurseries, including those attached to independent schools. That is something that the Government needs to provide.

Alex Rowley talked about ALEOs and how they were used by councils that were often cash strapped in order to save money. We need to ensure that that does not backfire on councils at a time when their funding is reducing.

Many members spoke about revaluations and welcomed the change to the revaluation cycle from five years to three years, which will reduce the lag between the date at which the market value is calculated and real-time market conditions for business premises.

Alex Rowley spoke about simplicity in the system, which could lead to much fewer appeals if there were better explanations as to how revaluations were carried out. He also talked about recruitment and retention of assessors. If the cycle is to be reduced, we need to have adequate people in the system who will provide the valuations required. That means ensuring that people are trained, and that we treat those who carry out the work properly so that we can retain them. Many speakers welcomed the reforms to the appeals system.

As Sarah Boyack said, the bill could have engaged further with the current struggles on our high street. It is also a missed opportunity to examine ideas for local devolution, and the scope of rates relief to drive up things such as environmental standards—Sarah Boyack talked specifically about district heating systems—employment standards and the real living wage.

Derek Mackay

Will the member take an intervention?

Rhoda Grant

I am sorry, but I think that I am in my last seconds.

To quote Paddy Lillis of USDAW,

“The retail sector needs urgent action to protect these essential jobs which are a key part of our communities. Business rate reform is a central part of this, but a fundamental review of support for the sector is needed if we are to save our high streets from further decline.”

17:00  



Graham Simpson (Central Scotland) (Con)

I start by echoing the initial comments of my colleague Murdo Fraser expressing frustration at the truncated time that has been given to the debate. Although there have not been many members in the chamber, a lot of people are interested, and it is a very serious piece of legislation that affects a lot of people.

Moving on from that, I thank the committee clerks for their work on the stage 1 report, as well as my fellow committee members, James Dornan, Sarah Boyack, Annabelle Ewing, Kenny Gibson, Andy Wightman and my good friend Alexander Stewart, who spoke with his usual passion.

The rates system is fiendishly complicated, archaic even, ludicrous at times, and difficult for most people to comprehend. As the FSB said in evidence, only about two fifths of business owners believe that they understand how their rateable value is calculated. That the system has been in need of a shake-up for a long time is not in doubt. However, the bill does not do that. It is a missed opportunity.

True to form, the Government set up a review, which means that it can blame someone else—in this case, Ken Barclay. Unfortunately, the mild-mannered Mr Barclay had his hands tied by a very narrow remit, which told him to make recommendations that were revenue neutral. It is my belief that that instruction led his team to make their most controversial recommendation, on independent schools—though they would deny that.

Kate Forbes

The member of the committee took evidence from Ken Barclay. The idea that he was forced to set recommendations just to balance the books is ludicrous.

Graham Simpson

Well, he was told to balance the books. That is a fact, and it is my view that it led to the recommendation.

Much of the bill is not controversial. [Interruption.] It is sensible, even.

Derek Mackay

It is about fairness.

Graham Simpson

I am glad that the cabinet secretary is enjoying my contribution.

Derek Mackay

Will the member take an intervention?

Graham Simpson

No—perhaps later.

There are some good ideas in the bill: changing revaluations from every five to every three years; reforming the appeals system; making reforms to close a known tax avoidance tactic for those who own holiday homes, which can be used to avoid paying any local tax on the property; introducing the business growth accelerator, which will reduce the rates bills of growing firms; and making those who conduct commercial activity in parks liable to pay business rates. However, there is nothing about dealing with the large business supplement which, as Murdo Fraser pointed out, puts businesses in Scotland—

Derek Mackay

Will the member take an intervention on that point?

Graham Simpson

Yes.

Derek Mackay

Just out of curiosity, if it so happens that such a policy is affordable, would the Conservatives vote for a budget that reduced the large business supplement?

Graham Simpson

Dear me, dear me. We will have to see the entire budget to answer that question, and we will have to see what the Government is doing to councils and whether it will slash their budgets again.

There is another missed opportunity to do something about high streets, which is something that we could consider at stage 2.

I said that much of the bill is uncontroversial, but one section has proved anything but, and has attracted the most comment. That is, of course, the section that takes away reliefs for independent schools. Liz Smith spoke with great authority on the matter. Out of a total of 367 submissions, more than 300 were on the issue of the taking away of rates relief and most of those came from concerned parents, teachers and pupils. We as a committee took evidence and we even visited the independent school George Watson’s College, in Edinburgh. However, the die was cast on the rates relief removal issue before anyone contacted us, before we heard a word and before we stepped across George Watson’s impressive portal.

Parties have positions, which means that some people just do not like the idea of parents having the choice to pay for their children’s education. However, I prefer to go with the evidence, which was overwhelmingly that independent schools are charities, that all charities benefit from rates reductions and that to meddle with that arrangement is meddling with charity law. How can we attack one section of the charity sector without looking at the whole sector? It is a policy born of prejudice and spite. The Scottish National Party has not gone quite as far as Labour, with its aim of abolishing all independent schools, but removal of rates relief is the thin end of the wedge.

I did not know a great deal about the independent schools sector before scrutinising the bill, but what I found was a sector that is proud of its charitable status, proud of its work to widen access to its schools’ facilities, proud of helping the disadvantaged and proud of having schools that are part of their communities. I visited Hamilton College in my region, whose building is that of the former Strathclyde teacher training college. Hamilton College is not a fabulously wealthy institution and, from what I could see, many of its facilities lag way behind those of schools in the state sector—elitist it is not. However, Hamilton College takes its charitable status very seriously, not to avoid paying rates but as a mission. It rents out its facilities and has a pool that swimming icon Michael Jamieson uses for his swimming academy. He is elite, but he is not elitist. Do we really want to put that type of endeavour at risk? As we have heard, the Office of the Scottish Charity Regulator made some damning comments about the bill’s proposal.

There was a proposal to make one exception to amending the status of independent schools and it involved specialist music schools. However, there is only one such school in the sector: St Mary’s Music School in Edinburgh. There was no logic to that proposal and I wonder what or who lay behind it.

There will be amendments at stage 2. We are open to ideas. We will work with other parties and outside organisations to improve the bill. We will work with the minister, if she is willing to be flexible.

17:07  



Kate Forbes

I applaud and thank the members who have defended the timescale given to this critically important debate. As somebody who has been heavily involved with the bill, I believe that the more time given to it, the better.

Quite a number of points have been raised in the debate, but I will try my best to get through them. However, there is an open invitation to other parties to discuss any element of the bill in advance of amendments at stage 2.

James Dornan, the committee convener, referred to the broad welcome for three-yearly cycles. That in itself will resolve a lot of the challenges that we see in the appeals system. To address a point that was made by both James Dornan and Alex Rowley, I say that we need to both solve the appeals challenges and ensure that assessors are as well supported as possible. That is why we included £2.5 million in this year’s budget to go directly to assessors; that was the figure that they identified as the support that they needed this year and which they welcomed.

Murdo Fraser mentioned the business desire to see a tone date here that is in line with that of the rest of the UK. There are questions around the tone date for the rest of the UK because of the prorogation of Parliament, although I think that the bill to set the tone date there at 2021 is back in play. However, assessors were clear with us, and I believe that they were clear with the committee, that if we want to deliver the bulk of the Barclay recommendations and get things right, we need the timescale that is being proposed.

As I said in my opening remarks, the provisions are not about charity law or the important role that independent schools play. Liz Smith spoke about the financial impact, but that was assessed in the business and regulatory impact assessment.

Liz Smith

The financial memorandum does not, as it should do, give a fair and balanced view of both the costs and the benefits.

Kate Forbes

It was included in the BRIA. I find it difficult to accept that the magnitude of change that has been identified would be sufficient to lead to a mass exodus of pupils. The impact of our proposals is equivalent to a 1.3 per cent increase in current average fees. That is a small increase compared to the average yearly fee increase of 4 per cent. That is why the financial memorandum is as it is—we do not believe that the policy change will result in a mass exodus of pupils to the public sector.

On any potential movement, some of the calculations that have been flying around use the average cost of a school pupil, whereas they should use the marginal cost. In the majority of cases, the marginal cost of a pupil moving from the independent sector to the state sector would be zero. Even if 3 per cent of pupils were to transfer, we do not accept the suggestion that that would leave the policy revenue neutral. The financial impact has been considered through the BRIA.

I will move on to the other points that were raised. Sarah Boyack talked about the importance of guidance, and I agree with her on that point. I will endeavour to provide the committee with as much detail as possible for scrutiny. That will start with the commitment that I have made to provide details on illustrative appeals.

Sarah Boyack also asked about the small business bonus scheme, because the Barclay review called for a review of the effectiveness of the scheme. It called for that review to commence on 1 April 2020. We are ahead of the game here: the contract for the independent review was awarded to the Fraser of Allander institute in the summer. The aim of that review is to evaluate the impact of the small business bonus scheme and whether it can be better targeted to support local investment, employment and growth. It is set to report its findings in 2020.

Andy Wightman

I do not want to sound like a stuck record, but the minister represents a constituency that contains tens of thousands of acres of land owned by the aforementioned Sheikh bin Rashid Al-Maktoum—one of the richest men in the world—who is eligible for the small business bonus scheme. Notwithstanding the review, does she agree that it is ridiculous to exempt some of the richest people in the world from paying a modest contribution to Highland Council?

Kate Forbes

Incidentally, every so often he is my temporary constituent and—[Interruption.]

The point is well made and I do not dispute it. That is why we have committed to the review of the small business bonus scheme. The purpose of the scheme is to ensure that small businesses can grow, develop and invest. We want to ensure that the scheme is well targeted. That is why we have contracted an independent organisation to look at its effectiveness. I look forward to receiving the review’s recommendations and implementing those that we think appropriate.

In light of the time, I will move on. There has been some talk of devolution. We have made moves to devolve elements of non-domestic rates to local authorities, including the empty property relief. However, it is worth reflecting on the initial comments that were made to the Local Government and Communities Committee by the Convention of Scottish Local Authorities. COSLA welcomed the commitment that the Scottish Government made during consideration of the last budget bill to develop a fiscal framework. COSLA’s view is that non-domestic rates should be part of a discussion around local fiscal empowerment to help shape a wider, more far-reaching transfer of powers. However, it also accepted that we have started that process, which is good. I look forward to the other recommendations from the Green Party, all of which I will consider.

Liam McArthur mentioned the interaction with regulation and short-term lets. Those are two very different pieces of work and it is important that we do not conflate those issues. That work might help us reach a shared outcome on short-term lets, but the issue of taxation is very different to the issue of regulation.

Joan McAlpine focused on the current non-domestic rates regime and identified that, in Scotland, we have the most generous rates relief package anywhere in the UK, with more than 90 per cent of properties paying a lower poundage than that in the rest of the UK this year. That indicates the value and truthfulness of the comments that I made at the outset. The Government firmly believes that a strong economy with a growing competitive and innovative business community is essential to supporting jobs, income and our quality of life. The bill will help us to get closer to that ambition.

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Financial resolution transcript

The Presiding Officer (Ken Macintosh)

The next item of business is consideration of motion S5M-19269, on a financial resolution. I ask Derek Mackay to move the motion.

Motion moved,

That the Parliament, for the purposes of any Act of the Scottish Parliament resulting from the Non-Domestic Rates (Scotland) Bill, agrees to—

(a) any expenditure of a kind referred to in Rule 9.12.3(b) of the Parliament’s Standing Orders arising in consequence of the Act, and

(b) any charge or payment in relation to which Rule 9.12.4 of the Standing Orders applies arising in consequence of the Act.—[Derek Mackay]

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10 October 2019

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10 October 2019

MSPs agreed that this Bill could continue