Barclay review of non-domestic tax rates: ministerial response

Three weeks ago today, Ken Barclay published his report into non-domestic rates in Scotland.

He and his team of Professor Russel Griggs OBE, Isobel d'Inverno, Nora Senior CBE and David Henderson produced a thorough report and I wish to take this opportunity to convey my thanks again to them and commend them on their contribution.

As members will recall, I said when I received the report that I would respond quickly.

Last week, the First Minister set out in the Programme for Government that we would immediately take forward four of the recommendations from the Barclay Review.

These were to:

• hold more regular revaluations
• introduce a new relief for day nurseries
• expand Fresh Start relief to create a greater incentive to bring empty properties back into economic use
• to review plant and machinery valuations

A key matter is the frequency of revaluations.

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

I propose that the new relief for day nurseries will commence on 1 April 2018 and will be a full 100% relief.

Scotland has always been a leader in education and childcare and this is the first relief of its kind anywhere in the UK.

Fresh Start, a relief I introduced in 2013, will also be expanded from 1 April. I accept the Barclay proposal that the relief should increase from 50% to 100% for the first year of new occupation, and should be available after a property has been empty for six months rather than the current 12.

These are suggested to help bring empty town centre properties back into use. However, to stimulate the whole economy and reduce the number of properties sitting vacant, I will go further still and make relief available for all types of property, including industrial property.

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

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

It is a measure of the importance we place on the economy that we commissioned the Barclay review in the first place.

The Barclay report made 30 recommendations to boost economic growth, improve administration and increase transparency and fairness. They did so within their remit of revenue neutrality.

Turning to those recommendations not covered by the Programme for Government, I can confirm to the Chamber that it is my intention to move now to implement the vast majority of them, subject to any legal or regulatory considerations, the budget process and, of course, the will of Parliament. We will consult further before taking a final decision before the end of this year.

I now turn to the first and flagship recommendation made by Barclay – the business growth accelerator.

Of all the recommendations, the Barclay review felt this would give Scotland the edge in attracting investment and growing the economy.

I agree.

Developing our economy, and supporting business to invest and grow is central to this Government's activity.

I accept this recommendation and will include it in the draft budget for 2018 to 2019.

I am firmly of the view that this will give Scotland's businesses a competitive advantage and provide the economy with a welcome boost, but on this crucial recommendation I want to go beyond Barclay.

From 1 April next year I will ensure that every new-build property does not pay a single penny in rates until it is occupied for the first time.

I have met the Assessors and they have agreed to the principle of delaying the entry of new property onto the valuation roll. I will also withdraw the 2009 completion notice guidance issued to Finance Directors.

I urge the business community and developers alike to consider precisely what this means.

A new-build property will not pay rates until it is occupied, and then your tenant will then benefit from one year without rates through the growth accelerator.

These measures, combined with the more favourable rates of Land and Buildings Transaction Tax (LBTT) on commercial transactions, will mark Scotland as the most competitive place in the UK for businesses to invest and grow.

Of the other 19 recommendations I will set out our position on each.

I note that Barclay concluded that the large business supplement should be reduced to 1.3 pence and, over the course of this Parliament, I will do so should it become affordable, and will consider this in future years' budgets.

Barclay made a number of recommendations about provision of information and standardised billing, and today I issued invitations to stakeholders to sit on an advisory group to inform some of the administrative reforms. Longer term this group will also feed into the development of online billing.

I agree with Barclay that transparency over how relief is awarded will also help improve understanding and so I accept recommendations to publish data on which properties are in receipt of relief.

This Government is committed to the Small Business Bonus scheme; however, as recommended by Barclay, a review will be undertaken of the Scheme to ensure that we maximise the economic and social benefits of the scheme.

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

Ratepayers must also play their part in improving the system and they need to provide Assessors and councils with the necessary information they need to do their job, and so I accept recommendations to create new civil penalties. If the information going into the system is better, that should mean valuations are more accurate and reliance on appeals should reduce.

I also agree the principles that should underpin the appeal system as these move into Tribunals Scotland in 2022, and I agree that the appeal system should allow rateable values to be corrected upwards as well as downwards from that point onwards.

Councils also need to improve the service they offer – I will remind them of the need to issue prompt payments to ratepayers.

Debt recovery for both local taxes – council tax and non-domestic rates need to be brought into line with each other so the time for rates debt recovery will be brought forward.

This Government is committed to reducing tax avoidance and where we have control we have taken steps to do just that. I welcome the Barclay recommendations to close off specific known avoidance tactics and the creation of a general Anti-Avoidance Rule to help futureproof the rates system by closing off loopholes and avoidance tactics that may emerge over time.

Shorter term, a commercial rateable value finder product will help ensure all property that should pay rates does pay rates.

Errors may also occur in the award of relief, and with immediate effect Scottish Government will initiate administrative checks of the various data it receives for errors.

After engaging with stakeholders I believe a small number of recommendations merit further thought and engagement. This is entirely in keeping with recommendation number eight of Barclay, that wherever possible the Scottish Government should consult on changes to the rates system in advance of these being implemented.

These recommendations that require further consideration and engagement are those that remove charity relief for certain recipients including arm's length external organisations (ALEOs), independent schools and accommodation by universities, reform of relief for sports clubs, empty properties and properties in active occupation and the levying of rates on parks.

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

And finally, there are two recommendations that I have decided not to take forward at this time.

I will not progress the option to put farms on the valuation roll and to levy rates on commercial agricultural processing. This would create a significant administrative burden on the Assessors at a time when their focus must be on improvements to the service they provide and the move to more frequent revaluations. More importantly, in not taking these recommendations forward I want it to be clear to the sector: this Government recognises the invaluable contribution that you make to our economy.

My message to business after announcing this package is clear.

Come to Scotland. Invest in Scotland, and grow your business in Scotland.

Today I publish a full response to the Barclay report and I commit to a full implementation plan before the end of 2017, as members will be aware there are a range of actions required to enact the recommendations accepted.

But, before I close, I want to take this opportunity to announce that the cap for offices in Aberdeen City and Aberdeenshire and all but the very largest hospitality properties will continue next year with an additional 12.5% cap in real terms. I also encourage the sector and Assessors to work together to explore alternative methods of valuation.

Additionally, until such times as the review of hydro plant and machinery valuations has concluded and any recommendations are implemented, I will offer a 60% new relief for hydro schemes from 1 April 2018, subject to an upper value threshold.

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

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

I commend this statement to the Chamber.