Barclay Implementation Advisory Group: final report

Discussion

Recommendation 5b. Expanding Fresh Start relief to benefit town centres

In addition to expanding Fresh Start relief, the Barclay Review suggested a further measure to support town centres, namely a new discretionary power for councils to apply rates supplements in certain circumstances from 2020; for example out-of-town businesses or distribution warehouses for online retailers.

This recommendation has proven contentious and subsequently attracted much of the focus of discussion at earlier meetings with significant concerns raised by ratepayer representatives, notably the Scottish Retail Consortium.

The views of ratepayers generally related to concerns that such levies would become commonplace and be used as a source of funding to support general services rather than deliver the policy intent set out by the Barclay Review. Ratepayers would rather that the recommendation was not taken forward but expressed views that proceeds from any levy should be hypothecated to benefit ratepayers and that significant safeguards were required to prevent abuse and proliferation.

COSLA and Directors of Finance supported the principle of the recommendation that local authorities should be given additional powers to resource local priorities. They disputed suggestions that councils would abuse the powers and argued that excessive safeguards would render the policy unattractive to councils and possibly even impracticable.

Due to the diverse and opposing views represented among members, the group was unable to reach a consensus view on this recommendation. The Group's views are reflected in the Barclay Implementation Consultation questions with a focus on any safeguards that may be necessary.

Recommendation 8. 'Road map' for future rates changes

The Barclay Review recommended that the Scottish Government should provide a 'road map' to explain changes to the rating system and should consult whenever possible on those changes, prior to implementation.

The Scottish Government highlighted that all non-domestic rates policy decisions are set out in the Draft Budget. Despite recent changes to the Scottish Parliament's budget process and timetable, the primary function of the Draft Budget document continues to be a communication and consultative one. However, the Group agreed that the Draft Budget did not deliver the Barclay Review's intent that the road map should also communicate key milestones. The Group also agreed that a multi-year Spending Review would provide the key mechanism for the Government to communicate and clarify any proposed changes to the rating system, increase certainty for ratepayers and support better forward planning.

The Group noted that the Scottish Government had not published a road map ahead of the start of the 2018-19 financial year and agreed that it should be published ahead of the start of the 2019-20 financial year.

As this recommendation is primarily administrative in nature, the Implementation Advisory Group will continue to monitor progress to ensure appropriate implementation.

Recommendation 9. Provision of better information on rates made available to ratepayers

The Barclay Review recommended that there should be better information on rates made available to ratepayers. The Group strongly supports this recommendation and identified synergies with other recommendations including 8, 14, 19 and 23.

The Group welcomed the improvements to date in the quality of data provided by the Scottish Assessors Association (SAA) through the portal and the roll out of summary valuations. The Group agreed that the SAA should seek to roll out summary valuations universally. However, the Group also agreed that summary valuations in isolation were insufficient and that better information on how rateable values are derived should be made available to ratepayers. The Group agreed that addressing this concern could have a significant impact on the volume of appeals brought forward by ratepayers although they recognised that better information could increase the number of appeals in the first instance. This issue continues to be considered under recommendation 19.

The Group identified that general non-domestic rates information provided by local authorities was inconsistent in content and quality. Improvements to bills provided to ratepayers will be addressed under recommendation 14 but the Group concluded that the Scottish Government should improve the quality of information on the www.gov.scot website and that all local authorities should ensure their respective websites provide direct links to that information.

The Group agreed that to support the improvements in the SAA portal, the Scottish Government should seek to develop a Scottish equivalent of Spatial NI, a digital user interface which provides the user with valuation information through a 'geo-spatial' map. The Group agreed that such a development would deliver a step change in the accessibility of information for non-domestic rates stakeholders and also provide a foundation for future development, for example, to link property data on rateable value, bills, reliefs and the planning system.

As this recommendation is primarily administrative in nature, the Implementation Advisory Group will continue to monitor progress to ensure appropriate implementation.

Recommendation 10. Relief recipients to be published

The Barclay Review recommended that a full list of recipients of rates relief should be published to improve transparency, increase awareness of relief availability and help to tackle fraudulent claims. The Review highlighted that Moray and Edinburgh councils already publish such information locally and recommended that a national list of all relief awarded for all properties should be published.

The Group welcomed this recommendation and discussed the importance of complying with personal data protection legislation including the EU General Data Protection Regulations (GDPR) which have come into force since the Barclay Review report was published.

The datasets published by Moray and City of Edinburgh have all personal data removed and are published on a quarterly basis to reduce the demands placed on the councils for the information to be released under Freedom of Information. The Group agreed that Scottish Government should write to all councils to encourage them to replicate the approach adopted by Moray and City of Edinburgh Councils and the Scottish Government should publish the list nationally. The Scottish Government will take this recommendation forward through the IRRV network.

Separate discussions with IRRV members on the Group have suggested that from 1 April 2019, all relief application forms should be clear that extracts of the data will be published nationally. While not necessarily required by law, the Scottish Government believes it is good practice to be open about how the data will be used. The Group agreed with this suggestion through correspondence.

As this recommendation is primarily administrative in nature, the Implementation Advisory Group will continue to monitor progress to ensure appropriate implementation.

Recommendation 11. Employ rateable value finder product

The Barclay Review recommended that a "rateable value finder" product should be adopted to identify properties that should be on the valuation roll, but are not. The Group heard examples from England and Wales where private sector rateable value finder services had been employed by local authorities to identify such properties and increase revenues.

The Group discussed the stronger incentives that exist for councils in England and Wales to identify such properties given their broader retention powers for NDR revenues-. The Group repeatedly heard that while the revenue pooling arrangements in Scotland served to protect Council funding levels, they reduced the incentives for councils to increase revenues locally and NDR is often considered to be a "Cinderella service". On this basis, even where rateable value finder services are offered on a 'no win, no fee basis' the Group agreed that design of the NDR system in Scotland did not provide sufficient incentives for councils to explore the use of such services locally and the onus would fall to Scottish Government to develop or procure a national service.

The Group also discussed alternative implementation options including employing a service currently operating in England and Wales or developing an in-house service. The Group agreed that the Scottish Government should seek to develop a Scottish equivalent of Spatial NI. While Spatial NI was not directly designed to identify rateable value, it is a collateral benefit of the system and learning from Northern Ireland could ensure it is a design feature of a Scottish model. In due course, the Group agreed it would be desirable to link online planning services with online non-domestic rates services to help identify rateable value from inception^[4]. While all members of the Group did support the decision to implement a broader spatial model, some members questioned whether there was merit in employing a Rateable Value Finder during the implementation phase.

As this recommendation is primarily administrative in nature, the Implementation Advisory Group will continue to monitor progress to ensure appropriate implementation.

Recommendation 14. Standardised rates bills across Scotland

The Group established a Billing sub-group to take forward this recommendation. The Billing sub-group has met three times and continues to meet.

The Barclay Review identified inconsistencies in billing across Scotland and scope for confusion where ratepayers hold properties in multiple authorities. The Review recommended that all councils be encouraged to work together to develop a common billing system.

The sub-group considered example bills from a number of councils collated by the IRRV and agreed to develop a standard best practice template. The template sought to combine the sub-group's views on the best features from across the sample of bills available.

Having finalised a template, the sub-group agreed to consult with a sample of ratepayers via sub-group member networks to determine how well the proposed bill delivered the clarity sought by the recommendation. In parallel, the sub-group agreed to consult with local authorities via the IRRV network (with oversight by Directors of Finance) to ensure the template could be implemented locally.

Feedback from both networks is expected by the end of October with the intention of the sub-group agreeing a final template by the end of November. Subject to feedback from the parallel consultation exercises, the sub-group will seek to encourage as many councils as possible to adopt the final template for financial year 2019-20 with all encouraged to adopt it as swiftly thereafter. The sub-group will invite councils to feedback on implementation progress in January 2019. Some members of the Group did not believe this approach delivered the intent of the Barclay Review and felt all councils should be forced to adopt the standard bill template.

The sub-group also explored the opportunities for developing a common IT billing system. The sub-group identified that the majority of local authority non-domestic rates IT systems were provided by one of a small number of UK-wide software suppliers. The sub-group also noted that the current contractual arrangements can result in individual authorities being collectively charged multiple times to implement the same software changes resulting from a national policy change. For example, Transitional Relief changes have seen some, if not all, local authorities charged individually for the same software update. The sub-group agreed this did not offer value for money to the taxpayer. The sub-group also agreed that the current situation which sees UK systems be amended to reflect Scottish circumstances was sub-optimal and the work to deliver this recommendation should seek to open up competition to allow Scottish-specific revenue software systems to be developed.

The sub-group also identified that IT contracts for NDR were not always standalone systems and often incorporated other services such as Council Tax, Housing Benefit or Scottish Welfare Fund; IT contracts were of varying length including rolling annual contracts and multi-year commitments out to 2024. Given these contractual complexities, the sub-group did not fully agree with the Barclay Review that there should be joint procurement of, and support for, a national software system.

Instead the sub-group agreed that Scottish Government and COSLA, working with bodies such as Digital Scotland and Scotland Excel, should seek to develop a standard national IT contract which could be deployed locally incorporating the necessary local flexibilities such as combined Council Tax systems etc as appropriate.

In discussion at the main Group, this conclusion was not universally welcomed and some members were still keen to see a national billing system be developed. The Group did agree that initial conversations should take place with Scotland Excel and Digital Scotland and the Group would consider the recommendation further in light of those discussions.

Both the sub-group and main group agreed that any developments on billing systems should be taken forward in tandem with any work to develop a Scottish equivalent of Spatial NI to ensure synergies between the two.

As this recommendation is primarily administrative in nature, the Implementation Advisory Group will continue to monitor progress to ensure appropriate implementation.

Recommendation 15. Incentivise online billing

This recommendation was delegated for consideration by the Billing sub-group.

The sub-group (and main group) were very supportive of the need to improve online services including online billing arrangements. However, the sub-group did not agree with the principle of incentivising use and flagged up concerns over potential abuses where ratepayers could deny receipt of an online bill where they had not opted in to receive one.

The sub-group concluded that ease of access and scope for better information through the use of online facilities was in itself an incentive and any further incentivisation, for example some form of online discount, could have perverse incentives for other ratepayers through the RV and poundage calculations.

The sub-group (and main group) agreed that public bodies should be encouraged to continue the development of digital public services and in due course Scottish Government should seek to integrate online billing services with other online non-domestic rates services through a Scottish equivalent of Spatial NI.

As this recommendation is primarily administrative in nature, the Implementation Advisory Group will continue to monitor progress to ensure appropriate implementation.

Recommendation 16. Penalty for non-provision of information to councils

The Barclay Review noted that "In a small number of cases, ratepayers may fail to inform a council about a change of circumstances (such as a change in the occupier of a property) or may provide false declarations when applying for relief." In response the Review recommended that a new civil penalty should be available to councils to act as a deterrent to withholding information as opposed to raising revenue.

The Group agreed with this recommendation and discussed the importance of this change being appropriately and clearly communicated to ratepayers. The Group recommended that there should be a duty on ratepayers to inform the Council within 28 days of when they move in or move out of a property and to provide relevant information on request by the council within the same timeframe.

The Group also agreed on the need to provide local authorities with discretion over the application of penalties. e.g. the ability to waive the penalty in extenuating circumstances.

The Group's views are reflected in the Barclay Implementation Consultation questions with a focus on the level of penalty applicable, how penalties should be administered and the scope for an appeals process.

Recommendation 17. Councils to make refund payments faster

The Barclay Review noted that "councils sometimes take excessive periods (up to 6 months in one case) to refund overpayments to ratepayers" and recommended that "All ratepayers should be entitled to a prompt repayment within a 30 working day target. The Scottish Government should monitor this to ensure councils' performance meets this target."

The Group agreed with the principle of the recommendation and discussed the extent of the problem across the country and some underlying complexities.

These complexities include situations where an overpayment may be associated with a property with an ongoing liability. In these circumstances, the Group agreed it may be appropriate that the funds are used to offset the liability but that this should be communicated to the ratepayer (see recommendation 14).

Reflecting on evidence provided by COSLA Directors of Finance, the Group agreed that the underlying problem may not be widespread and that most councils check ratepayers' accounts on a regular basis and deal with any overpayments promptly. However, despite the problem not being widespread, the Group agreed that it should not exist at all.

On 30 August 2018, with the endorsement of COSLA and the Implementation Advisory Group, the Head of Local Government Finance at the Scottish Government wrote to all Directors of Finance to encourage councils to ensure that they notify ratepayers promptly of any overpayments and their treatment.

As this recommendation is currently administrative in nature, the Implementation Advisory Group will continue to monitor progress to ensure appropriate implementation.

Recommendation 18. Enable quicker debt recovery from ratepayers

The Barclay Review identified that councils cannot take enforcement action for non-payment of rates until after 30 September in any year in contrast to council tax whereby enforcement action against citizens commences if the first planned instalment is missed.

The Group discussed the existence of different payment profiles compared with Council Tax with annual, quarterly or seasonal payment plans being more prevalent but agreed with the recommendation and discussed the importance of this change being appropriately and clearly communicated to ratepayers.

The Group's views are reflected in the Barclay Implementation Consultation questions with a focus on how any changes should be communicated.

Recommendation 19. Reform of the appeals system

The Barclay Review recommended the appeals system be modernised to reduce the volume of appeals and ensure greater transparency and fairness.

The Group established an Appeals sub-group to take forward this recommendation. The appeals sub-group has met four times and continues to meet.

The Group's views are reflected in the Barclay Implementation Consultation questions with a focus on how any changes should be communicated and on whether valuations should be able to increase on appeal.

The Group discussed the issues associated with the future transition of the functions of Valuation Appeals Committees to the Scottish Tribunals Service. The Group and sub-group agreed that it would not be possible to move to a three year revaluation or a one year tone date without reducing the total volume of appeals. The Group also discussed the importance of protecting the rights of ratepayers and any reforms should be designed to reduce the volume of unnecessary or speculative appeals rather than the volume of appeals per se.

The Group discussed the fact that the last two revaluations have taken place during exceptional economic circumstances and the ratepayer view that the information provided to support assessments was inadequate. In tandem, these factors may have influenced the volume of revaluation appeals lodged.

The sub-group discussed numerous proposals to reform the appeals system including:

• The importance of more effective information-sharing between Assessors, other public sector bodies, ratepayers and their agents, as well as better information provision more generally including through the development a Scottish equivalent of Spatial NI.
• Providing Assesso rs with new powers to gather information from a wider group of stakeholders. Ratepayer representatives expressed concerns over this proposal.
• The challenges of information-sharing where that information is subject to personal or commercial confidentiality considerations, particularly following the GDPR changes which have come into force since the Barclay Review report was published.
• Limiting appeal rights where there is an outstanding request for information, or making appeals contingent on the property's rental or turnover information being available to the Assessor. The Group were able to agree the second part of this proposal.
• The option to introduce fees for appeals. Ratepayer representatives on the Group and sub-group expressed concerns over any fees being levied. If a fee is to be levied, ratepayer representatives would expect significant improvements in the administration of the appeals system. Ratepayer representatives also believed that the fee level should not be prohibitive and should be refunded in the event of a successful appeal.
• The option to remove the financial incentive for public sector appeals, which account for around 21% of all appeals. Public sector representatives on the Group expressed concerns over such proposals.
• Options to look at relief thresholds in recognition that ratepayers falling immediately above thresholds have a significant financial incentive to appeal. The sub-group agreed that Small Business Bonus Scheme thresholds should not be considered ahead of the forthcoming evaluation of the scheme.
• The Barclay Review recommendation that Valuation Appeals Committees should have the power to increase rateable values where there is robust evidence to support it. The sub-group agrees this proposal but also noted they believed it would have minimal impact on the volume of appeals.
• Whether Assessors should have the power to update the roll, in light of new evidence, for properties that are not under appeal. This might remove the incentive for protective appeals, but could introduce a revenue risk for Scottish Ministers. Evidence is being sought on the level of revenue risk such a proposal would introduce.
• Limiting appeals for zero-rated properties.
• Restricting appeal rights to one appeal per property opposed to the proprietor, tenant and occupier all having appeal rights under the current system. Ratepayer representatives did not believe this proposal would be fair or workable.

The sub-group strongly agreed with the need for better information provision/sharing and agreed that the current system sees limited information sharing taking place prior to an appeals panel citation being received. However, the sub-group was unable to unanimously agree on whether, or how, any of the proposals above could be implemented.

At the time of agreeing this report, both the sub-group and main group have been unable to agree a way forward to address the challenges facing the appeals system.

Recommendation 20. General anti-avoidance rule (GAAR)

The Barclay Review identified a number of tax avoidance schemes such as the 'artificial' occupation of premises to reset empty property relief. The Review recognised that individual actions can be taken to close known avoidance schemes, but a GAAR should be created to reduce their use and make it harder for loopholes to be exploited in future.

The Group strongly agreed with the principle of the recommendation, of the need for a power to address behaviour which may comply with the word of the law, but not with the spirit of the law. The Group also identified a GAAR as being a mechanism to support the delivery of recommendations elsewhere in the Barclay Review, for example, the changes to 'active' occupation.

The Group discussed the challenges of replicating the type of GAAR available to single national agencies such as Revenue Scotland or HM Revenues and Customs as opposed to through 32 independent billing authorities (Local Authorities).

Partly as a consequence of the lack of the specific legal expertise necessary to advise the operation of a GAAR, the Group did not discuss the legal practicalities of delivering a GAAR.

The Group discussed the importance of this change being appropriately and clearly communicated to ratepayers. The Group's views are reflected in the Barclay Implementation Consultation questions with a focus on the principles that a General Anti-Avoidance Rule should seek to encompass.

Recommendation 21. Close empty property relief loophole

The Barclay Review identified a known avoidance tactic for empty property where temporarily bringing the property back into use for a short period resets the empty relief period and allows ratepayers to take advantage of the more generous empty property relief entitlements for "new" empty properties. The Review recommended the reset period be increased to six months in any financial year – recognising it need not be continuous so as not to inhibit pop-up uses of empty properties.

The Group broadly agreed with the principle of the recommendation but disagreed that the reset period be constrained to a financial year as opposed to a rolling 12-month period and some disagreed with the six month reset period. The Group agreed that the financial year reset criteria essentially penalised any property returning to unoccupied status between October and August the following year. e.g. an unoccupied property becomes occupied in May but is unoccupied in October would not re-qualify for Empty Property Relief until September the following year.

The Group discussed the importance of this change being appropriately and clearly communicated to ratepayers. The Group's views are reflected in the Barclay Implementation Consultation questions with a focus on how any changes should be communicated and on how the six month reset period should be defined.

Recommendation 23. All relief awards to be checked for errors

The Barclay Review recognised that the rates system is administered by councils but identified examples where reliefs had been incorrectly awarded in Scotland. The Review recommended that Scottish Government be responsible for checking relief awards to ensure compliance with the legislation.

The Group discussed the challenges of Scottish Government monitoring compliance without access to the administrative data. The Group discussed the resources that would be required to monitor such compliance, were the administrative data available, and did not agree with the Barclay Review's conclusion that the delivery of this recommendation effectively "will not carry additional costs".

The Group agreed that the Scottish Government should regularly monitor reliefs as far as possible using standard data collections. For example, attempting to identify where recipients of the Small Business Bonus Scheme may operate across multiple local authority boundaries. The Group agreed that Scottish Government should regularly update guidance on relief eligibility, particularly ahead of each revaluation. The Group also agreed that the data improvements necessary for, and facilitated by, the development of a Scottish equivalent of Spatial NI would assist with identifying reliefs awarded incorrectly.

As this recommendation is currently administrative in nature, the Implementation Advisory Group will continue to monitor progress to ensure appropriate implementation.

Recommendation 25. Relief restricted to properties in active occupation

The Barclay Review highlighted a well-known avoidance tactic where, in order to reduce liability, a small part of an otherwise empty property is occupied for storage; this allows the property to qualify for another relief or for a new period of empty relief to begin after a set period.

The Review recommended a change to the qualification criteria for any relief (except Empty Property Relief) which stipulates that, it must be demonstrated that over 51% of the area of the property is in active use (not vacant) throughout a year.

The Group agreed with the need to address the avoidance tactic but expressed significant concerns over the definition of 'active use' and did not agree that demonstrating over 51% of the area being in active use would be sufficient to address the problem. The Group debated which ways in which 'active use' could be defined but was unable to recommend any particular definition and agreed that the General Anti-Avoidance Rule should be designed to provide insurance against abuse of the active definition.

The Group's views are reflected in the Barclay Implementation Consultation questions with a focus on how 'active' should be defined.

Recommendation 26. Reform empty property relief

The Barclay Review recommended that to encourage empty property back into economic use, empty property relief should be reformed for listed buildings and for property that has been empty for significant periods.

The Review acknowledged listed buildings should merit special treatment but not indefinitely and that 100% relief for listed properties should be restricted to a period of two years. The Review also recommended that where property has been empty for a significant period, more incentive is needed to encourage the property back into productive use so should be liable to pay a 10% surcharge after five years.

The Group expressed concerns about this recommendation, particularly with regards to listed buildings, and discussed the potential challenges of bringing listed buildings back into productive use. The Group discussed whether the restriction should be removed, be extended to five years, or if the local authority should have scope to apply discretion when circumstances beyond the control of the ratepayer prevent progress – whilst noting that local authorities may be major beneficiaries of reliefs for listed buildings.

The Group also highlighted risk of a vicious circle where restrictions in relief availability for listed buildings may prevent developers taking them on thereby risking them falling into disrepair and making them less attractive to developers in future.

With regards to the recommendation on non-listed properties, the Group agreed that the design of the current Empty Property Relief provides limited incentive to hold on to empty properties voluntarily and that the majority of long term empty properties were unavoidably empty. For example, where landlords had refused to re-negotiate long term leases.

On this basis, the Group disagreed with the conclusion that a rates surcharge would encourage properties back into productive use but instead believed such a policy would simply further penalise ratepayers holding on to currently unproductive properties.

The Group's views are reflected in the Barclay Implementation Consultation questions with a focus on the discretion available to local authorities in administering the reforms.

Recommendation 27. Sports relief for affordable community facilities

The Barclay Review recommended that Sports Club relief should be reviewed to ensure it supports affordable community-based facilities, rather than members clubs with significant assets.

The Group agreed with the principle of the recommendation and discussed the importance of this change being appropriately and clearly communicated to ratepayers. The Group discussed the overlaps with recommendation 23 and whether the current relief was being administered in accordance with existing legislation.

The Group's views are reflected in the Barclay Implementation Consultation questions with a focus on how affordable/community sports facilities should be defined.