The Cost of Living (Tenant Protection) (Scotland) Act 2022: report -1 October to 31 December 2023

1. Introduction

1.1 The Act came into force on 28 October 2022 as a temporary response to the ongoing emergency situation caused by the impact of the costs crisis on those living in the private and social rented sectors, and students living in college or University Halls of Residence and Purpose Built Student Accommodation in Scotland. Part 1 of the Act can only remain in force until 31 March 2024 at the latest.

1.2 Section 4 provides a detailed update on the evolving economic context since the last report to the Scottish Parliament. The key points are as follows:

• Households in the rented sector entered the cost of living crisis in a more vulnerable position than owner occupiers, and the most recent (November 2023) YouGov polling for the Scottish Government shows that private renters continue to be more likely to report concern about paying mortgage/rent than households generally (15% vs. 9%) as well as more likely to say that they were struggling at least a little to pay for household bills (65% vs. 47%).
• While consumer price index (CPI) inflation has fallen from 11.1% in October 2022 to 3.9% in November 2023, it remains above the Bank of England’s 2% inflation target, and the level of prices remains much higher than it was prior to the cost of living crisis: over the two years from November 2021 to November 2023, the overall CPI is 15% higher, and the CPI subindex for the category “electricity, gas and other fuels” is 48% higher.
• As a result of the continuing high level of energy prices, it is estimated that the fuel poverty rate in the private rented sector will stand at 47% during the January-March 2024 Ofgem price cap period, as compared to the 36% in 2019 prior to the cost of living crisis.
• While there have been increases in real pay in recent months, this follows a period of sustained falls; for example, median real pay in Scotland based on HMRC PAYE records was 2.6% lower in the period September-November 2023 than at its peak in March-May 2021.
• The Scottish Fiscal Commission (SFC) expects that overall living standards in Scotland will fall slightly in 2023-24, which after the large fall in 2022-23, will result in a cumulative fall of 2.7% from 2021-22 to 2022-23, the largest since records for Scotland began in 1998. The SFC expects that it will take until 2026-27 for living standards to return to their 2021-22 levels.
• The decline in inflation in recent months has led to a fall in interest rates, including on buy-to-let mortgages, although rates remain significantly above pre-crisis levels.

1.3 Overall, while there have been some signs of improvement in economic conditions for households in recent months, these improvements follow a period of significant pressure such that that, on average, households continue to face economic and financial conditions which are significantly more challenging than they were prior to the cost of living crisis. Private rented households continue to report being on average under greater financial stress than the average for all households. For their part, landlords face lower inflationary pressures and somewhat lower interest rates than at the time of the last report, although again there has not been a significant improvement.

1.4 Therefore, the Scottish Government’s assessment is that the economic data released since the last report to Parliament has not materially changed the balance of considerations and thus our judgement remains that the regulations remain proportionate.

Changes to the emergency Act since introduction

1.5 Since the Act was introduced, Scottish Ministers have used the powers available to them to make a number of changes to the Act, including:

• laying regulations to expire the social sector rent cap from 26 February 2023 and suspend the rent cap in relation to student residential tenancies from 31 March 2023; and
• varying the rent cap for the private rented sector from 1 April 2023.

1.6 On 1 April 2023, further regulations came into force that extended the emergency Act beyond its initial first six month period, for a further 6 months until 30 September 2023. The regulations also varied the rent cap provisions in relation to the private rented sector, increasing the ‘permitted rate’ by which rent can be increased during a tenancy from 0% to 3%. This decision was taken following a comprehensive analysis of the latest economic context and consideration of a wide range of evidence from stakeholders. A Statement of Reasons providing a full justification and evidence base underpinning that decision was published alongside the regulations.

1.7 On 1 October 2023, The Cost of Living (Tenant Protection) (Scotland) Act 2022 (Amendment of Expiry Date) Regulations 2023 came into force, extending the remaining provisions within Part 1 of the Act for a further, and final, six month period to 31 March 2024 at the latest. A further Statement of Reasons providing a full justification and evidence base underpinning that decision was published alongside the regulations.

Our approach to reporting

1.8 Section 9 of the Act sets out statutory reporting requirements for Scottish Ministers. This means that every three months Scottish Ministers must review and report on the need for the provisions in the Act to either be continued or to suspend, vary or expire, where appropriate, based on the evidence available at the time. The statutory reports must undertake a review of the operation of the measures with a view to considering whether they remain necessary and proportionate in connection with the cost of living (section 9(1)(a) in accordance with sections 9(2) and 9(5)).

1.9 Before Scottish Ministers prepare a report, section 9(3) of the Act sets out that they must consult stakeholders who represent the interests of tenants and landlords that may be affected by the provisions in Part 1, and also with Local Authorities. Scottish Ministers may also consult other persons considered appropriate. Section 9(4) also sets out that Scottish Ministers must include a summary of how those views were taken into account in finalising their report. The report details engagement with stakeholder groups – representing tenant, landlord, financial institutions/investors and local authorities – in order to understand and gather evidence on the impact of the provisions, since they came into force.

1.10 The report must also set out the steps the Scottish Ministers have taken to meet the requirements in section 3 (information and advice for tenants) to demonstrate action taken to ensure that tenants affected by the provisions of Part 1 receive appropriate information, advice and support for the period during which Part 1 remains in force.

1.11 When extensions to Part 1 were sought, a Statutory Statement of Reasons setting out the justification and evidence base for it was required. During reporting periods that a Statement of Reasons was laid, it replaced the need for a formal report on the review of the operation of the provisions in Part 1 of the Act for that reporting period (section 9(8)).

1.12 Since the Act came into force, the following statutory reports and Statement of Reasons have been published:

• The Cost of Living (Tenant Protection) (Scotland) Act 2022: First Report to Parliament
• The Cost of Living (Tenant Protection) (Scotland) Act 2022: Proposed Extension – Statement of Reasons (January 2023)
• The Cost of Living (Tenant Protection) (Scotland) Act 2022: 2^nd Proposed Extension – Statement of Reasons (June 2023)
• The Cost of Living (Tenant Protection) (Scotland) Act 2022: Report to the Scottish Parliament covering the period 1 July to 30 September 2023 (October 2023)

1.13 As set out in section 9(6)(b), this is the final statutory report required to be laid on the operation of Part 1 of the Cost of Living (Tenant Protection) (Scotland) Act 2022. Part 1 of the Act is due to expire on 31 March 2024 at the latest.

Status Update

1.14 Section 2 of this report provides details on the status and operation of the provisions in Part 1 of the Act.

1.15 In addition, and in line with the range of evidence and supporting information provided in the accompanying documents and Impact Assessments that were published alongside the Cost of Living (Tenant Protection) Bill when it was introduced to Parliament last year, this report also provides an updated overview of the current economic context underpinning the provisions (see section 4).

1.16 Our approach to reporting will ensure that Parliament is given as much information as is available on the operation of the Act. Where supplementary information has been provided, this is indicated under ‘Operation of provision in the reporting period’ in section 2, with further detail available in section 6 of this report.