Barclay Review of non-domestic rates: Ministerial statement

Presiding Officer,

I am pleased today to provide a statement on the implementation of the independent Barclay Review of Non-Domestic Rates.  

The Barclay Review was commissioned in 2016 with a remit to explore how the rates system could better support business growth, long term investment and reflect changing marketplaces. I would thank Ken Barclay and his colleagues Professor Russel Griggs, David Henderson, Isobel d’Inverno and Nora Senior for their work on this review.

The report, published in August 2017, made 30 recommendations. The majority of these were accepted by the Scottish Government and I am pleased to report that all the agreed recommendations have now been implemented.  

To deliver this we engaged, consulted and worked closely with local authorities, assessors and businesses.

We introduced primary legislation – the Non-Domestic Rates (Scotland) Act 2020 and a range of statutory instruments as well as administrative changes.

I would like to highlight this afternoon a number of the key policy changes that stemmed from the Barclay Review.

Supporting business growth was core to the remit of the Barclay Review and we have implemented recommendations to improve economic performance and encourage investment.

The Business Growth Accelerator relief is the only relief of its type in the UK aimed at supporting property growth and property improvements. We introduced this in 2018, and this year alone, the relief is forecast to save ratepayers £15 million.  

To better incentivise the re-occupation of empty properties and therefore support our town centres, we expanded Fresh Start Relief to cover all property types. We further extended it this year, making it available to properties with a rateable value of up to £100,000.  

More specifically for the renewable energy sector, we commissioned an independent review of small scale hydro schemes – the Tretton Review.

Following publication of that report in 2020, we provided more certainty for investors by guaranteeing - until 2032 - 60% relief for hydro generators. 

Barclay considered both ends of the property scale – large and small. A reduction in the Large Business Supplement was recommended, and in 2020 we introduced an Intermediate Property Rate.

In April, we raised the rateable value threshold at which the Higher Property Rate applies.

Over 95% of properties are now liable for a lower property rate than anywhere else in the UK and we remain committed to reducing the Higher Property Rate when affordable. 

We also commissioned an independent review of the Small Business Bonus Scheme, or SBBS, by the Fraser of Allander Institute.

Their findings were reported in 2022 and we convened a short-life working group to consider their recommendation to collect new information to make a more robust assessment of the impact of SBBS possible in future.

We are committed to evidence-based evaluation and policy development to ensure that our support schemes are effective and deliver value for money.

However, acknowledging the concerns raised by the group over additional red tape and burdens on business, we are not currently planning to introduce any new reporting requirements for SBBS relief recipients. 

SBBS remains the most generous scheme of its kind in the UK. We have introduced changes this year to make it more progressive and it continues to take 100,000 properties out of rates altogether.   

This year saw the revaluation of all non-domestic properties following a six-year gap.

Barclay recommended more frequent revaluations to reduce volatility and shorter tone dates to allow rateable values to more closely reflect market trends. 

This revaluation marks the introduction of the first three-year revaluation cycle with valuations based on a one-year tone date. New rateable values for non-domestic properties across the UK came into effect on 1 April but in Scotland they are based on market conditions as at 1 April 2022 compared with a year earlier on 1 April 2021 in England and Wales.  This ensures that values in Scotland more accurately reflect up-to-date rental market data and specifically for this revaluation, reduces the risks of COVID-19 distorting rateable values

Earlier today, a report on the impact of the 2023 revaluation was published. This report details changes in rateable values as a result of the revaluation, both by property class and area, as well as resulting changes to gross bills, that is after the application of General Revaluation Transitional Relief – a relief which we introduced to protect those seeing large increases in rateable values due to revaluation.   

The Barclay Review also recommended a number of measures aimed at improving ratepayer experience, including improving transparency and increasing efficiency. 

Assessors are now required to publish a draft valuation roll on 30 November the year before revaluation as well as publish, for prescribed property types, lists of the comparable properties they used to determine the ‘Basic Rate’ for revaluation.

In advance of the next revaluation – in 2026 - we are committed to exploring whether further improvements can be made to the transparency of valuations.  

We also introduced a new two-stage appeals system on 1 April and this took place alongside the transfer of valuation appeal committees to Scottish Tribunals.

The new appeals system ensures greater transparency and fairness, encouraging earlier information sharing and quicker resolution of cases for ratepayers – which is important for the success of three yearly revaluations.

We are committed to a fair and transparent non-domestic rates system which provides a level playing field.

The Barclay Review recommended the creation of a General Anti-Avoidance Rule, and the Non-Domestic Rates (Scotland) Act 2020 introduced regulation-making powers to empower councils to tackle rates avoidance tactics.

The first anti-avoidance regulations under these powers came into force last month, delivering commitments in the Bute House Agreement and Programme for Government 2021.

A number of other changes have also been made to level the playing field for all ratepayers:

• self-catering property liable for non-domestic rates became required, from 1 April 2021, to provide evidence of actual letting for 70 days per year, in addition to being available for let 140 days in the year
• we removed both the financial incentive for councils to award charity or sports relief to Arm’s Length External Organisations and eligibility for charitable rates relief from mainstream independent schools
• we published statutory guidance on discretionary sports relief to ensure that it supports affordable community-based facilities
• we restricted the Small Business Bonus Scheme to occupied properties, focusing the relief on economically active premises, and
• previously exempt property on parks became rateable from 1 April.

We want to encourage empty properties back into economic use and Barclay recommended a number of reforms to Empty Property relief. These were however superseded when we devolved this relief to councils on 1 April this year.

This reform was accompanied by a revenue transfer to councils of £105 million per year for three years - significantly more than the estimated cost of maintaining the national relief in light of the decision to freeze the poundage this year.

This delivers greater fiscal empowerment as local authorities may use this money as they see fit according to the needs of businesses and communities in their area, including for any discretionary local empty property relief.

We will undertake an initial review of the devolution of empty property relief in advance of the next revaluation. 

Presiding Officer, I have outlined this afternoon some of the key reforms and changes and significant progress that we have made following the Barclay Review to deliver a system which better supports business growth and long-term investment, which increases fairness and transparency and which improves ratepayers’ experience.

The UK Government’s own fundamental Review of Business Rates which concluded in 2021 made recommendations which Scotland had already, or has since, implemented.

It is important to recognise that non-domestic rates are an important source of revenue to fund the local services on which we all rely.

We continue to offer a strong non-domestic rates package, responding to the calls from business to freeze the poundage and offering reliefs worth almost three quarters of a billion pounds this year alone.

It will take time for the Barclay reforms to bed in and longer still for them to be evaluated. In line with the Framework for Tax, we want to provide certainty, convenience and efficiency to ratepayers.

However, we want to ensure that the door remains open to discussions on further improvements to the rates system.

During the First Minister's statement on 18 April, he acknowledged the need for a new approach to the Government's relationship with business and on Monday this week we announced the creation of a New Deal for Business group.

One of the aims of the group will include establishing a consultative sub-group to advise on further enhancements to the operation and administration of the Non-Domestic Rates system, following the final implementation of the independent Barclay Review.

As chair of this sub-group, I look forward to it being set up and to hearing the views of the business community.

As part of the New Deal for Local Government, I will ensure that local government’s views are fully taken into account when considering any further enhancements to the NDR system.

And I have also written to the spokespeople of the other parties to invite them to raise their NDR concerns with me.

On that note, I will conclude in saying that I look forward to the constructive engagement that will take place between  myself and opposition party spokespeople and I look forward to the questions they will raise this afternoon.