Scottish Aggregates Tax administration regulations: consultation

4. Impact Assessments

Background

4.1 This section details the impact assessments considered as part of the secondary legislation. These are set out in sections 4.A. – 4.K.

4.2 Views are sought on a range of issues to inform the relevant impact assessments. Responses are encouraged from all interested parties, to ensure that the impact assessments are fully considered.

A. Equal opportunities

4.3 The Scottish Government assessed the potential impacts of the Aggregates Tax and Devolved Taxes Administration (Scotland) Act 2024^[23] on equal opportunities, fairness, and the Public Sector Equality Duty, as per section 5 of the Equality Act 2010 (Specific Duties) (Scotland) Regulations 2012^[24].

4.4 It is not expected that the 2024 Act will have any impact on equal opportunities. The Equalities Impact Assessment processes were completed while developing the 2024 Act and concluded that a full Equality Impact Assessment (EQIA) was not required. It concluded that:

• Individuals will not be denied access to, a service or function as a result of the policy changes proposed.
• There will not be a change in the size of budget, or an impact on resources, and will this change (potentially) impact on individuals, such as a service be withdrawn, changed or expanded.
• The policy will not impact on other policies that effect people.

4.5 The tax will primarily and directly affect producers of primary aggregate who will be liable to register, make tax returns and make payments to Revenue Scotland in relation to the tax. The proposed amendments, made under powers conferred by the Act, do not discriminate with respect to any of the protected characteristics (including age, disability, gender reassignment, marriage and civil partnership, pregnancy and maternity, race, religion or belief, sex and sexual orientation) either directly or indirectly.

4.6 SAT will be a tax on the commercial exploitation of crushed rock, sand and gravel, replacing an existing similar UK wide tax. It is not assessed that any of the proposed provisions of the Act will have any impact on those who share a protected characteristic.

4.7 The Scottish Government will continue to consider any potential equality impacts in relation to development of secondary legislation and implementation of the tax.

B. The Fairer Scotland Duty

4.8 The Fairer Scotland Duty^[25] is a statutory requirement under Part 1 of the Equality Act 2010^[26]. This has been considered by the Scottish Government in terms of how the 2024 Act can reduce inequalities of outcome caused by socioeconomic disadvantage. The proposed amendments do not discriminate with regards to socioeconomic inequalities or have any impacts on socio-economically disadvantaged groups, such as workers on low incomes in this sector.

4.9 The Fairer Scotland Duty Assessment processes were completed while developing the 2024 Act and concluded that a full assessment was not required. It concluded that in light of the nature of this devolved tax, and the fact that the Act largely retains core aspects of the existing UK tax, it is not expected to have any impacts on inequality for socio-economically disadvantaged groups.

4.10 The Scottish Government will continue to consider the Fairer Scotland Duty throughout the development of relevant secondary legislation and implementation of the tax.

C. Human rights

4.11 The proposed amendments associated with the secondary legislation do not infringe on or affect any subject areas of the European Convention on Human Rights (ECHR)^[27]. No differential impact on human rights or any impact on any individual’s civil liberties through the proposals have been identified.

4.12 European Court of Human Rights (“EHCR”) jurisprudence (see Ferrazini v. Italy [GC] 2001-VII, paragraphs 24-31) affords the widest margin of appreciation to States in terms of their taxing function, save for cases where tax measures are of a penal, discriminatory or otherwise significantly disproportionate nature, and hence article 6 of EHCR is not engaged.

4.13 The 2024 Act amends the Revenue Scotland and Tax Powers Act 2014^[28], to amongst other things, provide for a range of additional civil penalties in relation to SAT and make minor modifications to the scope of SAT-related decisions made by Revenue Scotland. However, a notice of review can be given to Revenue Scotland in relation to such decisions or a notice of appeal can be given to the independent and impartial First-tier Tribunal (Tax Chamber) and the Upper Tribunal. It is not therefore considered that there are any relevant human rights concerns.

D. Child rights and wellbeing

4.14 The Scottish Government has considered child rights and wellbeing impacts associated with the introduction of the SAT secondary legislation. The evidence and assessment identify that the proposal has no engagement with children, or their rights contained within the United Nations Convention on the Rights of the Child (UNCRC)^[29] requirements as incorporated into domestic law. (The UNCRC requirements cover devolved matters only and are set out in the United Nations Convention on the Rights of the Child (Incorporation) (Scotland) Act 2024^[30]).

4.15 As there is no relation to the rights of children within the 2024 Act, there is no potential for there to be a notable impact. Therefore, after screening, it was concluded that a Child Rights and Wellbeing Impact Assessment (CRWIA) is not required. It concluded that:

• The 2024 Act will not affect children and young people up to the age of 18. The devolved tax will be charged on crushed rock, sand and gravel. It will be accounted for by primary aggregate-producing quarries and wharves at the point of commercial exploitation and will not significantly change the current tax landscape under the UKAL.
• If the cost of the tax is passed to the consumer, this will not have any adverse effects on children and young people as the effects would be even to all customers purchasing goods containing aggregate materials. Additionally, children and young people are not expected to significant consumers of crushed rock, sand and gravel.

E. Business impacts

4.16 The 2024 Act has been informed by extensive stakeholder engagement. In particular, the aggregates industry has been a key stakeholder group informing development of SAT.

4.17 The development of legislation has been informed by a SAT Advisory group, which includes representatives from trade bodies representing the majorities of companies producing primary and recycled aggregate in Scotland.

4.18 A Business and Regulatory Impact Assessment (BRIA) was carried out for the 2024 Act. The BRIA considered three possible options in relation to establishing a replacement for the UKAL in Scotland: 1) do not replace UKAL once it is disapplied in Scotland, 2) introduce a replacement tax that utilises the fundamental structure of UKAL while being tailored to Scotland’s needs, and 3) provide for a replacement tax that takes a fundamentally different approach to the existing UKAL, redefining key concepts and introducing a different system for the administration of SAT.

4.19 The BRIA published at introduction of the SAT primary legislation supported option two (introduce a tax that retains the fundamental structure of UKAL) as it would retain definitions developed over a long period of time with extensive engagement between the UK Government and stakeholders. Similarly, this would maintain a system that is widely understood by the industry and considers that UKAL has been considered and validated through litigation, including by the European courts.

4.20 A partial Business and Regulatory Impact Assessment (BRIA) has been completed as part of this consultation on SAT administration regulations and is included at Annex B. The partial BRIA assesses the likely costs, benefits and risks that the Bill will have on the public, private, or third sector. Responses to this consultation will help to inform whether a full BRIA is required. If a full BRIA is required, it will be published alongside the Order introduced to Parliament post-consultation.

F. Privacy impacts

4.21 The proposed amendments to the regulations would be subject to other legislation that prohibits, restricts access or relates to the disclosure of that information, for example the Data Protection Act 2018^[31] or the Revenue Scotland and Tax Powers Act 2014^[32]. Therefore, a Data Protection Impact Assessment has not been completed.

G. Digital impacts

4.22 A Digital Impact Assessment is not required for the amendments proposed in this policy, however, the approach to making tax digital has been discussed in light of upcoming changes to technology.

4.23 Digital practices and innovation can offer opportunities for taxation, in terms of data management and reporting. However, there can also be challenges in relation to costs, timing, and accessibility. This would be applicable to all of the devolved taxes, in addition to SAT.

4.24 Further consideration will be given to this should Scottish Ministers bring forward legislative proposals drawing on the Order-making powers related to the use of automation by Revenue Scotland and communications from Revenue Scotland to taxpayers to ensure that the final design does not engage human rights legislation.

H. Island communities

4.25 During the consultation and engagement for the 2024 Act, a partial Island Communities Impact Assessment was completed and published alongside the consultation paper. Both documents invited views to help further inform the process to develop policies.

4.26 It was noted that island communities may have potential issues with regard to supply chains. SAT will aim to encourage the minimum necessary exploitation of primary aggregates, in order to maximise the use of secondary and recycled aggregates (which are exempt from the tax). Island communities may be disadvantaged due to their limited access to secondary and recycled aggregates, albeit the provisions in the 2024 Act largely reflect the core elements of the existing UK Aggregates Levy.

4.27 The partial Island Communities Impact Assessment was reviewed following consultation and stakeholder feedback, and in light of the provisions in Part 2 of the 2024 Act. It was concluded that the proposed amendments would have no adverse impact on island and rural communities. Therefore, a full Island Communities Impact Assessment (ICIA) as required under the Islands (Scotland) Act 2018^[33], is not necessary. It was concluded that:

• The UK Aggregates Levy has been in operation since 2002 and currently applies in Scotland. A decision to not introduce the SAT (i.e., to effectively abolish the tax in Scotland) would therefore represent the position of greatest change. That would not be compatible with Scottish Government objectives, nor would it be a business-as-usual option.
• Taking account of stakeholder views, the 2024 Act will replicate the core structure of the UKAL, while also providing opportunities for improved collection and administration of the tax. It is therefore not considered that the replacement tax will impose any new or additional burdens on island Communities.
• It is assessed that the application of the tax will not result in any additional impacts on those that commercially exploit primary aggregates on Scottish Islands, when compared to those elsewhere in Scotland, nor any differential impact between producers on different islands.

4.28 Once operational, the Scottish Government will keep the impact of the tax on island communities under review.

I. Local government

4.29 Consultation and stakeholder engagement to help develop the 2024 Act included dialogue with local government, principally between Scottish Government and Revenue Scotland officials and the Convention of Scottish Local Authorities^[34] (COSLA), the body that represents Scotland’s councils. Some local authorities submitted their own response to the consultation directly.

4.30 COSLA have been a key stakeholder and engaged with the Scottish Government as part of the expert advisory group, convened specifically to provide advice on the Bill.

4.31 It is not expected that the amendments as part of the secondary legislation will result in any significant implications for local government. At present, four Scottish local authorities operate their own quarries and therefore directly pay UKAL where aggregate is commercially exploited.

4.32 More broadly, local authorities may indirectly pay UKAL where they purchase aggregates from quarry operators and the cost of the levy is passed on. The Scottish Government does not currently hold any direct information on the amount of UKAL paid by local authorities, either directly or indirectly.

4.33 However, in an illustrative scenario where the SAT rate is consistent with that for UKAL, as local authorities will already have provisions in place to account for the cost of UKAL either as a taxpayer or when purchasing aggregate, the introduction of SAT is not expected to result in additional responsibilities or costs to local authorities.

J. The Consumer Duty

4.34 The Consumer Scotland Act 2020^[35], which came into force on 1 April 2024, established a Consumer Duty on public bodies to improve the extent to which consumers are considered in strategic policy and decision-making. A key principle of the Duty is to ensure all public bodies, including the Scottish Government, are working towards improving outcomes for consumers as part of their strategic decision-making process.

4.35 “Vulnerable consumers” are defined in section 25 of the Consumer Scotland Act 2020^[36] as consumers who, by reason of their circumstances or characteristics:

a) may have significantly fewer or less favourable options as consumers than a typical consumer, or

b) are otherwise at a significantly greater risk of:

(i) harm being caused to their interests as consumers, or

(ii) harm caused to those interests being more substantial,

than would be the case for a typical consumer

The proposals do not have an adverse impact on vulnerable customers, as the same access will be available for aggregate materials.

4.36 As the policy associated with the administration regulations is not strategic, there is no formal requirement for a Consumer Duty Assessment.

K. Sustainable development

4.37 The Environmental Assessment (Scotland) Act 2005, section 4(3)(b)^[37], specifies that a Strategic Environmental Assessment (SEA) is not required for financial or budgetary plans and programmes. Therefore, as the 2024 Act is a financial Act, no SEA is required. UKAL, which aims to minimise the use of primary aggregates and maximise the use of secondary and recycled aggregates, has been operational in Scotland since 2002.

4.38 In policy terms, the Scottish Government will place particular importance on considering how SAT aligns with our overall ambitions for sustainable economic growth and our transition to a circular economy.

4.39 As recognised in the National Strategy for Economic Transformation^[38], Scotland has a unique opportunity over the next ten years to increase economic and social wellbeing, whilst respecting environmental limits and becoming one of the most prosperous nations in the world.

4.40 Recognising the environmental impacts associated with the use of new materials, the Act will support the Scottish Government’s circular economy and zero waste goals and continue to encourage a shift in demand from primary aggregate towards recycled aggregate, wastes and other by-products. The Act will also encourage innovation and the development of new products which might substitute for aggregates in future and help to support this shift.

4.41 The Scottish Government considered whether the proposals outlined in the administration regulations would avoid or reduce significant adverse effects on the environment and whether the Act offered opportunities to enhance sustainable development. The introduction of SAT is intended to contribute to the Scottish Government commitment to build a fair, green and growing economy. Therefore, it was concluded that a full Strategic Environmental Assessment (SEA) is not required.

4.42 The Scottish Government publication, Delivering Scotland's circular economy - route map to 2025 and beyond^[39], sets out the importance of embedding circular construction practices to reduce resource needs, reduce waste and carbon, and encourage refurbishment and reuse. SAT will support the Scottish Government’s ambitions for a circular economy, in particular the ambition to embed circular construction practices. Although SAT in and of itself will not individually deliver the Scottish Government’s circular economy ambitions, it will serve as a price signal which complements other circular construction measures.

Questions

48. Do you think that the proposed amendments will in any way impact upon equal opportunities, the fairer Scotland duty, human rights including child rights and wellbeing, consumer duty, local government, island communities, privacy, digital approaches, and/or sustainable development in Scotland?

49. If so, please give us your views.

50. Do you have any feedback on the partial Business and Regulatory Impact Assessment (BRIA), included in Annex B?