Scottish Building Safety Levy: consultation

1. Introduction

The Grenfell Tower fire in London in June 2017 highlighted concerns about the safety of medium and high-rise buildings with external wall cladding across the UK. The Scottish Government has taken a range of actions following the tragic events at Grenfell, including changes to Scottish Fire Safety Standards in 2019 and then again in 2021. Changes to the requirements on the fire safety of cladding systems were introduced in June 2022, including banning highly combustible metal composite material panels on all buildings and a ban on combustible external wall cladding systems of residential and high-risk buildings over 11 metres.

In the wake of the Grenfell tower tragedy, the UK Government highlighted the need to bring an end to unsafe cladding. It introduced the Building Safety Act 2022 to strengthen the regulatory system for the construction and maintenance of residential buildings in England and Wales.

In Scotland, the Scottish Government established a Cladding Remediation Programme to identify, assess (through a Single Building Assessment) and address the safety risks for buildings within scope of the programme. The Programme aims to improve the safety of residents and owners by addressing the risk to human life that is (directly or indirectly) created or exacerbated by a building’s external wall cladding system, as well as the consequential negative impacts which can currently exist in relation to the buying, selling, and re-mortgaging of relevant flatted residential properties in Scotland. The Programme scope is limited to multi-residential domestic buildings (which may include commercial premises) constructed or refurbished between 1 June 1992 and 1 June 2022, 11 metres and over in height and incorporating a form of external wall cladding system.

The Scottish Government introduced the Housing (Cladding Remediation) (Scotland) Act 2024 to facilitate the delivery of the Cladding Remediation Programme.

1.1 Funding Cladding Remediation

In England, the costs of cladding remediation will be met through the following sources:

• Direct remediation by the housebuilding sector
• Revenues from the Residential Property Developer Tax (RPDT), which applies UK-wide
• Revenues from the England-only Building Safety Levy (UK Levy)

The UK Government legislated through the Building Safety Act 2022 for the introduction of a Building Safety Levy on the development of new residential buildings. Unlike RPDT, the UK Levy will only apply to developments in England. Further information on the UK Levy is available in Annex A

The UK Government’s decision to create a levy in England-only means that no consequential funding will come to Scotland as a result of its introduction. When the UK Levy goes live, the only consequential funding the Scottish Government expects to receive in relating to cladding remediation is from the spending related to revenues from the RPDT^[1].

Discussions around direct sector contributions in Scotland are ongoing and Scottish Ministers have publicly committed to spending all relevant consequential funding received on cladding remediation. However, as the scale of cladding remediation required in Scotland is likely to be proportionate to that in England, the decision to introduce an England-only levy has created a gap in the funding options and powers available to the Scottish Government, relative to those available to the UK Government. This issue was noted in May 2022 by the then Cabinet Secretary for Social Justice, Housing and Local Government (Shona Robison MSP):

“the UK Government announced the building safety levy a couple of weeks ago. That is an England-only levy that will be levied through local government. We will need to look at what equivalent we need to use here to bridge any gap, because we will spend the public money on buildings for which no developer can be found.”^[2]

1.2 Devolution of Powers

The Scottish Government set out in its Programme for Government 2023-2024 a commitment to pursue the devolution of powers to create a devolved Building Safety Levy (a Scottish BSL). The UK Government and the Scottish Government jointly held a consultation from 8 January 2024 to 19 February 2024, seeking views and evidence on the proposal to devolve powers to the Scottish Parliament for a Scottish BSL.

The consultation posed two questions:

1. The UK and Scottish Governments would welcome any observations and evidence addressing the criteria set out in the Command Paper. In particular, do you agree that devolving the proposed tax power would not impose a disproportionate negative impact on UK macroeconomic policy or impede the single UK market in house building?
2. Bearing in mind there is no option to extend the UK Building Safety Levy to Scotland, do you agree that the power to introduce a Building Safety Levy should be devolved to the Scottish Parliament?

The consultation received 17 written responses. Representations were received from organisations and individuals from across the property, accounting and law sectors: 8 were broadly in support of devolving powers for a Scottish BSL, 6 were opposed, and 2 expressed no opinion. A summary of responses to the consultation was published on the UK Government website.^[3]

The UK and Scottish governments agreed that no evidence was surfaced to prevent the transfer of powers from proceeding and the UK Government has agreed to progress legislation to devolve powers to the Scottish Parliament.

On 19 April 2024, the Deputy First Minister and Cabinet Secretary for Finance, Shona Robison MSP, informed the Scottish Parliament of the outcome of the discussions with the UK Government^[4], and that the Scottish Government would proceed to engage with the residential property development sector and wider stakeholders to ensure that the design and delivery of the devolved Levy is informed by the widest possible range of views. The Cabinet Secretary provided a further update to Parliament on 5 September^[5] that, following the General Election, the new UK Government administration has renewed the agreement to devolve powers. The Scotland Act 1998 (Specification of Devolved Tax) (Building Safety) Order 2024 (‘the Order in Council’) was laid before the Scottish and UK parliaments on 10 September 2024^[6].

1.3 Scottish Approach to Taxation

The Scottish Government's approach to taxation has developed over time and following the devolution of further tax powers in 2016. The Scottish Government has committed to publishing a Tax Strategy that will support more transparent and consistent decision-making on tax policy in Scotland and aims to increase public engagement around tax. This will be published alongside the 2025-26 Scottish Budget.

Tax has a vital role in achieving Scottish Government priorities and the Tax Strategy will set out the role of the tax system in supporting the medium-term fiscal outlook in Scotland by building on the Framework for Tax published in December 2021.^[7] The Framework for Tax sets out the principles and strategic objectives that underpin the Scottish Approach to Taxation, as well as our approach to decision making, engagement and how we manage and sequence tax policy and delivery.

Our approach continues to be underpinned by the four canons of taxation proposed by the renowned Scottish economist Adam Smith. These are Certainty, Proportionality to the ability to pay, Convenience and Efficiency. We have added two further principles to reflect our commitment to engaging and collaborating with stakeholders, and to reflect our approach to tackling tax avoidance.

The Framework for Tax ensures that our decisions on tax policy are coherent and rooted in a defined set of principles and objectives, rigorously appraised and developed through an established policy cycle, which puts proactive engagement at the heart of tax policy making.

In carrying out this consultation and future work to develop the policy for a proposed Scottish BSL, we will take full account of the principles and objectives set out in the Framework. We will also undertake policy development and engagement in the spirit of the New Deal for Business and its four main pillars^[8].

A Partial Business and Regulatory Impact Assessment (BRIA) has been published alongside this consultation, to assist respondents in considering the estimated costs, benefits and risks to the introduction of a Scottish BSL. A full Business and Regulatory Impact Assessment will be undertaken in advance of any primary legislation laid before parliament.