The Scottish Government Non Domestic Rating Account for the year ended 31 March 2024

Foreword

Statutory Background

1. All references to sections relate to the Local Government Finance Act 1992 as amended by Schedule 13 to the Local Government etc. (Scotland) Act 1994. All references to paragraphs relate to Schedule 12 of the Local Government Finance Act 1992.

2. This account is prepared under paragraph 6 of Schedule 12 to the Local Government Finance Act 1992 and shows:

2.1 Payments to Scottish Ministers in 2023-24 under paragraph 11(3) as amended by paragraph 176(19)(d) of Schedule 13 to the Local Government etc. (Scotland) Act 1994 in respect of the provisional amount of non-domestic rates estimated to be collectable in 2023-24 under paragraph 11(2) as amended by paragraph 176(19)(c) of Schedule 13 to the Local Government etc. (Scotland) Act 1994 and 12(5);

2.2 Payments made by Scottish Ministers in 2023-24 under paragraph 1 in respect of non-domestic rates distributed to the authorities in proportion to each local authority’s 2022-23 mid-year non-domestic rates income return net of any prior year adjustments as specified in The Local Government Finance (Scotland) Order 2023;

2.3 Payments made to and by Scottish Ministers in 2023-24 under paragraphs 11(8), (9) and (10) in respect of prior year adjustments. Adjustments are necessary where the notified amount of an authority’s non-domestic rating contribution for the year differs from the provisional amount referred to in paragraph 11(3), and also where the audited amount of an authority’s non-domestic rating contribution for the year differs from the notified amount.

Pooling and Redistribution of Non-domestic Rates

3. Under the system of local government finance which began on 1 April 1993, the yield of non-domestic rates was paid to the Secretary of State for Scotland by local authorities who collect non-domestic rates from businesses in their areas. The non-domestic rates are thus, in effect, pooled. These sums are redistributed to authorities in proportion to each local authority’s most recent prior year mid-year non-domestic rates income return net of any prior year adjustments available at the time of calculation. For example if local authority “A” has recorded that it expected to collect 10% of the total non-domestic rates to be collected in Scotland in the most recent prior year then it is allocated 10% of the distributable amount of non-domestic rates for the year in question.

4. The distributable amount is set with reference to the forecast non-domestic rates income to be collected for the year, the accumulated balance on the non-domestic rates account and the overall financial outlook for the Scottish Government. Since 2018-19 the Scottish Fiscal Commission (SFC) has been responsible for preparing the forecast for non-domestic rates income to be collected. The forecast of non-domestic rates income for the year is developed based on a number of factors (including the impact of any revaluation, an assessment of likely successful appeals losses, the level at which the poundage is set and the package of reliefs that Ministers wish to put in place).

5. The operation of the pool is now governed by Section 108 of the Act and Schedule 12 to the Act in addition to the Non-domestic Rating Contributions (Scotland) Regulations 1996 (S.I. 1996/3070). Following the devolution of local government finance in Scotland to the Scottish Executive on 1 July 1999, as set out in the Scotland Act 1998, these sums became due to Scottish Ministers and redistribution also became their responsibility.

6. The purpose of the account is to demonstrate that when multiple financial years are taken together all non-domestic rates paid to Scottish Ministers are redistributed to authorities. Table 5.14 of the 2023-24 Scottish Budget includes the Scottish Fiscal Commissions (SFC) Non-Domestic Rate Income forecast and the estimate balance on the account up to 2027-28.

7. Non-domestic rates paid to and by Scottish Ministers are credited to or drawn from the Scottish Consolidated Fund. There is no separate fund through which these monies pass. Scottish Ministers are, however, required to maintain a “Non-domestic Rating Account” for each financial year. They must credit to the account, as items of account, non-domestic rates received by them and must debit to the account payments made to authorities in the course of the year.

8. In order to avoid unnecessary cash transfers between Scottish Ministers and local authorities, only net payments are made, reflecting the net balance of sums due to be paid by them to authorities and of sums due from authorities to them. However, if the non-domestic rating account showed only net payments it would give an uninformative picture of the operation of the non-domestic rating system. The account therefore shows as items of account all the non-domestic rate entitlements and liabilities which have been discharged, rather than merely cash sums received or paid out.

9. In accordance with paragraph 176(19c) of Schedule 13 to the Local Government etc. (Scotland) Act 1994 (and the appropriate Non-domestic Rating Contributions (Scotland) Regulations) contributions from authorities to Scottish Ministers have been based on each authority’s “provisional amount” (calculated by the authorities themselves at the beginning of each financial year). This amount represents the non-domestic rates which the levying authorities estimate will be collectable from non-domestic ratepayers in the area of the authority. The authority is liable to pay that amount to Scottish Ministers during the year. An authority may, in prescribed circumstances, recalculate its provisional contribution during the year if the amount of rates collectable falls below that originally estimated. Each authority is also required to recalculate its contribution after the year ends. As a result, it may be required to make further payments to Scottish Ministers if the result of this calculation is greater than the provisional amount, or Scottish Ministers may be required to reimburse the authority for any overpaid contributions.

10. With effect from 1 April 2012 the Scottish Ministers introduced the Business Rates Incentivisation Scheme to incentivise local government to exceed the non-domestic rates income expected to be collected within their area. This original Scheme was revised with effect from 1 April 2014. Under the terms of both Schemes any local authority that exceeds its non-domestic rate tax base growth target, set by Scottish Ministers, retains 50 per cent of that additional income. As a result of the impact of COVID-19, Scottish Ministers confirmed that the Business Rates Incentivisation Scheme had been suspended for 2020-21,2021-22 and 2022-23. Any retention, in respect of 2019-20, could be retained for 1 year only due to the suspension of the scheme and has been accounted for, and reflected within, the 2022-23 Non-domestic Rating Account. Further details on the outcome of the 2019-20 Business Rates Incentivisation Scheme and Scottish Ministers decision to temporarily suspend the scheme can be found online. Scottish Ministers reintroduced an incentivisation scheme in 2023-24 with the scheme now more accurately named the Non-Domestic Rates Incentivisation Scheme (NDRIS). Details of the final NDRIS individual local authority targets for 2023 to 2024 and the provisional targets for 2024 to 2025 and 2025 to 2026 can be found online.

11. It is unlikely that the aggregate of payments into the pool in any one year will exactly equal the estimates used to calculate the Distributable Amount. As a result, the sum of the items credited to the account in any one year may be higher or lower than payments debited to the account in that year. If there is a surplus, it is carried forward by debiting the account for the year and crediting the next year’s account, so increasing the amount available for potential redistribution the following year. A deficit is carried forward by crediting the account for the year and debiting the next year’s account (Schedule 12, Paragraph 8). This account demonstrates that, looking at the non-domestic rates account over a number of years, all non-domestic rates paid to Scottish Ministers are redistributed to authorities.

12. As noted above the distribution of non-domestic rates is operated on a pooled basis and is derived from a series of estimates.

13. The Distributable Amount for 2023-24 of £3,047.0 million was originally calculated in December 2022 as part of the 2023-24 local government finance settlement.

14. Estimates in respect of the impact of the unresolved appeals were taken into account in setting the Distributable Amount for 2023-24. During the 2010 Revaluation non-domestic subjects with a total rateable value of £4,946 million had appealed against the valuation set in April 2010. Non-domestic subjects with a total rateable value of £5,394 million have appealed against the revaluation set in April 2017. The rateable value of the 2017 and 2010 revaluation appeals that were outstanding at 31 March 2024 was £170 million and £13 million respectively.

15. It is in the nature of the process that the various estimates above will require to be updated in the light of improved or additional information. This additional information can include policy decisions on the annual rates poundage and on reliefs and supplements. The calculation of Distributable Amounts going forward will reflect revised estimates for these variables.

16. The level of funding to Local Authorities in a financial year is not affected by variations in the levels of non-domestic rates receipts; equivalent adjustments are made to the levels of General Revenue Grant paid by the Scottish Government. Those sums are not reflected in this account. The Scottish Government Consolidated Accounts report the funding provided to Local Government as a whole within the Social Justice, Housing and Local Government Portfolio. An explanation of Local Government funding can be found online.

17. Local authorities notified the Scottish Government that their total Provisional Contributable Amount was going to be £3,082.4 million in 2023-24.

Review of 2023-24

18. In 2023-24 Scottish Ministers received £3,082.4 million of non-domestic rates and £3,047.0 million was paid to authorities. The amount received was more than that paid out which resulted in a surplus of £35 million in 2023-24. As noted above, appropriate adjustments were made to the level of General Revenue Grant to Local Authorities in year because the amounts collected were higher than estimated.

19. The balance brought forward on the account at 1 April 2023 was a deficit (or debit) of £83 million. To this is added the surplus for the year of £35 million, which leaves an overall deficit (or debit) on the account of £48 million at 31 March 2024. This debit will be taken into account when considering the amount to be paid to authorities in future years.

20. The budget concerned with this expenditure is that for the Scottish Government: Social Justice, Housing and Local Government Portfolio. The Scottish Government Consolidated Accounts can be accessed on the Scottish Government website.

21. The Scottish Budget 2023-24 delivered a competitive package of non-domestic rates reliefs, including the reformed Small Business Bonus Scheme relief and the transitional reliefs introduced following the revaluation which took effect on 1 April 2023. The Scottish Fiscal Commission’s forecasts for non-domestic rates income and reliefs can be accessed on the Scottish Fiscal Commission website. Forecast tax revenues for NDR are also set out in Table A2.14 of the 2024-25 Scottish Budget.

22. The full impact of COVID-19 on NDR income will not be known until any remaining appeals lodged as a result of COVID-19 have been withdrawn or disposed of. These were transferred to the Scottish Tribunals on 1 April 2023 when the functions of valuation appeal committees transferred to the Local Taxation Chamber.

Governance Statement

23. A separate statement is not given for the Non-domestic Rating Account as it is not the account of a separate entity but an extract account of the Scottish Consolidated Fund. The Scottish Consolidated Fund Accounts for the year ended 31 March 2024 will be available on the Scottish Government website.