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Council Tax (Variation for Unoccupied Dwellings) (Scotland) Amendment Regulations 2023 [Draft]
Agenda item 4 is evidence on the Council Tax (Variation for Unoccupied Dwellings) (Scotland) Amendment Regulations 2023 from Tom Arthur, the Minister for Community Wealth and Public Finance in the Scottish Government. Mr Arthur is joined for this item by Scottish Government officials Heather Galbraith, who is a solicitor; James Messis, who is the council tax policy lead; and Jessica Niven, who is the unit head at the more homes division. I welcome the minister and his officials to the meeting and invite the minister to make a short opening statement.
Thank you very much, convener, and good morning to the committee.
The draft instrument under consideration has a twofold purpose. First, it is intended to provide councils with discretion over the council tax treatment of second homes. If introduced, it will enable councils to charge up to a 100 per cent premium on second homes. The instrument also seeks to allow councils to grant a six-month grace period from the 100 per cent empty homes council tax premium, which is aimed at incentivising the reoccupation of empty homes. The regulations seek to deliver both changes with effect from 1 April 2024.
In the spirit of the Verity house agreement, both of the policies contained in the instrument have been developed in partnership with local government. Last year, I convened the joint working group on sources of local government funding and council tax reform, which was co-chaired by Scottish ministers and the Convention of Scottish Local Authorities. That group has considered and endorsed the final policies in the instrument.
In April 2023, we published a consultation in partnership with COSLA on the council tax treatment of second and long-term empty homes. That consultation sought views on giving discretionary powers to local authorities to increase the rate of council tax on second and empty homes, and the 100 per cent council tax premium on second homes received majority support from respondents to the consultation.
The discretion to apply to second homes a discount of up to 50 per cent or a premium of up to 100 per cent ensures parity with the treatment of long-term empty properties. If implemented, the discretionary power would put councils front and centre in deciding how to achieve the right balance in the use of housing to meet local needs, enabling them, where necessary, to encourage more residential accommodation to be in occupation and used as homes for living in. That is consistent with our intention, set out in the Verity house agreement, to provide greater flexibilities to local government. It also dovetails with the Scottish Government’s “Housing to 2040” strategy, which commits to providing local authorities with greater discretion to encourage greater occupancy of second homes. It should also be noted that the UK Government has very recently legislated to provide councils in England with the same power to apply a 100 per cent council tax premium on empty homes.
Let me turn to the empty homes grace period that is contained in the instrument. The issue was considered by the joint working group following the publication of an independent audit report on the effectiveness of Scotland’s long-term empty homes policy that was produced by Indigo House. That report recommended that the council tax premium on empty homes could better incentivise bringing empty homes back into use. Reflecting on that recommendation, in partnership with COSLA, we agreed that the council tax premium on empty homes could be a disincentive to bringing empty homes back into use when a long-term empty property changes hands after a sale.
Therefore, the regulations provide for a six-month exclusion from the 100 per cent council tax premium when a long-term empty property is purchased by a new owner and renovations or repairs are being undertaken, and local authorities will have discretion to extend that six-month grace period. The measure will prevent the empty homes council tax premium from becoming a deterrent to new ownership.
The draft regulations that have been laid before Parliament deliver on our commitment to a fairer housing and taxation system. They empower local authorities to make decisions about the council tax treatment of second homes in determining the balance in the use of housing to meet local needs. They recognise that local areas differ across the country and that what may cause pressure in some communities could equally provide a benefit to others.
Convener, I will conclude there. I hope that members will agree to support the instrument today.
Thanks very much for that introduction, minister. I am interested in hearing why you think that a council tax premium of 100 per cent might encourage second home owners to use their accommodation differently for the benefit of local communities—for example, by making their property available for long-term rent. Do you understand the typology of second home owners enough to determine whether that would be effective?
The questions that you raise get to the heart of why this is a discretionary power for local government. Local authorities are best placed to determine whether tax measures can be utilised in a way to support their policy objectives, recognising, as I pointed out in my introductory remarks, that second homes in some areas might be making a positive contribution.
Equally, in other areas, it might be the view of local authorities that they are causing pressures and that a way of helping to address that, in tandem with other policy levers at the disposal of a local authority, would be to use these discretionary powers. We very much recognise that this is a decision for local authorities, to be informed by their expertise with regard to their local priorities and the best way to address them.
Thanks for that. That certainly underscores the intentions of the Verity house agreement.
In Wales, as we know, councils have been able to charge a council tax premium of up to 100 per cent on second homes since 2017, and they have been able to charge a premium of up to 300 per cent since April 2023. I am interested in whether you have considered the implementation of that policy in Wales. I understand that there is a consultation on raising the premium on second and empty homes to 200 per cent, but it is 300 per cent there. What lessons can be learned for Scotland?
As, I am sure, the committee appreciates, the changes in Wales were relatively recent. As you would expect, we continue to have dialogue at official level with the Welsh Government and, indeed, with our colleagues in the UK Government. We will, of course, monitor with interest developments in Wales as more evidence becomes available. As you highlighted, in our consultation we posed the question whether there should be the option to go beyond a 100 per cent premium, and we are reflecting further on that in the on-going work of the joint working group.
Thanks very much.
Good morning, minister, and good morning to your officials. Thanks for joining us.
What consideration has the Government given to the argument that has been put to the committee that people with second homes are not using public services to the same extent as permanent residents and that they might have already paid an additional dwelling supplement to land and buildings transaction tax?
Again, those matters will be determined by the local authority. This power provides for something that is discretionary, and local authorities have existing powers to apply a discount. It would really be a question for an individual local authority in recognition of the fact that the decision is ultimately taken by elected members who are democratically accountable to the people who live in that local authority area. We recognise that there may well be a range of views in a particular area, but I note the broad support for the proposals in the consultation and the evidence that the committee has taken from some local authorities, which recognised—at this stage, at least—an intention to explore the utilisation of these powers.
Has the Government considered other available mechanisms—for example, conditional grants or leasing schemes—that could be used to incentivise second home owners to use their homes differently? Was that part of the consultation?
The consultation focused specifically on the provisions that we are considering today, the other matters to which I have referred and potential ancillary issues around non-domestic rates, of which you will be aware. That is the overall package of proposals that was considered in the consultation.
Clearly, a range of work is under way across local and national Government to increase the supply of housing. I recognise that no single policy will act as a solution to all the challenges that we currently face, but this is one tool that will become available, should Parliament agree to it, as a discretionary power for local authorities. It will be for local authorities to consider the utilisation of this discretionary power in the broader context of the policy tools that they have at their disposal.
Thanks for that. The policy’s intended impact is quite clear. The Government has said that the policy’s aim is to bring more homes into the full-time, long-term letting domain. However, I do not see any numbers from Wales to suggest that the policy actually delivered that there. It is perhaps more a tax to raise revenue for councils. The Government estimates that potentially £35 million will be raised. Is your reading of this that the lack of statistics on how many additional new homes and long-term lets the policy will provide means that it is just another revenue stream for councils?
Again, it goes back to the point about seeing the power being utilised in a broader context of policy interventions. Tax can play a role. We set out the various functions of the tax system in the framework for tax that we published two years ago. Those functions can include, for example, revenue raising, promoting behavioural change, providing economic stimulus and carrying out redistribution.
Clearly, revenue raising will always be taken into consideration in any tax policy, but behavioural change is also an aspect of tax policy consideration. Again, the particular circumstances will be for local authorities to determine. It is a completely discretionary power, and it will be for local authorities to decide, on the basis of their local understanding of the priorities in their area, whether to use it.
Tom, are you concerned about any possible behavioural response to the measure in that second home owners might shift their properties into the short-term letting domain, making them liable for non-domestic rates, and thereby potentially not pay anything at all?
In a broader sense, we will continue to monitor that and keep it under review. I appreciate that I am coming back to this point, but it will be for local authorities to consider what monitoring of any behavioural response takes place and, in doing so, to reassess whether any policy decision that they take in utilising the power has had the desired effect.
More broadly, we considered the existing thresholds for non-domestic rates in the consultation, but we recognise that the existing thresholds are relatively new. Therefore, we propose not to make any changes at this stage; rather, we will allow those to bed in further.
The potential for that to happen was certainly raised by Councillor Lobban, I think, at previous meetings.
You have just touched on the second part of my question, which is about the consultation and the potential to increase council tax by more than 100 per cent. Did you consider that, or did you rule that out?
The joint working group is considering that as part of its broader programme of work. Moving beyond what is in the regulations would require primary legislation. At this point, the joint working group is carefully reflecting on what emerged through the consultation and its analysis.
How would you monitor the impact of the legislative change? Is sufficient data being captured to indicate, in the future, whether the change is having the intended impact of increasing the availability of housing?
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We continue to engage with local authorities. Should Parliament agree to pass the regulations, local authorities will have the option to introduce the measure from 1 April next year. I recognise that some local authorities are actively considering it. A period of time would need to pass before we would be in a position to assess the impact of such a policy intervention on a particular local authority and to consider the impact in the various geographies of a local authority and on different local authorities. We would consider those impacts over time.
Local authorities would, of course, monitor the efficacy of the policy. Our continued engagement in dialogue, as per the Verity house agreement and, for that matter, the joint working group, would provide a forum for that. We all recognise that, if any local authority were to introduce the measure in April next year, we would need to allow it some time before making any initial assessments. Of course, there will be on-going engagement and dialogue throughout that process.
Okay. Thanks for that.
Good morning, minister and officials. When I spoke to the councils about the regulations, some of them said that they will raise a substantial amount in revenue from additional taxes, but some said that they will raise nothing or will have much less. Has the minister considered that the regulations may create a huge disparity between different council areas? How should the revenue that is generated be spent, and should it be ring fenced?
On the latter point, through the joint working group, we are engaging with COSLA to produce joint guidance in that space. More broadly, the relative number of second homes in different local authorities will be a factor in the disparity that exists between councils. It will also come down to whether a local authority chooses to utilise this power, and a number of different factors will bear upon that decision for a local authority. As I touched on in my previous answer, we will continue to engage with local authorities to monitor and understand any impacts of the policy that are observed and how they relate to the revenue that individual local authorities raise.
The Verity house agreement will, hopefully, relax a lot of the ring fencing of funding for local authorities. In this area, do you propose to ring fence the money in order that it can be spent in certain ways, or is it completely up to local authorities whether they take it on and how they spend it?
We want the discretion and flexibility of the existing premium on empty homes to apply to this measure. As I say, we are committed to engaging with COSLA in dialogue on joint guidance. We recognise that it is a discretionary power for local authorities, so we want the approach to how the revenue is used to be consistent with that discretion.
Thanks.
Good morning, minister and officials. The regulations also propose a period of grace from the application of the premium for new owners of empty homes when repairs and renovations are being undertaken. How does that proposal fit with your wider audit of empty homes, and what progress has been made on it?
That is demonstrative of our commitment to address the issues. We are utilising all the powers at our disposal in the progression of our wider ambitions around housing to 2040. It was identified via the housing audit report, which I referred to in my opening statement, that the 100 per cent premium on empty homes could act as a disincentive for those who are purchasing empty homes. The regulations help to address that through the six-month grace period. Individual local authorities also have the discretion to extend that period, but that is a matter for them.
Thank you for that.
A grace period is important, but why is there not a formal process beyond that? You suggested that councils that are trying to bring empty homes back into use will have to have discussions with developers and individuals, but it will create a postcode lottery if each council has a different process and a different ruling. We are trying to encourage councils to bring empty properties back into use—we have heard that there are 47,000 such properties—but it will be open to councils to decide whether six months is to be taken as a cut-off point. If properties are to be looked at on a case-by-case basis, who will do that work?
I understand the premise of the question. It is inherent in our empowering local authorities to have that discretion that variation will be part of it, but it will be a matter for local authorities to determine. It is a shared ambition with local authorities to ensure that we bring as many empty homes back into use as possible, and I am sure that that will inform the decision-making process that local authorities follow. The discretionary elements across the board that we have discussed today are, however, matters for local authorities to take into account. Ultimately, they reflect the fact that local authorities are democratically accountable to their electorates. James, do you want to make any further points?
Yes. The policy note contains a commitment to establish joint guidance with local government so that there is a more standardised approach to what we mean by repairs and renovations, and examples will be cited. As the minister said, there are individual circumstances that will require a single perspective or a case-by-case assessment. For example, someone who is undertaking repairs and renovations that will go beyond six months might get in touch with the local authority to request that the grace period be extended to accommodate that.
That is helpful. Those of us who watch certain television programmes will understand that expected timescales can slip. Having that flexibility in the guidelines is therefore really important. The City of Edinburgh Council told Edinburgh MSPs recently that it takes up to eight months to bring a council-owned property back into use. That is the period of works that it expects. It is therefore important that the guidance provides that flexibility.
Thank you for seeking that bit of detail, Miles.
That concludes our questions. I thank the minister and his officials for the evidence that they have given.
We turn to agenda item 5, which is consideration of the motion on the draft regulations. I invite the minister to move motion S6M-11186.
Motion moved,
That the Local Government, Housing and Planning Committee recommends that the Council Tax (Variation for Unoccupied Dwellings) (Scotland) Amendment Regulations 2023 [draft] be approved.—[Tom Arthur]
Do members wish to make any points?
Members: No.
The question is, that motion S6M-11186, in the name of Tom Arthur, be agreed to. Are we all agreed?
Members: No.
There will be a division.
For
Burgess, Ariane (Highlands and Islands) (Green)
Coffey, Willie (Kilmarnock and Irvine Valley) (SNP)
McNair, Marie (Clydebank and Milngavie) (SNP)
Abstentions
Briggs, Miles (Lothian) (Con)
Gosal, Pam (West Scotland) (Con)
The result of the division is: For 3, Against 0, Abstentions 2.
Motion agreed to,
That the Local Government, Housing and Planning Committee recommends that the Council Tax (Variation for Unoccupied Dwellings) (Scotland) Amendment Regulations 2023 [draft] be approved.
The committee will publish a report setting out its recommendation on the draft regulations in the coming days.
I will suspend the meeting briefly to allow the minister and his officials to leave before we move on to our next agenda item.
11:53 Meeting suspended.