The next item of business is a debate on motion S6M-14710, in the name of Ivan McKee, on the Aggregates Tax and Devolved Taxes Administration (Scotland) Bill at stage 3.
15:11
I am reminded by the Deputy First Minister, who is sitting next to me, that it was she who started the Aggregates Tax and Devolved Taxes Administration (Scotland) Bill on its journey, so my thanks to her and to my colleague Tom Arthur, who did most of the heavy lifting in taking the bill through, prior to my taking it up. I also thank the officials who have worked on the bill, the Finance and Public Administration Committee for its constructive engagement, and stakeholders.
The bill, which was supported unanimously by all parties at stage 1, provides for the key elements of a new devolved tax on the commercial exploitation of primary aggregates in Scotland. The Scottish aggregates tax will replace the United Kingdom aggregates levy in Scotland. In high-level terms, it will, for the first time in Scotland, be a tax on the crushed rock, gravel and sand from quarries that are commercially exploited. The new tax makes use of a Scotland Act 2016 power and will increase the number of devolved taxes and the proportion of the Scottish budget raised here in Scotland.
Most of my speech will focus on the Scottish aggregates tax, although I will briefly discuss part 2 of the bill, which includes provisions to support the effective and efficient collection of all fully devolved taxes by Revenue Scotland.
I thank all those who have been involved in the development of the bill up to this point. The bill has been informed by valuable engagement with and input from representatives of the aggregates industry and a range of other interested organisations. I also thank the Finance and Public Administration Committee for its detailed scrutiny of the bill, as well as all those who provided evidence at stage 1.
During stage 1 consideration of the bill, I urged the Scottish Government to adopt the proposal of the Mineral Products Association, which was to establish a standing committee—a Scottish minerals forum—which would allow industry and Government to work together to meet the enormous challenges ahead, with £45 billion of projects of a capital nature requiring aggregates in the Scottish and Southern Electricity Networks area alone.
I got a sympathetic response from Mr Arthur, which I appreciated, but the MPA has heard absolutely nothing since then. Is that not a simple, cheap thing to do, which is essential to working properly with industry over the decades ahead?
I can give you the time back for that intervention, minister.
I thank Fergus Ewing for his question. I know that he has a particular interest in that proposal. Through economy ministers—and indeed all ministers—the Government is engaged extensively with all sectors of the economy, primarily on a sector basis through industry leadership groups, of which I think there are now 15 or 16 in operation, all with ministerial involvement. I know that those in the sector are keen to engage more extensively with the Government in a structured way, and I would very much welcome the establishment of such a forum. Clearly, legislation is not required to take that forward; indeed, as far as I am aware, none of the other ILGs has a legislative framework around it. Through either a subset of the Construction Leadership Forum or a specific minerals industry forum, I would be very supportive of taking that proposal forward.
Turning to the bill, my overall intention is that the Scottish aggregates tax will support the Government’s circular economy aspirations by encouraging the minimum necessary exploitation of primary aggregates while maximising the use of secondary and recycled aggregates. It will do that by taxing the commercial exploitation of primary aggregates, thereby creating a price signal to promote the use of secondary and recycled aggregates. However, I recognise the clear importance of primary aggregates in supporting new housing, the building of new roads, the development of energy infrastructure and many other forms of construction activity.
Connected to the point that Fergus Ewing raised, the industry says to me that it would be able to do more with secondary aggregates if things such as road standards kept pace with the state of technology. Does that not lend even more weight to the proposal that Mr Ewing makes about having industry at the heart of setting that through some sort of forum?
As I indicated in response to Mr Ewing’s comments, I fully support the establishment of such a body. It would not need legislation to underpin it. I would be keen to meet the sector to see how we can take forward the establishment of a separate industry leadership group or, if it is more effective, the industry agreeing to work under the auspices of the existing and very effective Construction Leadership Forum.
Alongside that work, the vital employment opportunities that are provided by quarries the length and breadth of Scotland are critical—many of those, of course, are in rural and remote Scotland. However, our approach also reflects that the range and quality of secondary and recycled alternatives to primary aggregates are continuously improving, thanks to the industry’s on-going innovation.
Much of the content of the bill reflects a decision to initially align key elements of the tax with the UK aggregates levy. That decision reflects the evidence and views that we heard during the development of the bill, which has been strongly welcomed by industry and other voices. I recognise that some people would have wanted us to go further faster, but it is important to recognise that the bill allows for the Scottish aggregates tax to evolve over time, informed by the collection of Scotland-specific data and an increased understanding of the tax and its impact on the aggregates industry in Scotland.
However, that is not to say that there is nothing different about the tax compared with the existing UK arrangements. In terms of distinctiveness, the bill includes a novel provision that allows for tax to be charged on those who purchase taxable aggregates from unregistered suppliers. That addresses industry concerns about unauthorised activity in Scotland and the level of compliance with current arrangements. That will help to ensure that there is a level playing field for all.
Before I turn to the part 2 provisions, I want to comment on a particular issue that is not in the bill but has been a focus of scrutiny to date. There has been understandable interest from Parliament about the future tax rate. I recognise the desire for clarity on the matter and I am mindful of the importance of stability and certainty for taxpayers as we introduce a new tax. I remind Parliament that the proposed introduction date for the tax is still some time away, and its introduction is dependent on the passage of Scottish and UK legislation. It would be inappropriate for me to make any commitment at this time regarding the future tax rate. As with all devolved taxes, that will be set out as part of the annual Scottish budget process.
To summarise, the overall intent of the bill is to assist with a smooth transition to Scottish administration of the tax, offer a degree of continuity for taxpayers and ensure that the devolved tax can evolve over time, based on evidence, to support the Scottish Government’s circular economy objectives.
The second part of the bill contains a number of provisions that will further optimise the administration of all devolved taxes and ensure that Scotland can continue to make use of modern advancements in its tax system. I recognise that stakeholders have raised concerns about the lack of consultation on those provisions. They have been informed by detailed engagement with Revenue Scotland and there has been on-going stakeholder engagement throughout the bill process.
Part 2 includes two enabling powers that will allow Scottish ministers to make regulations on how Revenue Scotland communicates with taxpayers and how it makes use of automation. An amendment made at stage 2 commits the Scottish Government to a formal consultation before those powers would be used. Any changes would be intended to ensure that Scotland continues to have an efficient and modern tax system.
Part 2 also includes provisions that will allow Revenue Scotland to set off undisputed amounts of taxpayer debits against the same taxpayer’s credits. That provision will aid Revenue Scotland’s ability to collect taxes efficiently while not disadvantaging the taxpayer.
Overall, the provisions in part 2 will allow us to create and maintain a modern, efficient and effective tax system that is fit for a modern Scotland.
The bill delivers on a cross-party agreement to devolve further tax-raising powers to the Scottish Parliament, and it will enhance the operational efficiency of Revenue Scotland. I look forward to the debate, and I ask members to support the bill at decision time.
I move,
That the Parliament agrees that the Aggregates Tax and Devolved Taxes Administration (Scotland) Bill be passed.
15:20
It is clear that any debate that is about ensuring that we have the right tax structures to safeguard the future environment and sustainable development of Scotland is extremely important. We should all take the opportunity to thank the witnesses who came to the committee and contributed to the scrutiny of the bill. I also thank colleagues on all sides of the chamber whose work on the environment has allowed the rest of us to better understand the balance that is required between measures that encourage green industry policies and those that punish detrimental behavioural change and tax evasion. Their insights have been invaluable.
As we know, the bill, in line with the Scottish Government’s circular economy goals, introduces a Scottish aggregates tax. It is aimed at levying a tax on the commercial exploitation of primary aggregates. It retains the fundamental structure of the UK aggregates levy and is designed to provide continuity for taxpayers while evolving over time to support our environmental objectives.
The committee’s report on the bill, which was published back in April, highlighted the broad support for the principle of levying a tax on the commercial exploitation of primary aggregates. The report noted that the majority of
“respondents ... agreed that the proposed”
tax
“aligns with the Scottish Government’s Framework for Tax 2021”
and with the Government’s more strategic objectives for the environment. It was clear that stakeholders welcomed the desire for consistency in the treatment of tax across the UK, which is one of the reasons why the Scottish Conservatives support the bill.
That said, I will address some critical concerns that were raised during the committee’s scrutiny of the bill, most especially the tension that arises between maximising recycling rates, which is a key ambition of the bill, and keeping the tax as simple as possible for business. While witnesses broadly agreed that it would be preferable for the tax to match the rate that is charged under the UK levy in order to avoid any competitive disadvantage, we have to recognise that some complexity will be involved.
As has been mentioned, evidence that was presented to the committee indicated that the use of secondary aggregates could be expanded and that the quality of recycled materials is continuously improving. Stakeholders reported, however, that the availability of such materials fluctuates with market conditions in both construction and demolition. That raises important questions about the perceived inferiority of secondary aggregates and the lack of demand for them, and the economic implications of our current tax regime, which may inadvertently push recyclable materials into landfill rather than facilitating their reuse. The committee therefore expressed reservations regarding the ability of the tax to incentivise a switch to recycled secondary products and reduce the use of natural aggregates without either increasing the tax rate or broadening the use and classification of recycled aggregates.
Another major challenge that was identified during our scrutiny was a lack of relevant data, which is vital for effective tax administration and compliance. I suggest—I know that some of my colleagues on the Finance and Public Administration Committee would agree with this—that there is a data problem in general with regard to some aspects of taxation. I found it particularly concerning that there was an absence of Scotland-specific data from HM Revenue and Customs regarding the volume of taxable materials, as that hindered our understanding of the new tax and how it will function. The committee rightly stressed the need for that data in order to establish the tax elasticity, which—while it may be a technical economic term—really matters.
There were also concerns about non-compliance with the existing tax regime. Anecdotal evidence suggested that unregistered quarries that are operating in Scotland may be significantly impacting the level playing field for legitimate businesses. The committee therefore appreciated Revenue Scotland’s commitment to enhancing compliance and enforcement in order to address those concerns. We have urged Revenue Scotland to collaborate more closely with local authorities in order to identify unregulated quarrying activities and to ensure that all the operators comply with tax obligations.
The committee noted that—as other members, and the minister, mentioned—part 2 of the bill includes several amendments to the Revenue Scotland and Tax Powers Act 2014 regarding the administration of devolved taxes. Although the proposals followed discussions with Revenue Scotland, as the minister acknowledged, the lack of formal consultation with other tax stakeholders was a matter of concern to the committee. However, we appear to be getting somewhere on that aspect, as stakeholder engagement seems to be better than it was. I take Mr Ewing’s point about the calls for a minerals industry platform to facilitate on-going dialogue, as we definitely need that.
We have made significant strides in addressing the challenges that are associated with the aggregates tax, but we need to monitor some things. Perhaps in due course we will need to produce a bit more detail to answer in full any questions that remain.
We look forward to continued engagement with the Scottish Government, industry stakeholders and all members of this Parliament as we navigate the complexities of the legislation. It is vital that we remain committed to ensuring that our tax system supports both environmental sustainability and economic growth. We need look only at the housing situation and the pressing needs of the construction industry to understand that.
With those ambitions in mind and given our original commitments to the Smith commission and the Scotland Act 2016, the Scottish Conservatives are happy to support the bill at stage 3.
15:26
Scottish Labour welcomes the establishment of the Scottish aggregates tax, and we will vote to support the bill at decision time.
Members will be aware that the tax was originally devolved, as the minister pointed out, under the Scotland Act 2016. Should the bill pass today, the Scottish Government has said that the tax will be introduced by 1 April 2026. That is a full decade since devolution of the tax was agreed by all parties to the Smith commission. Scottish National Party members frequently call for more devolution and for more powers for this Parliament, including over taxation. I observe that, if it takes the Scottish Government 10 years to devolve a tax that is, to a large extent, mirroring the pre-existing UK aggregates levy, parties should be canny when describing further adjustments to the devolution settlement as an immediate salve for the country’s woes. We might also look at examples of social security benefits that are interminably delayed as further evidence of the same. The SNP Government would frequently do well to consider not so much its competences as its incompetence.
I turn to the detail of the legislation. As I raised in the stage 1 debate, I believe that confusion remains in relation to the Scottish Government’s stated aims for the Scottish aggregates tax. The policy memorandum states that the new tax will retain the fundamental structure of the UK aggregates levy, as that offers a
“degree of continuity for taxpayers”.
From discussions with industry and evidence taken by our committee at stage 1, I know that industry welcomes that close alignment with the UK system. We should always avoid introducing difference to the system just for the sake of it. I know that the minister believes in an efficient business environment. Indeed, to have anything else might risk putting Scottish businesses at competitive disadvantage with businesses in other parts of the UK.
However, the policy memorandum also states:
“The Scottish Government intends that SAT will align with wider ambitions to deliver a fair, green and growing economy; in particular, the Scottish Government’s ambitions for a circular economy.”
Given that the tax does nothing to increase the availability of recycled or secondary aggregates, and that, as the Scottish Environment Protection Agency has said,
“recycled aggregates are very unlikely to displace virgin aggregate use altogether”,
that suggests that the Government intends to incentivise the use of recycled material by increasing the rate of SAT.
I take on board the minister’s point that this is neither the time nor place to tell us what that tax rate will be—that is rightly part of the budget considerations—but we all appreciate that a balance must be struck when those decisions are made. We would not expect the specific tax rates to be detailed in the legislation. However, the industry, which is concerned by that apparent contradiction, would welcome clarification from the minister as to his Government’s longer-term intent. That is not to ask for a number to be produced today, but it would be right to signal to the industry where his Government intends to go, policy wise.
During stage 1, the Finance and Public Administration Committee found a dearth of disaggregated data on the current UK aggregates levy in Scotland, as my colleague Liz Smith mentioned. That impacted on the committee’s ability to scrutinise what the potential revenue implications might be and the potential for behavioural effects.
As the committee stated in our report, providing that data would help the Scottish Government to make a more informed decision when setting the rates of tax—that is, one that carefully balances the need to raise revenue, advance environmental behaviour change and align with the aims of an industry that is seeking to thrive in Scotland to provide economic benefit.
The Government should be considering non-punitive means to encourage the use of non-virgin aggregates, including reviewing standard use cases and promoting recycled products more generally, as my colleague Daniel Johnson has already pointed out.
There also might be a case for promoting tax credits as a way of offsetting capital investment to enhance the standards of supply. Producing recycled aggregate requires significant capital investment, and we should think about positive incentives as well as negative means. That would be, of course, a matter for the budget, but it might also feature in the Government’s consideration of more circular business models for parts of the lower end of the value chain in this area.
Government amendments at stage 2 addressed some of the significant concerns that were raised by stakeholders at stage 1. They included an amendment to section 54 that gave the Scottish ministers the power to make regulations about communications from Revenue Scotland to taxpayers—in effect, it made the commitment to future consultation explicit, which is welcome. That followed significant criticism by a range of stakeholders, including the Law Society of Scotland, the Institute of Chartered Accountants of Scotland and the Chartered Institute of Taxation, that the Government had failed to consult on part 2 of the bill. Given the infrequency with which such legislation is passed in Scotland, that was a missed opportunity to have knowledgeable stakeholders contribute to the bill’s construction.
An amendment to section 56 clarified that set-off would not be used when the amount of tax due was in dispute, as Revenue Scotland told the committee in its evidence, and we appreciate that being set out clearly in the bill. Given how infrequently the equivalent UK provision is used and the limited number of devolved taxes—two, or three if the bill is passed today—along with many stakeholders, including the Law Society and the Institute of Chartered Accountants, I remain sceptical of how necessary the measure is. The minister could perhaps explain why he feels that it is necessary in his contribution later.
As we mark the 25th anniversary of the Parliament, getting on with competent government and demonstrating how devolution can work are exactly what we should be doing. It is critical that we recognise that Scotland’s taxes do not exist in a vacuum; rather, they interact with the wider UK tax system. That is essential if we are to build a system in Scotland that works for the benefit of taxpayers and businesses and that raises revenue in a sustainable way. I urge the Government to do just that.
15:32
As Michael Marra said, it has been almost a decade to the day since all five parties in the Parliament agreed to the devolution of the aggregates levy through the Smith commission. It was not exactly the top priority of anyone involved in the discussions at that time, or even in many of the years since then, but I am glad that the bill is finally before the Parliament. It is not headline grabbing, but it is important for the principles of good governance that Mr Marra mentioned.
I echo Liz Smith’s thanks not just to the witnesses who provided important contributions during the committee’s scrutiny of the bill but to those in the industry who persuaded the Scottish Government to delay the process by just a few months, which resulted in significant improvements being made to the bill that ended up coming before the Parliament. I am usually frustrated by delays to legislation, but, in this case, what ended up being a delay of no more than six months resulted in a significantly better first draft of the bill arriving at the committee.
It is timely that the bill is being considered now, shortly after the Circular Economy (Scotland) Bill was passed. The policy memorandum makes clear the ambition that the levy will contribute to Scotland having a more circular economy by maximising the use of recycled aggregate and minimising the extraction of fresh aggregate. I recognise that, for some time, there will be a continued need for fresh aggregate, but that need should reduce, particularly as the quality of recycled aggregate improves, as a number of colleagues have noted.
One of the challenges that the committee highlighted is that it is still not clear how the rebalancing towards greater use of recycled aggregate and less use of fresh or virgin aggregate will happen. For perfectly understandable reasons, the Scottish Government has emphasised its desire for a significant level of continuity with the existing UK system. Those are both perfectly laudable outcomes, but there is clearly a tension between them. On one hand, we want to shift the balance but, on the other hand, we want to maintain continuity with the system in the rest of the UK, which is not taking significant enough steps towards a rebalancing in favour of recycled aggregate.
Paragraph 114 of the committee’s stage 1 report directly addressed that point, and I am still frustrated that the Scottish Government’s response did not address it. I was not the only member who raised the matter in the stage 1 debate, and, even at that point, I do not think that ministers had fully grappled with it, so I would welcome the minister addressing the point in his closing speech. I understand entirely that this afternoon is not the point at which the Government should announce the setting of the rates, but even an indication of the direction of travel would be helpful.
I said in the stage 1 debate that one part of the puzzle is still missing. Far too often, buildings in Scotland that could be refurbished are being demolished simply because doing that is more cost effective. Demolition is cheap and most elements of a new building are often entirely or significantly exempt from VAT.
The construction of new buildings, however, is typically far more carbon and resource intensive than a refurbishment. The Greens have long supported calls to reduce VAT for refurbishment, but that power is reserved. I hope that the new UK Government will consider that change as part of its own circular economy efforts. We need to look at the financial levers that are available to us to incentivise less carbon-intensive and environmentally degrading construction work.
Something that is within our power is the creation of a demolition levy to sit alongside the aggregates levy. That has been long advocated by the Chartered Institute of Building, with which I have been doing some work on that recently. An aggregates levy and a demolition levy together would be much more effective at incentivising less carbon-intensive and resource-intensive building practices. A demolition levy would need to be a local power, so it would contribute to the fiscal empowerment of local government and to fulfilling the principles of the Verity house agreement. It would also contribute to the preservation of our built heritage in Scotland. It is not hard to see the good that that would do in places such as Glasgow.
Although the bill is welcome, because it is a competent bill—the Government should be congratulated on that—it is only one part of the puzzle, and there is much more work to be done if we want to realise the ambitions of a circular economy.
15:36
I thank the committee, the clerks and the witnesses. In particular, I want to credit the minister, as I did at stage 1, because the pause in the process of the legislation, in order to consult and listen to the sector, has resulted in a far superior bill and brought it into alignment with the predecessor tax and the UK system. Sometimes it is not easy to slow things down when under pressure to speed things up, so I commend the minister for doing that.
I recently visited Angle Park Sand and Gravel Company in my constituency—I like to adorn myself with a hard hat and a yellow jacket, so I will use any excuse to visit such places. The visit was fascinating. The company has been extracting sand and gravel from the quarry for 60 years and has a huge depth of experience and knowledge. It effectively built the town of Glenrothes, bridges such as the Clackmannanshire bridge and important roads around the area, including the A92. The company’s knowledge is invaluable, which speaks to Fergus Ewing’s earlier point. We need to draw on that knowledge, which is exactly what the minister did by slowing down the process.
Angle Park has two outstanding issues—it probably has more, but it has two main issues. One is about secondary materials, or recycled materials. I know that the Government has commissioned the support of ClimateXChange and the Ricardo consultancy to do more research into the use of those materials. We need to be cautious, because we have had various difficulties with buildings in the past, such as reinforced autoclaved aerated concrete and cladding. We need to ensure that we put building standards at the heart of any change and that the tax system incentivises the application to new building standards, not the other way around. Otherwise, future construction projects might get into difficulties.
Mr Rennie makes points that I entirely agree with. Does he agree with me that a Scottish minerals forum would allow detailed consideration of those and many other complex points, working to replenish national reserves to deal with the aggregates that are required for individual projects and to plan ahead for projects that are vital to the prosperity and economic success of the country, and that the construction industry leadership group simply cannot do the job as well as a devoted, bespoke, specialist forum with experts would?
Fergus Ewing has clearly been reading my mind map, because that is exactly what I was going to say next. It is important that we continue to engage with the sector to ensure that it buys into any change and that it complies with building standards and new practices, and the tax system follows on beyond that. He is absolutely right that we should have that forum, and I am pleased that the minister is indicating that it might well be possible.
The second area of interest for the sector and for the people at Angle Park relates to cross-border issues to do with declarations, which apparently remain unresolved. Materials move back and forward across the English-Scottish border through brokers, builders merchants or others, and we need clarity about how they are supposed to declare in a simple and fair way that does not provide any hindrance to their activities. The sector would appreciate getting clarity on that soon.
I will continue to take a close interest in the issue, not only because we have a new tax coming through the Smith powers but because the sector is an important one and careful handling is required to ensure that we meet the new standards and that we have a tax system to match.
We move to the open debate.
15:40
The Finance and Public Administration Committee was the lead committee on the Aggregates Tax and Devolved Taxes Administration (Scotland) Bill, so I am pleased to debate it at stage 3. I thank everyone who was involved in preparing our report, including those who gave evidence, committee members, our clerking team and the ministers.
Although tax legislation may not always set the pulse racing, the bill represents far more than a fiscal measure—it is a strategic tool that could shape Scotland’s environmental landscape for years. As the minister so aptly outlined, the bill’s central ambition is to align Scotland’s tax framework with our environmental objectives. By incentivising the use of recycled materials over primary aggregates, it drives us towards a circular economy. Tax policy, when applied effectively, transcends its traditional function of raising revenue and becomes a force that is capable of influencing behaviours and shaping cultural norms. However, as ever, the devil is in the detail, and a bill of such ambition demands rigorous scrutiny.
A critical area that requires our attention is the delicate balance that is needed to create a tax system that is business friendly and potent enough to drive meaningful progress towards recycling. Without that balance, we risk two key pitfalls: overburdening businesses and stifling growth, or failing to offer adequate incentives to inspire the behavioural changes that are needed. To meet the bill’s aspirations with tangible outcomes, we must carefully calibrate tax rates and expand the definition of recycled aggregates thoughtfully.
Beyond the structure of the tax, a crucial issue is non-compliance, which is a persistent challenge within the current aggregates tax framework. When loopholes are exploited, public trust in the fairness of the system erodes, undermining the integrity of the tax regime. Although Revenue Scotland’s efforts to improve compliance are commendable, enforcement cannot rely solely on top-down oversight. Local authorities with their grass-roots connections must be empowered to play a greater role in identifying and addressing illicit activities. Without robust local-level enforcement, we risk allowing unscrupulous operators to undermine the system and disadvantaging honest businesses in the process.
Transparency is equally vital to the bill’s success. Stakeholders have rightly called for clear and effective communication around any tax changes. Adjusting tax rates is one thing, but articulating a compelling and accessible rationale for those changes is another. If we fail to clearly explain the reasoning behind our decisions, we risk alienating the very communities whose support is essential. Transparency is not just best practice; it is fundamental to maintaining public trust, which is crucial for the bill’s effectiveness.
We must also consider the broader fiscal implications of switching off the United Kingdom aggregates levy for Scotland. That is a significant move, and with it comes a degree of uncertainty that requires thorough evaluation. Although the pursuit of a greener future for Scotland is laudable, we must ensure that we are not stepping into unknown territory without fully assessing the potential consequences. Comprehensive risk assessments are not just prudent; they are essential safeguards against unforeseen economic shocks that may arise from such bold changes.
Similarly, the proposal to empower Revenue Scotland to levy taxes on those using unregistered quarries is a strong and necessary measure. It sends a clear message that tax evasion will not be tolerated. That is not merely a technical adjustment but a critical step towards preventing a race to the bottom that could undermine the bill’s environmental and economic goals. By holding every actor accountable, we will ensure the integrity of the tax regime and support the bill’s broader objectives.
We must ask ourselves whether simply replicating the UK aggregates levy framework is the most effective approach to achieving our ambitions. Although stability offers reassurance, it is ambition that drives progress. If we settle for merely mirroring the UK model, we risk missing a unique opportunity to craft a more innovative and forward-thinking system that reflects Scotland’s distinct environmental and economic priorities. Stability has its merits but, without bold ambition, we may fail to realise the full transformative potential that the bill offers.
The Aggregates Tax and Devolved Taxes Administration (Scotland) Bill is far more than a routine fiscal measure. It represents a strategic opportunity to use tax policy as a powerful tool for environmental stewardship and economic innovation. This is about not just imposing another tax, but deliberately and thoughtfully constructing a greener, fairer economy. Let us move forward with precision and purpose, leaving no stone—whether primary or recycled—unturned as we work to secure a more sustainable future for Scotland.
15:44
I do not really know how to follow on from the amazing pun that Kenneth Gibson just delivered to the chamber, but it gives me great pleasure to join my former colleagues on the Finance and Public Administration Committee. I share the rest of the chamber’s congratulations to them, and I commend the current minister. It is also good to have in the chamber Tom Arthur, who shepherded the bill through previous stages of the parliamentary process.
It is possible, on first inspection, to describe the bill as being a boring bit of tax legislation—as Kenneth Gibson just alluded to—about what would seem to amount to gravel, rocks and sand. However, those things are the primary and basic products of construction, and are therefore absolutely fundamental to the whole of the economy. If growth is central to what we want to achieve, they are the fundamental building blocks. To use another pun, economic growth has to be built.
As the Deputy Presiding Officer knows, I was recently in Orkney. On that visit, one fact that was imparted to me that really struck home was that building costs in Orkney are 30 per cent higher than they are on the mainland, and on the outlying islands, they are 25 per cent more.
In many ways, Orkney is a microcosm of Scotland as a whole. We have higher costs of doing and constructing things in Scotland, because although we have 32 per cent of the UK’s landmass, we have 8.1 per cent of its population, which means that our people and places are more spread out. That just makes things more difficult to build, and that comes on top of the fact that it costs more to build things in the UK than it does in other parts of the world. For example, building railway lines costs £34 million per kilometre in this country, compared with £12.6 million in France. Building roads costs £7.8 million per kilometre here, whereas the cost is £4.24 million in France. Hospitals and schools cost £4.76 million per square metre here, as opposed to in France, where the cost is £3.35 million.
The point that I am getting to is that we need to move very carefully. This is not a low-cost economy for building things. Critically, we have a dispersed economy, so things such as roads, rails, hospitals and schools are very important, because much of our population is so remote. Ross Greer made an important point. Ultimately, the point of the levy is to seek to move from primary to secondary aggregates, but we need to move carefully. It is not a zero-sum game.
When I donned my hard hat and high vis, as Willie Rennie has done, and visited the Tarmac site, it was pointed out that poorly maintained roads can cost as much as 5 to 7 per cent in efficiency. That is why it is very important that, if we seek to move industry from primary to secondary aggregates, we have forums such as the one that Fergus Ewing suggested, not only to inform the rates or the way that the levies work, but to have an agreed pathway for the transition and to get the full picture of where all the costs and efficiencies might be borne out.
Simply trying to reduce or depress the level of building could be very detrimental to efficiency in relation to delivering net zero, because we need efficient roads and efficient infrastructure to do that.
Does Mr Johnson agree that if such a forum, which would meet fairly regularly—maybe twice a year—is not established, there is a real risk that, although the Government wants to do projects such as pump storage, grid upgrade, offshore development and dualling the A9, we simply will not have the knowledge about the practicalities regarding continuous availability of aggregate over the next 10 to 20 years? Therefore, that would risk imperilling the capacity to do those vital projects.
I note the time, so I will close on this point. I agree with Mr Ewing. It was encouraging to hear the minister say that he agreed with the principle, but we need to see a forum established. It might not quite be a case of no taxation without representation, but it could be a case of no levy without listening. We certainly need to see the levy being informed by best practice and by our collective goals for the economy.
Thank you, Mr Johnson. References to Orkney gain you extra time and forgiveness for the poor puns.
We move to the winding-up speeches.
15:50
In closing, I will touch on some of the financial and administrative changes that are included in the bill. They are useful, and it was good that the Government took the opportunity to engage in what is, essentially, a tidying-up exercise in a range of small areas of administration of taxes in Scotland.
However, their inclusion in the bill, alongside the levy, adds weight to the argument for having an annual finance bill in Scotland. I give particular credit to Liz Smith for having led that argument for some time.
I do not think that it is satisfactory to have an ad hoc system of waiting for individual subject bills to which financial and admin clean-up exercises can be tacked on. If we were to move towards a position in which that was part of the budget process, and if we had an annual finance bill in which we could engage in such tidying-up exercises and resolve small niggles in the system, that would result not only in more effective parliamentary scrutiny, but in a far smoother, more effective and more efficient process.
Some of the administrative changes in the bill point towards the need to have a wider discussion across Parliament about the balance between primary and secondary legislation. The changes to the timescale for penalties for those who fail to pay tax seem to me to be the sort of the thing that could have been addressed through ministerial regulation-making powers. If Parliament felt it to be appropriate, we could have required ministers to do that through the affirmative or even the super-affirmative procedure.
Mr Greer may be interested to know that the Delegated Powers and Law Reform Committee is about to embark on an inquiry into use of framework bills and secondary legislation. Does he agree that every member should engage fully in that process?
I am probably one of the few people in Scotland who is genuinely excited by the prospect of a DPLR Committee inquiry into the balance of legislative approaches, because this is not necessarily the best use of Parliament’s time. It can result in restrictions or in a lack of flexibility regarding areas about which there would probably be complete consensus, but about which we have felt an initial desire to put something into primary legislation before finding a requirement to amend it and having to wait for an appropriate legislative vehicle to come along, when using secondary legislation or regulation-making powers in the first place might have made that less of an issue.
I point out that this is not the last part of Smith commission process recommendations to be devolved. We are still waiting for the air departure tax, which is stuck on the runway. I could not let the committee convener be the only one to bring an appalling pun into the debate. We still need to see the Subsidy Control Act 2022 being amended, so I hope that the new UK Government will consider that. There was complete consensus here about devolution of air departure tax, but if we do not resolve the issue of subsidy control we will not be able to give support to lifeline air services for remote and island communities. There are different ideas here about what we should do with that particular tax, but the act that includes it was passed in 2017 and we are still no closer to actually having control here. It is a source of some frustration that, 10 years on from the Smith commission, we are still trying to finalise the process. I am not aware that the new UK Government has stated its position on air departure tax, but I hope that we will not still, at the end of this session of Parliament, be entirely unaware of when that tax can be devolved in practice and we can take control of it here.
I absolutely agree with Daniel Johnson’s point about the cost of building here in the UK. A lot of that is down to geography, but it is not the only reason. We need a serious conversation across the UK about why we are so poor at delivering infrastructure projects and why they cost so much more than equivalent projects in comparable countries, including in comparable remote and island communities.
I close by thanking the minister, Mr McKee. I am also glad to see Tom Arthur in the chamber, because he led much of the bill process, which has been an excellent example of collaboration across Parliament. It might not deal with an issue that has seized the headlines, but we have a competent piece of legislation in front of us. I presume that it will be agreed by unanimous consent, which is significantly to the credit both of ministers and of the bill team.
I call Michael Marra to close on behalf of Scottish Labour.
15:54
I will begin where Ross Greer closed and put on record my compliments to the minister, his predecessor Tom Arthur, and all their officials for the manner in which they have pursued the bill on a cross-party basis in Parliament over the past year and more. Listening to the debate this afternoon, I note that there is broad consensus that the bill should pass, and rightly so.
I want to maintain the consensus approach, so I urge the Scottish Government to take forward that sensible and balanced approach and ensure that, when it comes to setting the rate, stakeholders are heard. I made that point in my opening speech, and I hope that the minister listens to those calls and addresses them in his closing remarks on the broad trajectory of policy. That would give some comfort to the industry. Change is always a challenge for business; it is something to be embraced at times, but business still wants to have a level of clarity.
Kenneth Gibson—rightly—set out the power of working in partnership with business.
Difference for the sake of difference benefits no one. However, various speeches have highlighted the fact that Scotland is, of course, a different country in its geography and in the needs and the state of our industry. It is right that we reflect on that and on the challenges of building in Scotland.
I fully agree with Ross Greer’s points on the need to look at the broader challenges of producing and providing infrastructure in Scotland when it comes to financing it. There is often commentary on the level of capital funding that is available in the UK, and how that is used across the islands, resulting in much higher bills in the UK, which Daniel Johnson set out at length.
When we introduce a new system, there is an opportunity to ensure that it avoids additional administrative burdens for business over and above those that are created by the current UK system. To do otherwise would risk the competitiveness of the industry in Scotland. Where new taxes arise, we should endeavour to make the system of processing them as seamless as possible. A first question should be whether we can make them simpler and reduce the administrative burden on businesses and on taxpayers more generally. Achieving the growth that our economy, public finances and public services so badly need requires us to work with business and not against it.
Changes to other devolved taxes are mostly sensible, but I hope that the Government has heeded the public’s concerns and will consult stakeholders properly prior to making change to devolved taxes in the future. There has been some commentary on the potential for a finance bill, and I agree with colleagues that the Government should look at that very carefully—perhaps before the end of this parliamentary session. The Parliament is now 25 years old and, with more powers than ever before, including tax powers, we would benefit from a more sophisticated instrument for updating tax legislation, rather than just tacking it on to the end of another vaguely associated bill.
Scottish Labour supports the establishment of the Scottish aggregates tax. The tax has been devolved, and it is right that we finally get on with implementing it. However, we must take account of the wider context of our interaction with the UK-wide tax system and of the impact on businesses and individuals in our economy.
15:58
As other members have, I thank all those who were involved in providing evidence on and aiding our scrutiny of the bill, and I thank the two ministers for their efforts and engagement. They have helped us to get to where we are today, eight years after this power was originally devolved.
I recognise the broad support for the principle of the levy and the desire for consistency across the United Kingdom and within our important internal market. The tax must be kept as simple as possible for businesses, particularly those that operate across the border, which will now have to contend with two different tax regimes and accompanying rules and regulations. As other members have rightly said, getting tax regimes right is extremely important, particularly when setting up a new tax—or, at least, a new devolved tax—that could have significant impact on the sector if used unwisely.
I think that it was Fergus Ewing who noted in previous consideration of the bill that it could have a far wider impact than was intended, and he mentioned again today the impact on projects such as the A9. Daniel Johnson has highlighted the problems that we face on the islands with already higher costs and the impact that those can have.
Our stage 1 considerations in the chamber came only the day after the Scottish Government declared a housing emergency. As I said then, the Scottish Government will likely have choices to make between environmental and economic targets if it considers putting up the rate in the future.
I will not rehash all the arguments and concerns about the bill that were expressed today or in previous considerations, but I will highlight a few contributions from colleagues. Michael Marra was right to say that, by the time the power is implemented, it will be 10 years since it was devolved. I accept the need for—and I think that industry would welcome—a clarification of the Government’s intent going forward, if not all the details.
Ross Greer was right to say that, although the bill is not headline grabbing, it is an important piece of legislation. He also highlighted that, although we often criticise the Government for delays to bills, the delay in this case was probably useful, as it has enabled us to have a better bill. Like me, however, he questioned how effective it will be in meeting its objectives—albeit that we are at different ends of the argument on it—without the rates being raised.
Willie Rennie made a more positive speech this time. I remember that, the last time we considered the bill, he was a bit of an Eeyore about this exciting piece of legislation. He was absolutely right to highlight the role that industry has played, and Fergus Ewing was also absolutely right in his intervention. I will say a little more about that later.
Daniel Johnson highlighted the role of Orkney and other remote communities and the impact there. There were some other excellent contributions and there were some dreadful puns, but I will move on.
My colleague Liz Smith talked about the quality and availability of recycled aggregates and the risk of more material being sent to landfill. She highlighted the Finance and Public Administration Committee’s concern that, without changes in the rates, which the majority of witnesses were against, or at least a broadening of the classification of recycled aggregates, the new tax might have little impact on the uptake of secondary aggregates.
Liz Smith also highlighted the lack of data, which is a common concern that members of the Finance and Public Administration Committee have about this and other bills that have come before us for consideration. There is a lack of Scotland-specific data, although the situation will likely improve once collection starts—indeed, the Scottish Government has promised that. However, the lack of data does not aid consideration of the bill or any analysis or predictions of its consequences, intended or otherwise. We still do not know the amount of revenue that will likely be collected, or whether it will be more or less than is currently received as part of the block grant. For me, at least, that is a matter of some concern, given the constrained times. I ask the minister to clarify, when he sums up, how discussions with the new UK Government are progressing on that matter.
I am also concerned that the effectiveness of the new tax and the compliance with it will be largely down to awareness of it. As Michael Marra mentioned, the lack of formal consultation by Scottish ministers with key industry stakeholders on part 2 of the bill before its inclusion was not an encouraging sign. It is vital here, as in all else, that effective engagement is a key part of policy development. I was disappointed that the minister’s response to Fergus Ewing was not a little stronger, but I appreciate that the matter will be considered as the bill goes forward.
I believe, as other members do, that creating incentives for investing in recycling, using more recycled materials and keeping more away from landfill is a good thing. We will support the bill at decision time today, but I retain some scepticism about how effectively it will encourage meaningful behavioural change without the significant changes in the rates that we all—or most of us, anyway—recognise will only create inconsistency and challenges for those businesses that operate across the UK. I know that the minister is aware of that issue and that he recognises the importance of continuity and stability across the UK. Most of the witnesses agreed on the need to keep the rate in line with the UK rate.
The bill will pass today, but we will be clearer about its effectiveness and its impact on Scottish revenues only in the years to come.
I call the minister, Ivan McKee, to wind up on behalf of the Scottish Government.
16:03
I am pleased to close the debate on the Aggregates Tax and Devolved Taxes Administration (Scotland) Bill. I welcome the contributions that have been made in the debate, and I will touch on a few of them.
Liz Smith, Michael Marra and many other members raised the issue of the balance—Liz Smith called it a tension, but I would rather call it a balance—between maximising recycling rates and keeping simplicity and predictability for business. That is closely related to the points that several other members made about the current lack of relevant data from HMRC. As Liz Smith rightly pointed out, that prevents us from understanding more thoroughly the issue of elasticity around the tax and how it might lead to the behavioural change that we want, with further increases in the take-up of recycled material in the sector.
In answer to the question about where we are going, the first thing we must do is collect relevant data so that we understand where we are and what options we have in front of us; we can then proceed through the budget process on the basis of that. As I identified, the cabinet secretary will take that work forward when the bill is passed.
We want to work with the sector to increase recycling rates, and we want to make the Adam Smith principles of taxation as transparent, simple and easy to administer as possible. In the Scottish context, which is distinct, we want to move in a direction that maximises the take-up of recycled material. We want to do that not only because it is the right thing to do for the environment, but because we want to encourage the sector to be more innovative in the invention and production of materials at scale, which, in the long run, is where we will create wealth and jobs.
The sector has rightly been identified as a hugely important, although often unsung, part of the Scottish economy that underpins many of the critical areas that we have talked about, including infrastructure, housing, transport and many other sectors. It is only right that the Government continues to work closely with the sector.
Many members have raised the issue of having a forum for the sector. As I indicated, I do not think that there is any need to have that provided for in legislation. The Government engages with many sectors regularly at the ministerial level, and this sector is no exception. I am keen to work with the sector in a forum that allows us to discuss the direction of travel on taxation, innovation, skills and wider issues that impact this important sector. I look forward to hearing from the sector as we work together to set up such a forum. I hope that that sets members’ minds at rest and that the sector understands our seriousness about continuing to engage increasingly with it on these important issues.
Liz Smith raised the issue of compliance. It is clear from the steps that we have taken in the legislation and the engagement to date that a key focus of what we are trying to do in how we have structured the tax is to tackle compliance issues.
Ross Geer mentioned the need for more data and the need for clarity on the direction of travel. I hope that I have answered his questions in the comments that I have made so far.
I also mentioned the issue of VAT on new builds versus demolition. We support that and calls for a demolition levy. The Government recognises that that is an issue, and it is willing to continue discussions on the best route forward to reach the outcomes that we all seek.
Willie Rennie raised the issue of cross-border transactions. I commit that the Government will continue to work with HMRC to provide clarity on different cross-border scenarios before the tax commences. Revenue Scotland will issue guidance and advice on those scenarios before the tax commences, in 2026.
A special mention goes to Jamie Halcro Johnston, who, in a debate full of weak puns, managed to get the word “Eeyore” into the Official Report. I look forward to reading that.
I ask all members to support the bill, which will provide Scotland with an additional fully devolved tax and ensure that Scotland continues to have an effective and modern tax system. I am conscious that the bill is only the start of the Scottish aggregates tax. If it is passed today, I will continue to engage with the Parliament, stakeholders and the industry while developing the necessary secondary legislation to introduce the tax.
Once again, I commend the bill to Parliament.
That concludes the debate on the Aggregates Tax and Devolved Taxes Administration (Scotland) Bill at stage 3.