Seòmar agus comataidhean

Good morning, convener. Thank you for inviting me to give evidence to the committee on the Building Safety Levy (Scotland) Bill, which, as the committee will know, has been introduced in response to the Grenfell tragedy.

The Scottish Government initially called for a four-nations approach to cladding remediation, including how it should be funded. However, the UK Government pressed ahead with proposals for an England-only measure through the Building Safety Act 2022, which provided for the introduction of a building safety levy on the development of new residential buildings.

In the absence of an equivalent levy in Scotland, the introduction of a levy in England would create a gap in the funding that is available to address cladding remediation in Scotland. It would also mean that developers would contribute to the cost of cladding remediation in England through a building safety levy, but would not do so in Scotland.

As the committee will be aware, the Scottish Government’s capital budget position is challenging over the medium term, with cladding remediation expenditure representing a significant and sustained pressure. Therefore, our programme for government 2024-25 contained a commitment to introduce a Scottish building safety levy to support the funding of cladding works in Scotland.

The estimated revenues from the levy will be in the region of £360 million to £450 million over its expected lifetime. With no corresponding block grant adjustment, those revenues will make an important contribution to the estimated £1.7 billion cost of the Scottish Government’s cladding remediation programme.

The committee has just heard from Revenue Scotland about the collaborative approach that we have taken with that body in co-designing the bill, utilising its extensive experience and expertise in tax collection. The financial memorandum for the bill sets out the indicative costs for Revenue Scotland’s administration of the levy. At 2 per cent, those costs are small relative to the overall revenues and are proportionately less than the UK Government’s costs for its levy.

The bill sets out provisions for a Scottish building safety levy that broadly align with provisions for the equivalent levy in England, to ensure consistency for those operating on both sides of the border. However, in some areas, we have taken a distinct approach to adapt to the Scottish context. For example, we responded to concerns from parts of the industry about the tax point for the UK levy being set too early in the development process, which may cause cash-flow issues. We have also designated Revenue Scotland as the collection authority, as opposed to the UK Government’s approach of designating responsibility to each of England’s 296 local authorities. That will make the process in Scotland easier for developers.

Throughout the process of the bill’s development, we have been mindful of the strong need for new housing in Scotland and the importance of avoiding disproportionate impacts on the viability of new development projects. That is why we have gone further on exemptions by including exemptions for developments that are built on islands, in recognition of the acute housing pressures that Scotland’s island communities face. In addition, our levy-free allowance is designed to protect small and medium-sized developers, who would be less able to absorb the costs of any levy.

Taken together, the measures in the bill are intended to target the areas of the house-building sector where viability pressures are most likely to arise. Overall, however, we share the UK Government’s assessment that the levy is not expected to have any significant macroeconomic impacts and that any negative impacts on supply will be small.

Notwithstanding the above, I recognise that the industry has raised significant concerns about a lack of clarity on levy introduction and about the need for lead-in time and the publication of rates in advance of introduction. In response to that, and to ensure that industry has appropriate lead-in time, the commencement date for the levy will be deferred by one year, to April 2028. In addition, the Scottish Government will set out indicative rates in June 2026, after the Scottish Parliament election.

The measures that I am setting out today will provide industry with around 22 months from the publication of rates to prepare for the introduction of the levy. Allowing for a significant period of lead-in time in that way means that the levy will apply to all relevant completion certificates that are accepted on or after 1 April 2028, which negates the need for complex transitional arrangements.

The UK levy has received cross-party support, and the Building Safety Levy (England) Regulations 2025 were recently passed unanimously. I am seeking to obtain a similar level of cross-party support in the Scottish Parliament. I welcome the committee’s scrutiny of the bill and look forward to members’ questions and the discussion ahead.

We are happy to look at that, bearing in mind the fact that the more exemptions that are introduced, the more the impact would fall elsewhere, as has already been said.

No, as I indicated earlier.

I recognise that that may be the case in some situations. As I say, the levy is being taken forward on exactly the same basis as in the rest of the UK. If the fund was not raised in that way, it would have to be raised either through taxation or less investment in public services, and the impact of that would be felt by people who also had no direct involvement in creating the situation that we find ourselves in with these buildings.

As I said, my colleague Màiri McAllan is taking that work forward. I will perhaps ask officials to comment on some of that, because they are closer to the detail, but there are fundamental differences in the market in Scotland. For example, the ownership structure of the buildings is different. Their nature is such that they will have many occupants. In Scotland, that would obviously be a situation where there are many freeholders, whereas in England it would typically be a leasehold environment, so finding the single owner—the freeholder—of the building is much easier. In Scotland, that is much more complicated.

There was also a gap in legislation. To enable ministers to engage in the process, legislation had to be put in place to get us to the stage where we could engage with building owners or occupants. There is also the question of how you marshal that in order to take forward the delivery of the remediation, because, again, you are in that freehold environment—multiple freeholders compared with a leasehold environment makes for much more complication.

In the stage that we are going through, funding has been put in place for the assessment works. I think that it is £24 million, but, as I said, that comes within the portfolio responsibility of the Cabinet Secretary for Housing. Following that work, as the assessments are completed, the remediation work will start. That will be funded through the Scottish Government’s capital programme; we expect the bulk of the work to be funded in that way.

The numbers all start from the same place. Our £30 million comes from our pro rata share of the amount that the UK Government is intending to raise from the levy, and everything is a twelfth of the size. In that regard, the numbers that will flow through will be the same.

Clearly, the shape of the housing market in Scotland will have different characteristics, but the housing market in England varies a lot, too, depending on where you are or what part you are in. The exemptions and reliefs in Scotland could be different at the margins from those in England—there could be some differences in that respect. However, there are 580-odd different rates in England, so there is quite a wide range, and the Scottish numbers will fall somewhere within that range.

In relation to the housing market, the Cabinet Secretary for Housing and I regularly meet Homes for Scotland, developers and others in the sector to understand their issues and concerns. We recognise that, to tackle the housing emergency, everyone needs to play their part, so we are very conscious of the feedback from developers in that regard.

I go back to the point that the funding has to be raised from somewhere, so if it is not raised from developers through the mechanism in the bill, it would have to come from other parts of the Government’s capital expenditure. That would have an impact on other capital programmes, public services or taxation, which could, in turn, have a detrimental impact on economic growth. Whichever way you look at it, there are potential impacts.

A case could be made for many different exemptions. We have tried to work the issue through in a way that reflects the Government’s priorities on affordable housing and some of the other uses that you have mentioned—I am referring to refuges and so on. The islands exemption takes into account the parts of the country that are generally reachable only by boat, which is the definition that is used for those remote areas.

In addition, the approach that we are taking to a threshold on the levy, by giving each developer an allowance, will disproportionately support small and medium-sized developers. We also expect that it will disproportionately support rural communities, where smaller developers are more likely to build. Impact assessments have been done for the bill.

If you take that over the lifetime of the 12 to 15 years, you are talking about the levy contributing 20-plus per cent; it is in that range. If you take the number that you have and multiply it by 12 or 15, you end up at 20 to 25 per cent of the total cost environment. The Scottish Government funding for the remediation as it gets identified and requires to be done will be a balance, and that balance will obviously change over time.

The date we picked gives a 22-month period, which is important. It is set at April 2028, because it is the start of a new financial year. You could pick another date, or do what you suggest, but our approach gives clarity on when the date will be.

We have committed to taking forward the secondary legislation, which we believe is perfectly doable. If the bill goes through stage 3 prior to the end of March, the new Government will be in a position, when it comes back after the election, to make decisions on those rates.