Seòmar agus comataidhean

Amendments 37 and 19 relate to exemptions. An important point has been raised about exemptions during the bill’s passage. The Government considers that it is best for local authorities to decide on and put in place arrangements that reflect local circumstances. Where there is strong consensus between local authorities, businesses and Parliament, the Government is open to putting in place national exemptions, which can be done through regulations under section 10. COSLA, in its recent briefing for members, and the expert group, in its letter to me that was copied to the convener, have been clear that they do not support specific national exemptions being established at this point. I cannot ignore the clear message from both local government and the tourism industry that national exemptions would be unwelcome and should be avoided at this time.

I would also highlight that, under the bill, local authorities will be able to create local exemptions that are developed together with communities and businesses. That approach is in line with the Verity house agreement and the overarching policy intent behind the bill of seeking to empower local government with a new fiscal measure.

However, I have sympathy with the motivation behind amendments 37 and 19, so I offer to meet Miles Briggs and Jeremy Balfour to discuss the issue further between stages 2 and 3 and to work to see whether I can facilitate agreement between all the stakeholders that are involved in this important issue.

On that basis, I ask that Miles Briggs does not press amendment 37 and that Jeremy Balfour does not move amendment 19.

Amendment 17, in my name, will make a change to section 36 in response to the Delegated Powers and Law Reform Committee’s scrutiny of the bill at stage 1.

Section 36 sets out some of the inspection powers of a local authority in relation to business premises and documents found there where it is

“reasonably required for the purpose of assessing the liable person’s liability to pay the levy.”

Under the section, ministers may, by regulation, add to the definition of an “involved third party”, and therefore the premises that a local authority or other authorised officer can inspect. The regulations can also specify the type of documents that can be inspected there.

The DPLR Committee believes that any such regulation should be subject to the affirmative procedure. The Government has lodged amendment 17 to fulfil that committee’s recommendation, so I ask the committee to support it.

I move amendment 17.

It is currently under development. We still have to go through the parliamentary bill process, but we want that advice and guidance to be available at the earliest opportunity. I am more than happy to provide the committee with a written update on expected timescales around the work that the group is undertaking.

For the reasons that I have set out, and expanded on in response to interventions, the Government does not support amendment 42 and I ask Miles Briggs not to move it.

Turning to Pam Gosal’s amendment 11, I note that the bill already includes a requirement for a local authority to consult with businesses when it is considering introducing a visitor levy. That includes consulting on the objectives of the proposal and how the local authority will measure and report on the achievement of those objectives. That means that there is already a clear role and opportunity for businesses to engage and make known their views on a visitor levy. For decisions on the use of the funding raised by a visitor levy, the general position is that they should rest with the local authority. Any visitor levy scheme would be introduced by a local authority and it would be democratically accountable.

Nevertheless, section 17 of the bill places a duty on authorities to consult when using the proceeds of a visitor levy, including a specific duty to consult with businesses engaged in tourism. I think that that strikes the correct balance, as opposed to the amendment 11 duty to include businesses in the decisions. However, I am open to ways of ensuring on-going and meaningful engagement on a visitor levy with communities and businesses, and I will consider that further in the weeks before stage 3. Given the democratic accountability of local authorities and the duties around consultation that are already in the bill, the Government does not support amendment 11 and I ask Pam Gosal not to move it.

Finally in this group, I turn to amendment 16, which seeks to allow an overnight accommodation provider to retain 20 per cent of the visitor levy that is raised in the period of their first return to a local authority. The Government does not support amendment 16. Like Daniel Johnson, we are not aware of any precedent in the UK where a business collecting tax is able to extract from their returns a sum to meet the costs of administering a tax. Although we have sought and will seek to keep the administrative costs of a visitor levy as low as possible, we do not think that allowing accommodation providers to retain some of the levy collected to meet administrative costs is the right approach.

There are other issues with amendment 16. The period for a return under the bill could be one month or several months and could fall in low or high season, meaning that the 20 per cent deduction could vary hugely. For all those reasons, the Government does not support amendment 16, and I ask Pam Gosal not to press it.

I think that you mentioned moorings and berthings. Vessels that can provide residential accommodation that are permanently or primarily situated in one place would be captured, but, as Mr McMillan outlined when he spoke to amendment 18, there are certain categories of event the capturing of which would not be consistent with the policy intent of the bill.

I recognise your point about motorhomes. I made reference to the fact that a motorhome would be captured by the visitor levy if it was at a site to which the levy applied.

Although I recognise the difficulties of a motorhome levy, I do not believe them to be insurmountable. However, we need to work to ensure that any tax is robust and that it works for local government, the tourism industry and motorhome users. I am not opposed to the principle of a motorhome levy, but it is a measure on which more detailed work will require to be done. Some of the points in that regard have been highlighted.

Amendment 50 relates to the evaluation of the legislation, which the committee raised in its stage 1 report. As the Government noted in its response, the bill already contains provisions requiring individual councils to report on and review their visitor levy schemes. Under section 18, a local authority will have to report each year on its visitor levy scheme. Under section 19, a local authority will have to review its scheme within three years and publish a report of its findings.

A national-level evaluation would need to happen in partnership with local government and would best take place once many visitor levy schemes had been established and had operated for a length of time that was suitable to enabling a longer-term assessment of their impacts and of behavioural changes among tourists across Scotland.

Mark Griffin made a point about ensuring sufficient time before consideration of the overall impact and outcomes of the operation of multiple visitor levies. Therefore, although I understand the motivations behind Miles Briggs’s amendment 50, the Government cannot support it.

I also note that regulation-making powers in the bill cover a range of areas. That will allow the Parliament to respond as circumstances develop and change. However, I recognise the committee’s interest in the issue of review, which was touched on at stage 1. I am keen to explore how the Government can facilitate the wider process of review once a number of visitor levy schemes are up and running, in order to identify how different schemes are operating in different parts of the country, and what their impacts and outcomes are. I am happy to consider how we can provide more assurance around that process.

I am conscious that we have a number of items to discuss at a meeting so, if Miles Briggs or any other member who is interested is content to add that issue to the agenda, I will be happy to explore it.

As Mark Griffin suggested, review after one year would be premature. Ultimately, the bill is about fiscal empowerment of local government. There are mechanisms for local government for review after three years. We would not want to duplicate reviews that local government had already carried out. However, I recognise the interest in the aggregate impact of multiple visitor levies operating across Scotland. The committee has raised a fair point. I am keen to discuss whether the solution to that should be by legislative or other means, and to come to a consensus on that ahead of stage 3. On that basis, I ask Miles Briggs not to press amendment 50.

As I just touched on, I would be more than happy to meet Mr Briggs, and I would be more than happy to meet Daniel Johnson on that issue. Guidance will be produced and, subject to the committee’s agreement to my amendment in a later group, it will be put on a statutory footing, which would give it a strong basis. That would allow for flexibility for local authorities, through consultation with businesses, communities and relevant stakeholders in their area, to determine the best approach for the levy. Through guidance, and by giving clarity, information and support to assist local authorities in implementing a visitor levy, we can minimise administrative burdens and allow the most effective outcomes.

Amendment 15 would insert a new section on guidance on a visitor levy scheme for local authorities. It would create a duty on VisitScotland to prepare and submit to ministers guidance on a visitor levy, and to review it “from time to time”. The Scottish ministers would have the power to approve, reject or require modifications to the guidance. When introducing and administering a visitor levy, a local authority would be under a duty to “have regard to” that guidance. The amendment would also allow Scottish ministers, through regulations, to substitute another body for VisitScotland, if they wish to do so in the future.

As committee members might recall, the expert group that brings together local authorities and tourism industry bodies is working to produce guidance for local authorities on a visitor levy. I welcome that co-working in the spirit of the new deal for business, and I look forward to seeing the guidance that the group will produce. Amendment 15 will give national guidance formal legal status once it has been agreed by ministers. That will give local authorities clarity on the good practice that they should follow as they consider how best to consult on, introduce and administer a visitor levy. I ask the committee to support the amendment.

I move amendment 15.

Thank you, convener, and good morning, committee. With your permission, convener, I will just take a bit of time to explain what I appreciate is potentially a complex set of regulations.

In 2016, regulations were introduced to provide greater flexibility to local authorities to ensure that both current and future taxpayers are charged for their share of the capital expenditure costs of public assets that are used to deliver services.

Perhaps I can briefly explain the nature of statutory accounting arrangements. Accounting standards require depreciation to be charged against revenue to reflect the cost of the capital expenditure for an asset, such as a school, as it is used over the term that it will be used for—in other words, its useful life. The 2016 regulations replaced the requirements of accounting standards with an annual charge against revenue in the form of loans fund repayments, to recognise the costs of capital expenditure to be financed from borrowing over the term for which the expenditure is expected to provide benefit to the community.

The aim of both accounting standards and statutory arrangements is to accurately and transparently reflect the costs of capital expenditure to acquire an asset over the period during which the asset will be used. The 2016 regulations permit local authorities greater freedom to choose the term over which to charge the costs of capital expenditure against revenue, known as the repayment of loans fund advances, and to vary the period and pattern of such charges. The intention is to allow local authorities to more accurately align the period of loans fund repayment—and therefore recourse to taxpayers—with the period over which the asset will benefit the community.

However, a review of local authority financial data shows that, since 2019, local authorities have been significantly reducing their on-going annual revenue provision to meet long-term borrowing costs, despite increasing external debt, and have been deferring a substantial proportion of capital financing costs to future years. That approach has been taken as a solution to meet affordability challenges and address budget gaps instead of allocating more fairly the cost of the capital expenditure to taxpayers. That is not in keeping with the spirit of the statutory accounting arrangements, which are intended to ensure adequate provision from revenue to meet debt financing costs and an equitable charge to taxpayers for the use of the asset for which the capital expenditure has been incurred.

Furthermore, such an approach creates financial risk, as deferred repayments will have to be met in the future. Rising demand for public services and the prolonged impact of UK Government austerity on the public finances, along with economic and inflationary pressures, increase the risks that local authorities might find it difficult to service their increasing capital financing commitments. Deferring provisions to meet such commitments further exacerbates an already challenging longer-term financial outlook. The committee will not need me to draw its attention to the situation in England and the stark evidence of the outcome of such accounting practices in English councils.

We agree entirely with the evidence that I know you will have heard from local authorities that authorities in Scotland are neither borrowing excessively nor borrowing for the purposes of commercial investment, but the fact is that the practice of reversing debt financing costs and deferring those costs to future years, which has contributed significantly to the financial collapse of a number of local authorities in England, is being adopted in Scotland. I point out for information and context a House of Commons research briefing that was published last month that states that the financial collapse of Thurrock Borough Council stemmed from “two principal causes”: not only the loss of value of its assets, but a failure to make “sufficient ... revenue provision” to meet its debt repayments.

The briefing also states:

“a major cause of Slough’s financial difficulties was its failure to make sufficient ... revenue provision in its accounts to repay”

its debts. Moreover,

“Woking issued a section 114 notice”

in

“June 2023”,

highlighting inadequate minimum revenue provision since 2007-08 as a key contributor to the local authority’s significant financial challenges.

In 2020, the UK Government took steps to amend equivalent statutory arrangements for England and Wales to prohibit exactly those accounting practices that continue to be adopted in Scotland—namely to prevent local authorities from reversing costs incurred in previous years as a means of increasing reserves, and to prevent the deferral of debt repayments to future years as an affordability measure.

Although our situation and the situation in England are not identical, the amendment regulations simply align Scotland with the improvements that have been made to the statutory framework for England and Wales. Contrary to the suggestion that the regulations have been rushed through in some way, the need for a review of statutory capital financing and accounting was identified in 2019 and confirmed in the resource spending review in 2022. Despite that, local government has resisted any such review and has requested successive delays over the past two years. The committee might be aware that we consulted on a number of other reforms in late 2023, but in the light of the valid feedback from respondents, we wish to take more time to consider the implications of those reforms before bringing them forward.

No specific concerns were raised over the amendments that are being taken forward at this time, and although the UK Government intervened reactively, we are intervening proactively to protect Scotland’s public finances from risks such as the outcomes that we have seen in England. I therefore consider it to be important to deliver that alignment as soon as possible.

In summary, the amendment regulations will more clearly articulate the policy intent of the 2016 regulations and will harmonise statutory arrangements not only with accounting standards but with England and Wales, to better ensure an equitable charge to current and future taxpayers over a period that is commensurate with the benefit that an asset provides to the community.

With that, convener, I conclude. Thank you.

I have two points to make on that. The first, which goes back to my previous answer and my introductory remarks, is about the timelines and the signalling of our intent. Secondly, on the consultation, a consultation that is just with local government will typically be around two weeks. My officials will correct me if I am wrong, but I think that the consultation in this case was four weeks, so it was more than the normal time.

We have consulted in a way that is consistent with how we normally engage with local government. More generally, the context in which the consultation was undertaken was that there had been extended engagement over a period in which we had indicated our concerns.

We will continue to engage constructively with local government on those matters but, as I touched on earlier, we in the Government have an obligation in the broader stewardship of the public finances and in assuring that there is an appropriate regulatory environment.

Elanor Davies may be able to provide more detail on the other elements that were consulted on and the work that is on-going.