 Good morning, everyone, and I welcome you to the sixth meeting in 2016 of the Finance Committee. I've received apologies from Patrick Harvie, who is unable to attend today, and I know that James Kelly will join us during the proceedings this morning. Can I remind everyone just to either switch their mobile phones off or at least put them into a mode that won't disturb the proceedings? Agenda item 1 relates to whether the committee agrees to take agenda item 3 in private and agreed to take agenda item 3 in private. We agreed to take agenda item 2 in our agenda today is to continue to take evidence as part of our inquiry into the first year of operation of the land and buildings transaction tax, and today we'll hear from Karen Campbell from Homes from Scotland, Jonathan Gordon of the Royal Institute of Chartered Surveys, David Melhush—got that one right, I hope—of the Scottish Property Federation and Professor Mark Stevens of Herriot, what university I take now. Obviously, I'll very much warmly welcome our witnesses to our proceedings this morning. Members will have received copies of the written submissions put in by the panel members today, together with a paper from the clerks. We'll go straight to questions, but can I say to the panel members that there might be a specific question to a specific person, but I feel free to contribute to that question area, if you wish. With that, I would ask Ivan McKee to begin the discussions this morning. Ivan McKee, convener and thanks very much for coming along today. The first area that I want to explore was round about the impact of the change to LBTT on the overall Scottish Government's tax take. I've been hunting through those numbers and I'm failing to find any evidence, so you can help me with that. If you look at the total tax take for residential properties, £270 million in the last year of stamp duty, then dip to 202, which is what you'd expect as part of the forest stalling effect. If you look at the first four months where we are in 2016-17, it's back at an annualised run rate of over £280 million. If you look at that, broken down by the quarter, you see that trend, you see a hit in that first quarter after the change to LBTT as a result of the forest stalling, and then it recovers quite quickly. Similarly, if you look at the high value properties over £1 million, you see a huge number clustered into that right at the end of that financial year, and they dip for a few months. However, by now, 16 or 17 months after the change, it's fully recovered back to where it was before. I know that there were some from the Scottish Property Federation. You cannot load it to them. There may be a change, but when I look at the number of transactions in that £325-750 range, the number of transactions is up now compared to two years ago. It's very difficult to see them, almost from your chart. However, if you take effect with the forest stalling effect between 2014-15 and 2016, I don't really see any evidence for any tail-off as a result of the changes. Do you want to comment on any of that? Yes, I suppose that you referred to it quite happy to refer to that. There are quite a few questions in that. I think that the first thing that I would say is that, in terms of the tax take that you referred to for 16 or 17, I suppose is a point to make. The overall figures when you see the headline overall figures from Revenue Scotland, for residential, they will include the additional joining supplement, which I think has boosted it considerably to date. There is a separate column in which strips are out, so you can actually take the residential figure in and reduce that. I think that you are up to over £16 million, I think, out of. I think that this was up to the end of June, so it might not include July's, but at that stage there was £65.5 million of residential. This is for 2016-17, so this financial year. That's correct, yes. I have the fuss of your minds with £64.5 million. However, as I say, ADS was actually quite a significant slice of that. What we don't know at the moment is how much of that should be repaid. I think that there's an 18-month period where some of it might be reclaimed by the taxpayer. I don't have a handle on how great a proportion that might be right now, but I think that it might be just to make the point that the 3 per cent additional supplement is making a significant change. The issue about that is how much of that, what was a run rate on that before, and there's a run rate significantly more, because what you've expected on ADS is a forestallon effect to hit you in the previous quarter, the January to March quarter and then a dip in this quarter. Do you get any estimate of how much of that might be due to that forestallon effect? I think that the best estimate I've seen is that the fiscal commission came out with one of around about £7 million. Just to turn on to the million-pound-plus houses, I think that our take on it is that there was a dip after a period as you reported, but later in the financial year that market recovered and seemed to get going now, and I think that it was again moving along as roughly expected by the end of that year. The 3 to 5 to 750 range, I do think that there was a change between 1415, the last year of SDLT, and 1516. I think that that is on the table that we provided. I think that we suggested there was a reduction in the number of transactions there. Again, I think that the commission was estimating a fall-off in forecast revenue in that area of around about £35 million in their own report. For us, I think that the fiscal commission did in their outturn. Is that against forecast? Yes. You really have to compare against previous years, because the forecast was revised upwards and they failed to meet it. For a true comparison, you have to look at previous years, but you do not really see any drop-off at all. I mean, just looking at your chart, 3 to 25 to 750, Q1 2016, 1991 transactions, so annualised almost 8,000, which is actually more than any of the previous years. That is the 250 to 325. 325 to 750, 1, 9, 9, 1 transactions, 2016, Q1. That is on page 4, bottom of page 4. So this is the table that you are referring to? Yes, table at the bottom of page 4. So 2 to 14 to 15, 325, 0, 0, 1 to 750, you have got 7, 5, 5, 5, and then that goes down to the first year of LBTT to 7, 3, 9, 9. Which is a forestallon effect. And then on Q1 it is back up to almost 2,000, which is 8,000 annualised. So, well, I mean, if you annualise that figure, obviously we have got to see it. Sure, sure, but the point I am making is that there is absolutely no evidence that says that there is any hit on transactions already, haven't you? I mean, I think that my point in that was just a straightforward number for number compared to the year during the last year of STLT within that price range, compared to the first full year of STLT. I think that there is a lower number of transactions. Yes, there are 165 lower transactions, which is about 2 or 3 per cent, but that is minimal if you can figure out the effect of forestallon impact. Yes, I mean, what I would say in that is if you look at the trend, you will see a significant increase recovering from the recession going onwards, but then all of a sudden you see that change, as we are suggesting, a drop-off in actual number of 160 odd transactions. So what I am saying is that I cannot think of any other reason. Well, forestallon. Yes, but if the trend was like that and then even with forestallon, if it stayed at that level, what I am saying is that I think the tax did have an effect on behaviour. I can't see any evidence for that based on those numbers, because what's happened is there's been a 2 or 3 per cent drop-off, which is less than what I've expected for forestallon, if you think about the amount of money involved and how easy it is to move things a week or two. So there's no evidence there and now we're back at a run rate that's higher, significantly higher than it was if you look back over the last year of the year before. So I think it's a difficult target if there's been any downturn. You might say it should have been growing much faster, but I don't see the evidence that says that there's been any hit at all in terms of what's happened there with those numbers. Well, I mean, I think we'd probably stand by a line that there was significant increases in activity between those bans and it then stalled, if you want a better phrase, and I can only see that the change in tax and the change in the rates and thresholds above 3.25, I think they're impacted on that. The numbers don't say that. The numbers say that it's continued to increase. I disagree. Well, 1991 annualised is a bigger number than 7.390, it's a bigger number than 7.555. I mean, that's the first quarter of this year. Can I just interrupt just for a second, so I get some clarity around this? I know you, but I just so understand first of all the table at the bottom of page 4 in the Scottish Property Federation's submission. Is that your own table, or is that a table that you've taken from somewhere? Is that from Registus of Scotland? That's from Registus of Scotland. Well, why don't you understand, in that case, forgive me, folks, is how that compares with the table that's in the papers that we've been provided with today, because the figures that we've been provided today from Registus of Scotland would suggest a different picture to what that's saying, not in money terms, but in terms of number of transactions, because I've got this right. Do you have that table with you? Yeah, I'll carry it for me. For 2014, for instance, for those 3.25 to 7.50, there were 6,960 transactions. That's my quick figures that I've done myself just in the last few years. I hope that I've got that right. And then in 2015, there were 7,890 transactions, so that's two figures coming together, two full years, that suggest to me that between 14 and 15, then the actual numbers of transactions have increased. Have I got that right? Have I got that wrong? It's different to the numbers at the SPF, I've got it. So we need some clarity around that. I'm not saying that this is obviously figures that you've sourced from somewhere, but it's the same for those over 750, according to the figures that we've got from the Registus of Scotland. In 2014, the number was 470, and in 2015, the number was 540. So there's obviously a disparity somewhere between the figures that are available to the Scottish Property Federation and the numbers that we've been provided by the Registus of Scotland. That does similar. Yeah, it could be something like that. Are the numbers not just January to December and once April to April? That's what I think. So it's once 2014 and once 2014, slash 15. That's what I think. Ah, I see. So once calendar year, once financial year. Right, we just need to get that clarified afterwards to make sure that we need to know exactly where we are. Sorry to interrupt. I just wanted to be on my own sake. I needed to get to understand that. So I think I've made the point. I mean, the argument then comes down to you had expected it to continue to go like that, and it hasn't, right? And okay. I mean, but certainly in terms of no money has been lost compared to previous years in terms of the change. Ah, no, I mean, the only comment on that, which I've really seen is the fiscal commission's report where they had a look at forstalling and traded off and then looked back at that 325 to 750 band. And it was really the only area that I could see in the fiscal commission's October report where there was any significant difference between what was expected and what was and what happened in the outturn. So, I mean, that's not our data, but it's the only comment on that. But it certainly isn't true to say that there's been a drop-off in transactions. They might not have continued to increase as rapidly as you might have expected, but to say that there's been a drop-off in transactions wouldn't be true. I would say that they've stalled. I mean, we put in our report a slight dip in the numbers, and you might argue that that's the effect of forstalling or otherwise, which there's other analysis of that. We would say that the market did see a behavioural change within those bands at that time. Right, and again, for the record, I don't see any evidence for that, okay. Does anyone else want to comment? Yeah, more on you. Sorry, I don't take quite the sanguine approach to the figures that my colleague Mr McKee does, because I was looking last night at some fairly detailed breakdowns from Registers of Scotland looking at the different bands of property over the last, what, seven quarters. It seemed to me, having read your evidence, that the most sensitive price bracket is probably the bracket 750 to £1 million. If you're buying a house over £1 million, chances are that LBTT is less of an issue, but people who are moving up towards that large family house bracket, that 750 to £1 million, is probably the most representative of a sector where, if there was going to be a problem generated by high levels of LBTT, it would be demonstrated in that bracket. If you look at the figures according to the Registers of Scotland data, just to do some comparative quarters in the July to September quarter in 2014, the number of transactions in that bracket was 102. In 2015, in that bracket, the number of transactions was 68. And then, if you look at the quarter January to March, the number of transactions in 2014 was 73. In 2015, it was 104. In 2016, it dropped to 58. I think that that does rather confirm your proposition that, in that bracket, 750 to £1 million, there has been a drop-off in transactional activity. Whether that is related to LBTT rates is a different issue, and that's what I'm interested in getting your take on, if there has been this drop-off in activity in that upper end of the market but not the very top end. What is that attributable to? Are there other factors that might be part of that, or do you think that it's mostly down to LBTT rates being high, as your written evidence would suggest? Well, I would say—I mean, as the previous comment, I think that there was a dip in that higher band earlier than activity did start up again at that level. However, what I would argue—and I obviously only saw the quarterly breakdown sort of very late on last night, so I think there was a difference of three in one quarter to what we had, but it's not significant. You asked about other factors. Of course, in those very high-value bands, you can't really ignore, I would suggest, the impact in the north-east with the change in the economy up there and where a lot of houses that probably wouldn't be at those house price bands would be in that market area, so that would have had, I'm sure, an impact on activity. However, the market is a continuum, and I think that we do make that point in our evidence that changes at high-value bands don't just affect those high-value bands. They will have a consequence—a knock-on effect—to lower down the property market chain as people aspire to move upwards, or maybe some people in larger houses aspire to move downwards. I do think that if the tax thresholds and rates are too lumpy, they will have a negative impact on that flow of activity. I could ask a similar question to Mr Gordon and just to expand on that. I know that there's a comment in your written evidence, Mr Gordon, where you say that RICS has urged the Scottish Government to err on the side of caution when considering a significantly higher tax rate for Scottish properties at the higher end of the house price spectrum. We felt that this would hurt revenue generation through this part of the housing market as foreign investors would look to invest elsewhere in the UK. Do you feel that that concern has been borne out by the evidence? I'm representing the RICS and I didn't write the evidence, so I'm standing in for you. There's a personal view and there's an RICS view. My personal view about the bands is that I'm not sure what parts of Scotland you'll be living in where over 750,000 is a normal family home. So, if you simply look at people's average incomes, even double them to 50,000 or 60,000, multiply that by what you can borrow, you can maybe borrow 250,000 or 300,000, and then have a couple of £100,000 to deposit it. If you look at people's real lives, anything over 500,000 starts to become a really significant price for a property and you're not really looking at normal people who have normal incomes to put it in layman's terms. I'm not that concerned about the sector above 750,000. Once you get above the rate, the price where you start paying more here and more in compared to the old tax and to what you're paying in England, which is around about £300,000, then I think that there's a really serious impact on what happens in the market. So, if somebody who could move from a £300,000 house to a £500,000 house which they can maybe afford with a couple of average incomes and some equity in their properties, then your stamp duty of £30,000 or £20,000 becomes almost equivalent to one of their salaries. So, that's the area of the market that I think the RSS has focused on. So, the upper end that we are talking about is not really the £1 million thing, but it all filters down to a degree. So, if there are only a few hundred people who can buy the properties above 750,000, they still need people to move up to that sector when they get lucky in life and they can afford that in order to free up the market at the £400,000, £500,000 mark. There may be some issues around that. Just personally, for me trying to move from a £400,000 house to a £500,000 house, I do not have the extra stamp duty for that, and that's the situation that I've been doing if I move. So, I would stop there. Okay. Thank you. Thank you. It's immediately, that's been quite a lot of a wide-ranging number of questions, and neither Mark Stevens or Cardin, if I had a chance to contribute before we go on. Does anyone want to say at this stage, yeah? A couple of observations to make just on the last two questions. The first one relates to the stats. Now, homes for Scotland themselves don't collect stats on the new-build impact, but what I would say is that there's been debate about the evidence that exists and the new-build contribution to any dip might not be yet showing, so I think that that's a good point to make. The feedback that we're getting from housebuilders is that they're having to pay the stamp duty. They're obviously in a different position. We're talking about businesses here selling homes as opposed to individual sellers, and to get them over the line to persuade people to buy the homes, they're going to make up the difference or pay the full bill. It might, and that's not sustainable, clearly going forward. Housebuilders are taking action to remix sites and bring forward smaller properties, because they really are listening to the market and the LBTT is having a really big impact. Any impact from the new-build, which, as a proportion, obviously is just a proportion of all sales that take place on an ideal basis, but it might be next year, the year after, that you actually see the impact that that's had on the stats. Another point to make now, I'm not going to sit here and claim to be an expert on the stats, that you can drown in the stats that's available on this, and perhaps if you're having another evidence session you would bring in some experts on the stats, because there's a lot out there. What I would say is that I understand that there's a difference in the ROS data on date of entry or date of registration, and that might be causing a lag. If the stats that we were looking at earlier are based on registration, some of the transactions actually took place as part of the forestalling in March. It might be showing in the next financial year, so I think that that's something to be in mind if anybody's going to be doing a little bit more work on the stats that have been presented. We have the Scottish Fiscal Commission coming next week, but before we get them here next week, I've already said to the clerk that I want some reconciliation work done on the table provided to us helpfully by the Scottish Federation, a private federation compared with the figures that we've got on an annualised basis. I think that you're right, Jonathan, to suggest that they were annualised, but if you take the financial year out of the annualised figures, the drop in the number of homes being sold between 3.25 and 7.50 was only actually 65 between 14 and 15. My re-quick reconciliation of the figures, so what we need to do before we get to next week is to make sure that we've got that information tightened up and we know exactly what's happened, because that does seem to be the case. It's just that there's been a small drop-off, not the really big hit, I'm afraid, Karen, that you're suggesting, but we need to make double sure that those figures are right. Jonathan, you wanted to say something. Could that 3.75 to 7.50 figure be broken down into 100,000-pound bands or something, because there's such a mark difference between 20,000 and 60,000 in terms of stamp duty that you pay within that band? Could that be done as well for the committee to look at it? If that provides us with more clarity. Ash, you wanted to come in. Professor Mark Stevens, in your submission, you say that LBTT should be allowed to settle, and then in the RICS submission, there was quite a bit throughout that submission on the key strands of stability and consistency. The RICS recommendation to the Scottish Government is not to allow the bands and thresholds to be changed until the results of the research report are out. Just for the record, the research report is called Evidence Review, Tax Forecasting Models for the Housing Market. Is it the panel's view that the market will adapt and settle, or maybe it already has? Professor? It's simply too soon, it seems to know. I might encourage you to step back a little from the relatively short period that we've been examining in great detail. And think about the way in which the housing market operates and the way in which this tax and its predecessors have operated. We know that the housing market is very volatile. It's not just driven by incomes, numbers of households and so on. It's also an asset market, so it's driven by expectations of changes in capital values and so on. As a consequence, it is a volatile market, prices are volatile and transactions are even more volatile. In my paper, you will see a number of graphs that indicate quite how volatile revenues from stamp duty and its successors have been. Having said that, we would expect transaction taxes to have an effect on the market. We know from experience of changing these transaction taxes that the changes can have an effect on behaviour and we know that anticipated changes in taxes can influence behaviour, which incidentally is another reason why I think it would be sensible to dampen speculation about changing the bans in the short term. But there's a further effect, which is concerning any short term disruption to the market. It may be that prices in these higher ranges haven't responded yet or haven't responded fully to the impact of an increased average tax burden. We would expect, over time, the effect of a higher average transaction tax to have a downward pressure on prices. However, we know through housing market cycles that when there is a reduction in demand, homeowners who are anticipating selling their properties are reluctant to lower the price. They know how much it was worth a few years ago or when they bought it or at the peak. They are reluctant to accept that it doesn't have an intrinsic value, that the value can fall. For those reasons, I think that it's too soon to say whether the impact has followed through completely. My intuitive feeling is that it hasn't, and therefore it would be sensible to examine the longer-term impact of the new regime. I certainly do. This is specific to the new-build industry. We are taking action now in response to that. Anybody who has sites that have current planning permission that aren't selling, they are taking them back to the planning and remixing. Any sites that are coming forward, they are more likely to change their plans and to build smaller homes. That will have an effect on future revenue projections for those values. No-one likes certainty more than a house builder given the amount of risk over the number of years that it takes to bring a development forward. That is all adding to it. I was intrigued by the comments that were made about hold on, let's wait. The markets are suffering to such an extent, particularly in the north-east, which might be for other reasons, but we have a lever here that we could use to stimulate the market. I would suggest that, if we don't seem to have come to a conclusion as to the financial impact in terms of revenue on the impact for the past year, once you have heard from Fiscal Commission and you have come to a conclusion on that, it is already showing that you are not achieving the income that you wanted to for Scotland and hearing feedback from property professionals. I would suggest that action is required now. From our point of view, we have businesses that are suffering out there. Those bigger businesses that are operating in this space can change the mix and they can exit more baskets if you like. Smaller businesses, for example, building family homes in St Andrews up in the north-east, are really struggling. We are seeing sites mothbald for the first time since the recession, and that is a serious concern to us. To stimulate the market, we suggest that we cannot wait any longer to re-correct or reapportion that section, which is for us the £325 to the £750 or to mirror SDLT in England to keep us attractive to investment to get up to the £925. Johnathan David, do you want to reflect on that as well? I think that I was always trying to draw it back to real-life examples, so the Homes for Scotland submission had a couple of examples of what I would class as aspirational, family homes in good areas. If you just look at the tax that is written on that, just how that impacts on individual people who are trying to buy those houses. The majority of the market of people buying homes is people buying and selling houses certainly in Edinburgh where I work. It is a resale market in Edinburgh, so there are not enough homes in the areas where people want to live, in the key cities in Edinburgh and Glasgow and others. The market may adjust, but it might not adjust the way that you want it to if you want a progressive situation. The lower tax rate or the zero tax rate at the lower end has increased—may have increased—the number of transactions of that. There has also increased the demand. Over the past couple of years, the demand has come back in where there are 20 people bidding for one poky flat, I would call it, in Del Rai. It is nearly £200,000 for a small two-bedroom flat where they have converted it from a one-bed, so it has only got a poky kitchen in the middle. 20 people bidding for that, when it is valued at £140,000 or £150,000, is going up towards £200,000 in terms of purchase price. That is not really helping those people, they are putting them into more debt. Yes, they are not paying £1,000 a stamp duty now, but they are actually going into more debt because boron restrictions have been lifted a little bit and they can borrow more money and they can afford to buy that now. I do not think it is necessarily the market changes that you want that are going to settle into it. If you are not building the family homes, which are the easiest ones to build when the market is slow and difficult, which are the ones that are highlighted in here and the ones up to that level, homes are much easier to build and plan for than flats because you can build them as you sell them. If those are the ones that Homes for Scotland is saying are not selling because of this tax, that is going to feed through to people not moving out of the flats, less supply for people at the lower end and continued pressures on demand and supply and pushing prices up. Yes, just a small comment just to add to that. I agree absolutely with Karen about the need to see tax as also an instrument to try and stimulate growth in that. As I said previously, we do see the issue of the market being one as a continuum. For the reasons which Jonathan has just explained very well, I suppose that the specific point on changing rates and thresholds that were made, I would view the evidence that we submitted as almost being a fairly minimal change in a way of changing the 5 per cent threshold upwards to around half a million, more tweaking rather than significant change. Nonetheless, it could be very important to stimulate activity in that particular bounding of the residential market. Yes, I did, if I may. I think that we have some disagreement here in that the key point is that, if you want to sell a house and you cannot at the price that you are charging, maybe because the rate of transaction tax has increased on it, the market response over time will be for the value of that property to fall. You cannot just say in a dynamic market that the price of houses is fixed, it is not, and they will respond. It is important to recognise that, although the purchaser legally pays the tax, we would expect, in effect, over time, more of that burden to be borne by the seller in terms of reflecting the price. I take that point and understand that point, but if we are going to stop increasing the supply of homes in that space, the market will be distorted, there will be pent-up demand and more people bidding for the existing homes that are in that space. The seller will be a seller's market and they are unlikely to reduce the price of taking to account the LBTT. In the areas where people want to live, there is not enough supply and if there are five or six people bidding for a house at £500,000, it is the people who cannot afford the tax that will pull out of that market and not bid for the house. The people who can afford it, who are wealthy or have higher incomes, will purchase the property at the same price, rather than the price dropping. That would be my estimation of what would happen in the short to medium term, but that is as a charge of error. In a perfect world where there was some kind of equilibrium between supply and demand, which there is not, which is why there is a housing crisis, what the professor says is correct, but I would argue that we do not have anywhere near a perfect market in housing for many reasons. That is the unprogressive nature of the tax overall in the way that it is structured or in the tax in itself, regardless of how it is structured. Ash, do you want any supplementary to that? Well, I was just going to say that when I understand progressive in taxation, I understand that the people in this case for residential housing in the lower property prices pay less and the people in the higher property prices pay more because they are able to. My understanding is that this is a progressive tax. So, when I think of progressive, I think about incomes and your ability to live on what you are earning. Two people bidding for a £500,000 house, one person could be earning £100,000 a year and one person earning £50,000 a year. If the person who is earning £50,000 a year cannot afford to buy that house because they have not got the tax, then it is an unprogressive tax because only the wealthier person can afford it. I take that point, but I suppose that the spirit of the legislation is to allow more people to pay less tax at the lower end. I suppose that is the idea of the spirit of the legislation. The spirit of the legislation was correct and admirable, but my anecdotal evidence is based on Edinburgh in the key areas of the city centre. Prices are shooting up for the first time by 10 per cent, 20 per cent in some areas, and that is sometimes 10 per cent in spring and 10 per cent again in autumn over the last year and a half. That is unsustainable in terms of affordability for the people who are buying those properties. The progressive nature of the design of the tax has created that situation where first-time buyers are having to get further into debt and pay more for their houses, even though they are paying less tax. What is your time to move on from this area after March's contribution? The question of progressivity is one that has been visited, for example, with the council tax reform. The academic view would be that how progressive a tax is is measured against the tax base, and in this case the tax base is property values. In that sense, the tax is unambiguously progressive. We also know from the consultations on the council tax reform that the public's perception of progressiveness or fairness also strongly relates to their current income. One thing that we do not know very clearly is how closely related the taxes to people's actual monetary incomes. That is a view for you as to what importance you attach to the two. I think that Willie has got a supplementary in this area, and then I am going to bring in Alex Johnston on the regional variation issues. Thank you very much, convener. It is just to pick up on this issue about the high impact on the high value properties. Notwithstanding the discussion that we had a wee minute ago, the data that we have for registers of Scotland suggests that the high value properties are performing pretty well. We can haggle about the calendar or the financial year aspect of it, but it looks as though it is performing pretty well when you compare it to the other ban thresholds. This morning, I had a look at the David Wilson website, where the houses that you have provided are examples. In that particular house that you have shown in page 1 of your submission, that is on one of the websites this morning that I am more at a higher price than you have shown us there. It says that it is worth £474,000 on this sheet, but when I looked at it this morning, convener, it is actually £479,000. I am curious about whether there is an impact here and whether there has been any action taken to try and reduce the prices or something like that. In looking at other evidence from this particular street, convener, there has been some recent sales in that street in only last October. There was one for £360,000, and it is now valued at £380,000. The point that I am making with the convener is that the value of that particular house now exceeds the cost of the LBD tax that might have been applied to it. There is another side to this coin, that those are very high value properties. In a matter of a small matter of a year, the value of that property is exceeding, in some cases by far, the impact that the LBDT might have had on it. Do you take that into account when the business is promoting and marketing those properties, that they are high value? Within a short space of time, they will appreciate in value much more than the other bands may do. I find it really interesting that you have looked at the website, so welcome your interests there. In terms of the different products, it could be a different plot, a more attractive plot, a sunnier garden, and lots of things affect the value of the range. Those were picked at complete random. I thought that the fear in my head site was an interesting one, because when you look at the home, it is a family home. There is nothing hugely, no offence, David Wilson. There is nothing hugely luxurious about it. It is a family product, yet they have to pay £470,000. Unfortunately, that is what you have to pay for a family product in Edinburgh, and it is certainly not the householder that sets the values there, it is the market, but a tax bill of £20,000 in knowing, because those buyers at this level are intelligent, so they will know, they will be able to run the calculations of what that would have cost them a couple of years ago, or how that compares to what people are paying in England. In a year's time, the value of that house will far exceed the price that they have paid on the LBT tax. It may, but the evidence suggests that it does. It has for the sale that you have identified there, which is good news for that buyer, but it does not always happen that way. What I would say is that it is a cash flow issue, it is a cash burden on these buyers. These family buyers are looking to move to a new home and having to find £20,000 to make that move in cash. That is where the issue lies here. They might be getting a capital increase further down the line, whether that is ever realised or not, as a different story, but it is the cash impact. It is a good return to look forward to in less than a year, where the new value of your house has exceeded the tax. That is not real money, though. Well, it is not real money. I did not get into the market quickly enough when I was younger. However, there are people who have bought flats for £50,000 within my lifetime and have doubled in value. They have bought something for £125,000, and they have doubled in value over five to ten years. That is not a great market to me, but the reality of the situation is that the majority of people who are trying to purchase £400,000, £500,000 houses in and around Edinburgh, and I guess in and around Glasgow are people who have built up in this housing ladder that everybody talks about, and they do not have £20,000 in cash, and they are overstretching themselves in their mortgage to get a house that they need for their family. You have to draw it back to real situations and think about cash. Just because a house goes up in value and you have that asset sitting there, you cannot do anything with it unless you sell again, and then you have to pay even more stamp duty, which you do not have. I am puzzled by the idea that one can assert that house prices are set by the market, and if you have built a house and you put a price on it and no one will buy it, the only response is that the price that you are asking for is higher than the market value, and the only way that you will sell it is by reducing the price. I think that there is a fundamental question about how house prices or how actors in the market are responding, and I think that we should expect at times for house builders also to respond to what the market is telling them. I want to move on to regional variation issues now, and I'll let Johnston. Thank you very much, convener. We've touched on the issue of regional variation, but I come from the north-east, and looking at the figures, the tipping point where the tax payable goes higher than the rest of the UK is about £330,000, and you do not get much for £330,000 within 15 miles of Aberdeen city centre. The result is that the market is now, in my view, being damaged. What do you think is happening to the marketplace in places like Aberdeen and where the tax is really biting? The new build point of view is absolutely damaged up there. Perhaps not just due to LBTT, but as I outlined before, it is a lever that is within the Scottish Government's control. The fact that sites are being mothballed is terrifying. Builders are taking the properties to wind and water tight, and they cannot afford to take them any further because the market is not there. Or where they have not yet started to build, they are trying to remix and bring forward. The industry, the new building, is reacting as fast as it can to the market, with the planning process that we have across Scotland. That could take a number of years, unfortunately. It is a slow reaction that is going to take place to bring forward cheaper properties to target a different market in the area. Right now, the north-east is struggling and could do with some stimulation in the market. Obviously, there is anecdotal evidence, and there is real evidence of what is happening in the market overall. You have touched on yourself. That could be down to economic matters, it could be down to financial issues and demographic issues in the north-east. Is any real work being done to get underneath what the real issues are in there? You had evidence from Aberdeen City Council, for instance, who said that they could not really put a finger on one specific issue that was causing the downturn in the north-east. If Holmes or Scotland got any real evidence, it is that issue. It would be useful to know that, or anybody else. Unfortunately, no, it is not something that we are resource to collect in terms of that granular data. I do not know whether the city commerce or anybody like that, the Chamber of Commerce, has any information. Unfortunately, I do not know. Local authority-level breakdowns are by price bands, which are tagged to the WTT rates, which is the basis of what we have put in over the period of time. That is only really quite high-level quantitative data, but, certainly by local authority-level Aberdeen City and Aberdeenshire, we do have and we could provide. We can see the slowdown and the issues there, but what we do not know is what the evidence for causing that is. That is the point that I am trying to make. You cannot disengage the causality of it, obviously, from what has happened in the economy, in the area. The figures 100,000 or 1,000 jobs in that industry are doing so well. That is obviously going to impact on people's ability to pay. Alex, I interrupted you. I was going to ask about not necessarily just in the Aberdeen area, because I know that there is Edinburgh and the pockets of Glasgow where the same problem exists. The effect is that the tax that effectively is one size fits all across the whole of the country is impacting disproportionately on areas of higher house price. That distortion, how does that play out across the rest of the housing market? Is it causing people to travel further to work? Are there other socioeconomic problems being caused by that? We have any evidence on that at this stage. As I said, the true impact on new builds is not yet felt because the builders are unfortunately having to foot the bill to make up the difference for the stock that they are selling now. That is not going to happen going forward. We do not know the wider impact yet, but we do not even have anything on an anecdotal basis on that. You have mentioned a couple of times the idea or suggested the idea that builders may in some cases be absorbed in the cost of the additional tax. Certainly, my experience is that builders who are building houses that are significantly higher tax liabilities are saying that they simply cannot do that and that it is too high a proportion of the cost of the building. The effect appears to be that, as I have observed in the north-east, it agrees with what you are saying, that sites are showing very low levels of activity. There is mothballing going on. That is in an area where there is still an identifiable house shortage. How does that impact on communities with their house in shortage but the builders will not build? I do not imagine that it is going to have a massive impact. We know the position across Scotland that we are not building nearly enough homes and that is having an impact on a national basis. You will see it harder in some communities where people want to live and where the demand far outstrips the supply available. I should clarify my point that builders who have got the home to a certain stage where they have to move off that site, stock properties, that is where the sales will be incentivised as opposed to those who are coming out of the ground where they can stop building until that home sales will not complete the sale and complete the build. That is the sort of distinguishing difference there. They are incentivising where they have to, whether they are desperate, to get the return back and the cash that they have invested in the property. The relationship between the market and the long term of the market as it currently exists was suggested by Professor Stevens earlier that if a house is built and it cannot be sold for what the builder wants for it, then it has to be sold for a lower price. That may work on the basis of an individual house, but what it means is that, ultimately, the house simply will not be built? Exactly, yes. Or if it is going to be a long-term trend over the next five years or something, we could then start incorporating a lower house price into the land values. However, at the minute, most of the homes that are coming forward as land is already purchased, the price is already agreed based on market values. I will respond to that given that you have courted them. Well, yes, we have an agreement. It is not that the houses will not be built, it will be then over time that the land values should go down and say that you then end up with a lower market price. However, the question of housing supply, of course, is very important. I do not want to diminish the possibility that a transaction tax is distorting and it might be to a degree that is undesirable. We do not know yet, but it would be a very big leap to suggest that this is a major factor in the overall supply question of housing. There are far more important factors going on with which I think that we are all familiar. Marie, we are coming to you, I think. Hi there. I have a particular question for you, Karen. I see in your submission about additional homesupplement that you continue to believe that the purchase of new-build properties for buy-to-let purposes at a second home represents additional activity, which does not crowd out the purchase of homes by first-time buyers. I would ask you how you know that or where the evidence is for that. I would imagine that it would, in reality, affect the house price in those areas where second homes are. I have to say that I represent the highlands and islands, so to give you a little bit of background, that is a huge... There is a lot of second home buying in the area that I represent, that are communities that are becoming quite seriously unbalanced, because 50 to 60 per cent of the housing stock is owned by our second homes. I would be interested to know where you have the evidence for that. I mean, our intelligence is very much based on discussions with home builders. Exactly, yes. Activity by investors can actually help the supply for first-time buyers. I will give you an example of that, and that is bringing forward flatted developments. To bring forward a apartment-sized building is a huge investment and a huge risk for a builder. Quite often, what happens is that the sell-off plan to investors is a number of plots, which gives them the cash flow and the confidence to take that forward and deliver it. I already know that that is having an impact on the number of plans to bring forward flatted developments, because they are not confident that they will have that up-front investment and confidence that they require to deliver the full development. That is significant. We definitely see new build as different in terms of the additional home supplement. Rural locations, as well as feedback that we have had from builders, suggest that the product is delivering in some of the relocations that it is from. It is not targeted at the first-time buyer market. It is very much a luxurious holiday home for somebody who can afford it. Having those people invested in your communities can stimulate the local economy, and there is a fear that— Again, I would ask you where is the evidence for that. If you live in a community of a couple of hundred people and half of the houses are owned by people who do not live there, it is better to put a real strain on the local school and on how the community runs. I would ask you again where is the evidence for that. Our intelligence is from member feedback. We do not actually collect any data on that, unfortunately. We are not resourced to. I have just added another point to the good point that Karen has made, which is that the issue is about your SME house builders who might get going, or your property entrepreneurs. The additional tax at that level can have a negative influence on your ability to go ahead with your development appraisal and so forth. The truth is that the SME house building industry was hit very severely in the recession, which we had nine or ten years ago, and has not really recovered. I have just added to the point that it can have a negative impact on those people who are trying to get going on house building that is below the six-property threshold. Cumulatively, that can add up to quite a lot of supply and did so before the 2008 recession. There is obviously a problem in the Highland Islands, and I would not argue against that. When you focus in on new builds, most of the big house builders, and unfortunately, it is becoming more and more limited to big house builders who are able to plan for particularly things like changes to tax rates, are planning ahead on their own bits of land already. Where people are building flats, in particular, as Karen said, the builder will own a bit of land for a few years, trying to plan ahead or land banking. Some people would argue that that is not a good thing, but generally they are trying to plan ahead so that they can build enough homes to keep the company going and growing. They do not sell all the homes in one go, so they build the flats block by block as they sell them. It is common sense that if 50 per cent of them are sold to investors, then without that 50 per cent, they are going to build those flats more slowly, and they are going to be less able to commit to starting that block of flats. So, I am absolutely convinced that the additional supplement is restricting some investment in bitolet properties, but will be slowing down the rate of planning for building blocks of flats in key areas such as Edinburgh and Glasgow where they are needed. It is not just anecdotal, so it is factual evidence based on the number of properties that we take on from new investors as a company in Edinburgh. I wonder if anyone else on the panel has any thoughts on the rural situation on the question of whether the additional dwelling supplement makes a difference to the second home ownership. If there is any evidence out there, I was just struck that your submission viewed it as entirely a positive thing. Mark, you want to make any comment? I am not forcing you to feel free if you wish to. No, I do not have the evidence to suggest. I put it in context. You have a special problem in housing markets where a significant number of purchasers are coming from another area where incomes may be much higher. I suppose that you get it in London with international investors and clearly you get it in the Highlands and Islands. What role, how significant a 3 per cent surcharge is, I do not know, I would guess only at the margin. Any other questions? No, I think that's it. I did have another question about broadening the range of the band, but I think that we covered it adequately. Murdoch, you had a supplementary question. You had a follow-up on Marie Todd's questions on additional dwelling supplement. I noticed in the homes for Scotland submission, this is to Karen Campbell initially, that there is talk about the introduction of exemptions to help to prevent the untended impacts of additional home supplements. Do you want to say a little bit more about what you are referring to there and what exemptions you would like to see? I think that RICS makes similar comments, Mr Gordon, on their submission. I think that this comes down to the speed in which it was introduced as a new form of revenue. I can understand that that was to mirror the change that was made down south, but we have a period behind us now where we are starting to experience what some of the unintended consequences are, and perhaps a lot more detailed work needs to go down into looking at that. We very, very much welcomed the exemption for the bulk purchases, because we are determined to grow strategically the built-to-rent sector in Scotland. That, at the minute, gives us a huge advantage over England, which is that China's encouraged investment is very much to be welcomed. Having said that, from speaking to colleagues in our equivalent organisation down south, I think that there is a lot of noise about changes that are to be expected in the SDLT system coming, I think that it will be the budget this year. One of the things that they are looking at as well is not just looking at the bulk purchases over six units, but what that landlord has already in the portfolio of their adding to that, which might assist. There is a lot of regulation going on at the minute that very much supports the large-scale professional landlord, but the small-scale landlords play an important part in terms of housing supply, and I do not think that we should forget that, so we might need to look at some flexibility there. Things like parents buying a property for their child to use while they are studying or at the early stages of their career. Again, that is a quite regular purchase, particularly for flatted developments in cities where we have universities. That is going to stop, so that might have further pressure on other properties in that area that perhaps needs to look at the rural dimension, probably needs to be looked at with a little bit more evidence, as Marie points out. The cash flow issue on those that end up at unintended second home owners needs to be looked at as well, because that can have a really strong impact. I do not think that a lot of the public are aware that that exists as well, so when they are planning particularly down-sisers who might want to buy a retirement home before committing to sell, they will not want the disruption of having to sell and then quickly find something new. They might find themselves with two homes. We want to encourage mobility in that area, so that is perhaps an exemption that should be looked at. There is a number, and I think that it needs a lot more detailed thought now that we have experience of it. Do you think that James wanted to come in on this as well? Sure. I take the points that he made, and I know that Jonathan made similar specific points in any submission. Some would argue that, if you build in exemptions like that, you reduce the fees and therefore you potentially reduce the amount of money that is raised by the tax that contributes towards the Scottish budget. How would you counter that? I do not have the answer to that, James. I appreciate that you need to be thinking about particularly this committee, the revenue stream. However, that needs to be looked at in closer detail than just an off-the-cuff comment from me today. I think that it is a difficult consideration, which is why it should not be taken quickly, but I think that that is an argument to allow it to bed in a bit as a tax before making substantial changes, which I think is what the RICS suggests. I guess that one of the original exemptions that I put into the original RICS consultation response when it was introduced to the additional dwelling supplement was just exempting new-build properties, but that could be targeted at specific areas or specific types of properties. There is an issue about building blocks of flats where the builders will build more and more. The prices might rise if the demand is a little bit there, but you need to investigate the evidence for that. I have not seen any investigation of that specific potential exemption because the stimulation to the market and the loss of the tax are a good chance that the stimulation of the economy would more than offset the loss in tax review in terms of the benefit for the Government or the country. That leads in nicely to Neil, because you were interested in first-time buyer issues. I was keen to ask—obviously, there has been a lot of discussion about the impact on the higher end of the market, but I just wanted to ask your thoughts on the impact on first-time buyers. We have received evidence. I think that it was your move. I have said that the number of first-time buyers' properties sales has increased in Scotland higher than in the UK. We also have 9,700 prospective owner occupiers that benefit from the policy of setting the nil-rate LBTT threshold 20,000 higher than for the UK. I just wanted to ask for your thoughts on how it has impacted on first-time buyers and what you see happening in the future. As much as the focus of the discussion has been on the distortion at the higher end, we must not forget how good it has been for first-time buyers. Some of the stats on that are to be absolutely welcomed and celebrated in terms of the reduced tax take for the majority of people in Scotland. However, discussions that are people on the front line, the sales people are having with first-time buyers, I do not think that it is even coming into their consciousness that they are saving money. They will not be familiar with the old system. Quite often, people are not aware of the tax until they go to buy a home. It is not influencing the buy decision at that level, so it is absolutely to be welcomed. We should do all that we can to support first-time buyers. They are the lifeblood of the housing market, but it is not an influencing decision. There are more powerful factors such as the supply of available of the right kind of property and mortgage availability is absolutely key. It is potentially the mortgage market that has really pushed this part of the sector, because it has been much easier to access a mortgage over the past couple of years. That does not explain the Scottish differential on which I do not have any intelligence on. I am not sure what benefit it is for a first-time buyer if they are saving £1,000 in tax and have not spent £20,000 or £30,000 extra on the property because of the increasing demand and the increasing price of the properties. The market has been changing a lot as we recover from 2008 and 2009, so it is hard to attribute the tax as being a causal effect on anything within the market. The market that I am looking at in Edinburgh, where first-time buyers are buying properties, there is more competition and they are paying higher prices for them, so they are having more debt. They are more able to buy it because they have enough cash to buy it because they do not have to pay the tax, but they are putting themselves further into debt for a higher house price. Overall, I think that it has been a good thing, is the RSS view, but I just think that more research needs to be done on what position those first-time buyers are now in in terms of their debt levels and the price of the property that they have paid. I was interested in the area here because some of the evidence that we had a couple of weeks ago was showing quite clearly that the market for first-time buyers on the lower end in Scotland was increasing significantly quicker than the market south of the border was concerned. If the economic conditions are similar and we have a situation where they are across the whole of the UK where there is a shortage of housing building, which seems to be the situation, and yet south of the border we have a picture for first-time buyers that is in terms of the number of transactions that are going that is significantly lower than Scotland, there is obviously something going on. What is the difference and what is the issue if it is not the fact that they are not paying any tax? Has anybody got an answer to that? No? Okay, fair enough. It just seems to me that there is an obvious relationship between the tax not being not existing for first-time buyers because it is a comparator with the south of the border. Is the RSS higher in Scotland? In England? No, really. So, it is a different base level. It is not comparable, I do not think. Okay, fair enough. Adam? It is my role this morning to play sweeper and to apologise. I think Neil had a supplementary and I got in his way, so do forgive me. Question on revenue, Scotland. So, forgive me, Adam. Sorry, I have just had a question. I want to ask about revenue, Scotland as well. Scottish Property Federation has said that we are not aware yet of any plans for the introduction of the free or non-residential lease reassessments. We are concerned that this could prove to be a significant administrative challenge to Revenue Scotland. I just wanted to ask generally how you think Revenue Scotland has been handling the new tax. Do you think that they are adequately resourced to do the job? Okay, well, we think that RSS has bedded the tax in well broadly. I think that we say that. Our committee has not reported too many issues with it, apart from a couple of them. I think that they are more concerned on the commercial side than as opposed to the residential side, if I am honest, where you get very complex transactions where it is not always clear on how the lawyer should implement their end of the administration of the tax. That is probably the only area where some anecdotal concerns have been raised about. It takes a lot longer to sometimes get an answer on technical questions or to get an answer at all from Revenue Scotland as compared to HMRC, who obviously have a lot more experience with SDLT to be fair. That is the only concern there. The point that you raised there is that the legislation will require taxpayers to reassess the rents that they pay the lease duty on every three years. There used to be a similar type system under SDLT, but it was only every five years. In truth, it was a regulation that was not really implemented as such by either market or HMRC. Our question is that we simply do not know at this stage how it is going to work. If you are a business, you have taken on a 10-year lease, you pay your lease tax up front as soon as you take that property on lease. Three years down the line, as far as you read the legislation, suggestion is that you reassess and you go to Revenue Scotland and tell them whether the rent has changed or not. I am just a bit dubious at this stage that there do not seem to be any plans as to how that is actually going to work in administrative practice. There are thousands of lease events every year in Scotland and I just do not think that a business is going to recollect two and a half years into its tenancy and that it has now got a statutory requirement to reassess its rent and get back in touch with Revenue Scotland having paid its tax three years beforehand. It is a heads up marker, Mr Bibby, that there is an issue there that needs to be addressed on an admin point. Johnathan, do you want to reflect on that issue? Adam, I apologise for interrupting you. It was rude of me, but I don't notice Neil. No problem. I think that it's my job by convenience to play sweeper today and I'll ask you a couple of questions that haven't really come up, although one of my questions does relate to what Neil's just been asking you about. Perhaps we can start there. One of the things that we are concerned with as a committee is looking forward to the next few years, we're going to see more and more fiscal devolution coming to the Scottish Parliament. Land taxes, including LBTT, have been in the vanguard of that fiscal devolution. I wondered if you had any reflections that you wanted to share with us about the way in which the administrative structures of LBTT are working, whether there are things that we should guard against repeating in the design of future taxes or things that have been quite good practice that we should seek to encourage, particularly in relation to the relationship between Revenue Scotland and the Scottish ministers, or in the relationship between Revenue Scotland and HMRC? Perhaps just an addition to the answer that I've just given. We are aware that sometimes members are saying that some of the questions that they might put to Revenue Scotland will be uncertainty at the RS level as to whether that's for them or Scottish Government in a policy term. In England, you don't really have the same problem because it's HMRC, so I think that there are some issues around interpretation of legislation and administrative I'll give you an example. It's a broad reflection that has been felt by members, but again, I'd have to caveat it that obviously HMRC has a lot longer experience of the mechanics of STLT in legislation. Broadly speaking, I think that the tax has bedded in well on administrative terms. Will David Smith, if you could write to the committee on that, as Adam Smith has asked, write to the committee on that? You've suggested that that would be quite helpful. Just one other question. It might be a question that the panel doesn't want to answer or can't answer, which would be fine, but in the previous evidence that we took in this inquiry, which I think was two weeks ago, we heard in particular from the Law Society of Scotland that there was a concern that, as the witness put it, we taxed by a statute and we untaxed by extra statutory concession. This is a question about whether LBTT is too complex. If it is too complex, whether that complexity is adequately or fairly reflected on the face of the statute book or whether it is hidden in the curious extra statutory concessions that might be relating to what David Smith just said about Revenue Scotland's struggle always to answer questions on the operation of the tax, because those operational questions run into policy questions quite quickly. Is that a concern that you have come up against in any of your professional dealings at this tax so far? In short, it is a complicated tax. It is a complicated transactional system that we have. I think that the intention of the bill, as it became, was to try and keep it as simple as possible, but inevitably there was quite a lot of bleed-through, as it were, from the existing stamp duty line tax provisions, which did not always chime well with LBTT. I think that it would be fair to say that the complexity is not wholly represented on the face of the act as we have it now. I think that that is fair to say. Does that cause you professional problems in practice or, as it were, an academic problem? For most transactions, if you took a whole number, I think that this is probably more on the non-domestic side of matters, I would suggest. That does lead to complications. Of course, it leads to complications. There are a lot of investors who are used to having policy on a UK-wide level, and that is still feeding through into how we administer the new tax at this stage. However, it is probably quite specific in technical commercial transactions that we are talking about. I do not think that it has been such an issue on the residential side. I want to reflect on that. Thank you very much, panel members, for coming along and giving us some evidence. As we said at the beginning, we need to do some reconciliation work on the figures and we will do that. Once we have that figures reconciled by the Registers of Scotland or Revenue Scotland, we will share them with you as well so that you have the same basis of information. Thank you very much for coming along this morning. The next meeting of the committee will be on Wednesday, 5 October, when we will continue to take evidence in the same area. As we have only one piece of business in public today on our agenda, I now suspend the meeting and we move into private session.