 I welcome everyone to the 15th meeting of the local government and communities committee in 2019 and remind everyone present to turn off their mobile phones. Gened item 1 is consideration of whether to take a gender item 4 in private. Are we all agreed? Thank you, that is agreed. Gened item 2, the committee will hold its first evidence session on a non domestic rates Scotland bill at stage 1 and I'd like to welcome Eileen Rowand, director of finance, Fife Council, Jonathan Sharmer, policy manager of COSLA, Kevin Fraser, Treasurer of Institute of Revenue, Rating and Valuations Scotland, Morag Johnson, director of financial and business services, Glasgow City Council, Solace Scotland. We will move straight on to questions from members and I will start with Alec Rowley. Good morning. Can I kick off by asking whether the bill is drafted in your view along with the early measures that are implemented by the Scottish Government that sufficiently address the fines and recommendations that were made by the Barclay review? From COSLA's perspective, we very much welcome the bill. We think that it covers off quite a number of the Barclay recommendations and often covers the understanding that we had in regard to that. We have worked very closely with the Scottish Government. We have had local government officers involved with that. We have worked on an implementation advisory group so we have a good understanding of how all of the Barclay recommendations are being managed. We have an understanding as to why some of the recommendations were not taken forward and, in some regards, we understand where the Scottish Government has chosen to come from for that. We can mention a couple of things around charitable relief, perhaps as we have developed the conversation. However, as I say, in the main, we recognise what is in the bill as being the sort of thing that we would have expected to see coming out of the Barclay recommendations. Just to echo those points, there were a number of recommendations from the Barclay review and this bill is obviously picking up on a number of them. I think that what is proposed in there will provide the ability for local authorities to certainly bill and collect more quickly, which is something that we are looking to do. There is also an implication for local authorities of moving to three-year revaluations, which I think is also helpful as well. Do you have any other comments? Generally, we are saying that the Scottish councils are happy with the proposals and are happy that they have been picked up and implemented by Barclay. To point out that, when we have been in discussion with the Government, there are areas that have to happen. That is one of the key things to this bill. If we are going to see three-year revaluations that actually happen in practice, one, the assessors need to be absolutely fully supported within that. We welcome the fact that the Scottish Government put in funding for 2019-20 to ensure that the assessors were able to start to do their preparation. We need that funding to continue. That is absolutely essential, going into the next period in order to ensure that the assessors are able to undertake their activities effectively. The other side to that is that there is an absolute need to have a reform of the appeal system. We know that there is a significant amount of work that has been undertaken around that. Local Government and assessors have been involved with those discussions with the Scottish Government and other stakeholders about what the new appeal system is going to look like. That absolutely has to happen because the three-year revaluation will not be able to proceed unless there is a convincing enough appeal system that will reduce the number, particularly the speculative appeals. It is just to get that point across that we support the bill, but the bill is putting the provisions in. It is about what gets delivered on the ground is essential. I want to talk about the broad scope of non-domestic rates. This is the first non-domestic rates bill that the Parliament has ever dealt with in the devolution era. The Barclay review in 2012 was committed to conducting what they described as a thorough and comprehensive review of the whole business rate system, and yet the Barclay review was limited to looking at the impact on business and asked just one question. I am wondering whether you feel that there is, because the bill is an opportunity to change the law around non-domestic rates, whether there are other things that you wish to perhaps use to spill, to do, for example, who sets the rate on the design of relief schemes, etc. This was a local tax until the 90s, and then it was centralised. Are there other things that you might wish to see that go beyond what the Government has brought to Parliament? I guess that is one best for me to answer. I think that COSLA wishes to see greater local fiscal empowerment, and that is a key driver for COSLA at the moment. We welcome the commitments that were made by the Scottish Government, and we know that they were supported by the Greens in terms of the stage 1 amendments to the budget bill. Looking at a potential replacement for council tax and developing a fiscal framework that would encompass the whole local funding arrangement is now something that we are strongly committed to working in a cross-party basis to take that forward. We believe that non-domestic rates should be something that is considered as part of that. It should not just sit outside it. It is a national tax at the moment. There is no escaping that. Obviously, for instance, we welcome the proposal to devolve the empty property relief. We are actively now speaking to Government and local Government officers about what that looks like and what the shape of that will be. We need to get decisions from COSLA's leadership at the end of the day as to how we perceive the options there and what the risks are for local government. It is important to stress that returning non-domestic rates to local government is something that we might aspire to, but it requires a huge amount of thinking in order to consider whether that is even possible. There are a whole range of issues that we would have to consider around how local government financing works and how that brings back a proper local democracy and accountability towards the non-domestic rate payers. There is a lot of road to travel to get anywhere near something like that happening. Nonetheless, clearly, if there are aspects of the bill and potentially with the empty property relief, that starts to bring in more local fiscal control of the rights system, then that is welcomed. I am aware that you have all been heavily involved in the Government's follow-up to Barclay. There were 27 responses from local authorities to various Barclay recommendations, but it is before Parliament that there is an opportunity to do more, if you wish. I move on to the two Barclay recommendations that were rejected by the Scottish Government. Recommendation 28 was that all non-domestic properties should be on the valuation rule, so that, for example, agricultural land, which is currently exempt, would be on the roll. If we wanted to give it relief, we could give it 100 per cent relief, but it would be at least transparent as to the cost of that relief. The second was that large-scale commercial processing, mainly food processing, taking place on agricultural land should pay the same rates as commercial food processing in a food park. Do you have any views on those, or are you content with them? I can come in. From discussions with the Scottish Government, what led to that being rejected is just the scale of the work required in order to get them on to the valuation and to look at whether they were then going to be exempted. We obviously had discussions and we could understand the rationale as to where we arrived at. My question is, do you agree with those recommendations or not? I hear that you understand where government is coming from. I think that we got to a position where we supported that from the working group that was involved. You supported that recommendation 29 should be in or it should be left out because of the complexities of it? We supported it and it should be left out because of the complexities of it, just the practicalities. There's not going to be any money raised to what's at point. Can I move on to recommendation 22, which is about the small business bonus-scale loophole for self-catering properties? The bill makes provision for regulations to define what a dwelling is in section 5, which is a precursor to implementing recommendation 22, which is designed to close a loophole whereby people with holiday homes can claim that they're self-catering, put them on their non-domestic rate, roll, claim small business, bonus scheming and pay nothing. The policy proposal is that they have to be intended to be let for 140 days and actually let for 70 to qualify for being on the roll. Although the bill doesn't implement that particular policy recommendation, that will follow. It only makes enabling provisions to allow those regulations to happen. I noticed in the responses to the Barclay review or to the Government's confused and who's done responses to Barclay implementation. There was quite a split in opinion, but the IRRV highlighted issues around whether that is a multiple of 70 days over three to five years or one year. Other Scottish Borders Council suggested that, if the 70 days never met, what happens then? Has any views on how that might work in practice? I think that the whole issue is the fact that it is difficult to work in practice. We recognise that we would like to see rates relief given appropriately to proper holiday lets, but we think that if sometimes the second homes are trying to get put things into the rating system purely for a financial gain, we would like to see that addressed. The problem with the 70-day rule is that, when it was written at first, it was within a year, it wasn't a rolling year, it wasn't a calendar, it wasn't specified, so you have difficulty when it crosses a financial year. You have extreme difficulty if something is then going to move in and out of the rates roll or the valuation list if things change quite drastically or frequently. We also wanted to recognise that things that are usually let out and occupied are on a regular basis. For some instances in some years, maybe there is illness, maybe there are structural issues where there are difficulties accessing a property. We want to recognise that there are some circumstances where occupation may not be possible for one particular year, but the rule is met in general and we wanted to see something that addressed that. Do you believe that we can do this? I think that it will be quite difficult of where the decision making sits between local authority and the assessors, but I think that it is achievable. In terms of decision making, the assessors are just assessors. You make decisions on what you admit to the rule, of course. The separate question is, should there be any discretion for councils as to how they apply this relief? That is a question for councils. I think that it would be useful to have the discussion. I ask about the potential policy impacts of the changes to guidance for local councils to grant discretionary relief for recreational clubs. What is the likely impact to that? Do you have any concerns? We still want to fully support any local and community-based sports clubs or anything of that ilk. I think that there is an issue whereby it is a wider sports club or organisations that are set up that go beyond the local authority and the boundaries, if you like. I think that there is a recognition that there are two streams of sports clubs. There are local ones that you want to support and there are national ones where maybe through membership income, through other income, you may be able to afford to pay their way, so I think that there may be a need to consider that. If you are a local bowling club or a local football club, what type of thing do you think you have? I would still like to see them supported, but for larger-scale golf clubs, etc, I think that there is an argument that they should be able to pay their way. Thanks very much. Graham, you have a number of questions. I just want to jump back to what you were saying, Mr Sharmer, about your desire to see business rates or non-domestic rates fully devolved to local government. You seem to be saying that that is a big job and that it is too big, but now is the opportunity, surely, that we have this bill in front of us. Why has this work not been going on? As I say, we welcome the commitments that were made by the Scottish Government at stage one of the Scottish budget, and that commits to looking at a physical framework, developing a physical framework. We think that non-domestic rates should be part of that, along with looking at a potential replacement for council tax. It is about looking at local taxation and local government funding. That is how we want to couch this so that we can start to ask the questions. There are a lot of questions to be asked about non-domestic rates and about returning that to local control. If you were simply to do that tomorrow, that could create quite substantial disruption to both local authorities themselves and to businesses and communities. We believe that there is a road or a path that you could follow if we were able to have that discussion with the Government. We have not really had that discussion so far, but we hope that that will be part of the discussion as we go forward. You do not think that there is a role for this bill to tackle that? I would say not this bill. This is going to be a longer term discussion. It will go into the next spending review and potentially even beyond. You do not think that there is a danger of getting kicked into the long grass, if you do not deal with it now, given that we have legislation in front of us? I do not think that the Government has accepted at all that this is the end of the road in terms of what could be done around local fiscal empowerment. I do not want to say whether they think that they have done enough on rates or not, but in terms of local fiscal empowerment, they are committed and willing to sit down with us and with the political parties to have a look and see what that looks like. That should help to shape looking at things like whether we should look at a wider, more far-reaching transfer of powers around non-domestic rates. Can you do much for that point? Yes, I mean just to follow that on. Thank you, convener. Do you see this whole non-domestic rates issue as almost like a two-stage process whereby this bill is put to bed during this parliament and then we have a further piece of legislation in the next Parliament, for example, looking at what you call local fiscal empowerment? I mean, the shape of that, I couldn't really spell that out yet. I mean, we're still in the kind of early stage of discussion. We know that ministers are speaking to other political parties about this, so there may not be speaking specifically about non-domestic rates, but what they are talking about is the fiscal framework and local fiscal empowerment. Sorry, because the argument always against local empowerment in terms of rates is that people in North Lanarkshire, for example, spend their money in Glasgow, so obviously that gives Glasgow a real advantage in terms of rates income relative to, for example, North Lanarkshire. There's plenty of other examples around Scotland, around our cities. Would that not just mean, for example, that the Scottish Government would have to readjust the grant settlement for local authorities to take account of money lost by some local authorities and gained by others? So, if that did take place, would you then hope for, or would COSLA take the view that we would start with a clean sheet? So, after that reorganisation, if you like, we then move forward from that. Glasgow would get a reduction in its grant. North Lanarkshire would get an increase, and that would be the kind of page at which we'd start from. Is that how you would envisage something like that working? Well, as I mentioned earlier, if we'd taken any step to even start to discuss a return of rates to local control, there are the sort of issues that we would have to have proper discussion about. We have not had that discussion, so as I said, I don't think that this bill is the place to do that. We welcome the opportunity to flag this up to you as a committee. I think that it's important that we've got that out of the way, because that's obviously the elephant in the room. Thanks for that, convener. Again, can we look at this change to the period of revaluation? We've touched on it a little bit earlier, moving it to three years, so revaluation every three years. Can you tell me what you think the impact of that will be on your various organisations? It's not just you, Mr Sharma, we can hear from other people. I've mentioned in introductory comments that councils also support that move to three-yearly valuations. We absolutely accept the additional costs that are associated with that in the financial memorandum and set those out. It's quite difficult at this stage to be absolutely certain about what those additional costs are, so what we hope is that those conversations can continue with the Scottish Government and that we can keep those costs under review. As I mentioned, it is local authorities in terms of billing and collection and that engagement with the right pair when they receive their new rates bill, albeit that they will have received notification from the assessor at the time of the revaluation. It tends to be the local authority that ends up getting involved in the discussions at the time that the revaluation notices are issued. That move to three-year removes some of the issues that we've seen most recently, because the latest revaluation was actually a seven-year period. That went to explain quite a lot of the significant movements that happened in certain areas. Everybody's view is that if you move to three years, you will limit those significant variations within certain sectors, because, if you like, you're not waiting as long for the valuation to catch up with what has happened economically. We welcome the three-year valuations and, hopefully, as Morag said, it will help us to get a better indication of market values and for that to be kept up-to-date. We need to have no link to that if the assessor will be able to deliver on three-year valuations. There has to be a reduction in the number of appeals because it is just a shared volume of the work, and we obviously have to consider the impact that that will have. We very much support the move to three-year valuations, but we really need to take action on the appeals and, obviously, there are proposals in the bulk to do that. For a full house, you may as well fully support it as well. Also support the move to a one-year rather than a two-year tone date to bring in the values closer to market values at the time, and, as I mentioned, have concerns about the volume of appeals in the bulk of the assessor to deliver us. I wanted to come in on that. Is that okay at this point? At this point, yes. I was going to continue on this line, but I am happy for Andy to come in. On the question that Graham Simpson has asked about, section 2 turns it into three-year valuations, but it does not change the scope for ministers to change that as they have in the past. Do you think that the bill should, as it were, hardwire that in, or do you think that flexibility to change that power to change the period that still exists? I do not know if it is something that we have necessarily informed a view on. I think that, with anything, there has always got to be a recognition that something may occur that might mean that achieving a three-year valuation might not be good either for local authorities or assessors or even for ministers. As opposed on the basis of having flexibility, that might not be something that we would want to hardwire in, but it is not necessarily something that we have taken a view on. Do you not have concern that that minister's point of view, what gives him concern, could be an up-and-coming election? Is it not to remove the politics from it? Would that not be a better way to ensure that what is meant to happen happens? I suppose that my response was on the basis that it would be something that was economically driven rather than necessarily politically driven. Yes, absolutely. After Alex's cheap political shot there, we will move back to Grail. Morod Johnson, you mentioned that moving to three years will mean extra costs. Have there been any discussions with the Government about meeting those extra costs? My understanding is that the financial memorandum is reflective of the costs that would be incurred primarily by assessors at the moment within the cycle. They will have staff who are either working on appeals or who are working on a revaluation. My understanding is that bringing it into a three-yearly cycle means that they will need staff that are effectively doing both. Therefore, they will require additional staffing resources and there are the associated IT costs associated with that. As I mentioned earlier, the costs for local authorities are reflected in the bill. Certainly, when local authorities were asked to submit what the costs could be from the various Barclay recommendations, it was quite difficult for us to make an assessment. We obviously did try, but I know that there will be IT costs. However, in terms of the administration, that has been quite difficult. However, we recognise that there is that ability to continue discussions with the Scottish Government. However, the costs for the Scottish assessors are reflected in the financial memorandum. I will say how you feel about the financial memorandum. Do you think that it is a real estate assessment of the costs that the bill will impose on the assessors of the local Government, or do you have any issues in relation to that? Probably best to answer. The financial memorandum is broadly reflective of the figures that we, COSLA, provided to the Scottish Government. We are welcome to that because we have had situations before where we have put figures in and then they have been ignored. However, what I would say is that it was just to add to what Morag had said about the assessor's costs. We sat down quite vigorously with the assessors to test those costs. Those costings, obviously, they are having to make estimates as well, so it is never going to be absolutely accurate. I think that there is room for a bit of refinement. I know that Government officers want us to do that, so we will sit down with assessors for looking at the future years for their costs. Their costs are the most significant in terms of the administration cost. I should say that there is a cost to councils as ratepayers, but perhaps you might come on to that. In terms of the council costs, one thing that has come out in COSLA preparing our response to you—and apologies, we are not able to provide that to you until we can get our leaders to sign it off—we recognise that councils are saying to us, hang on a minute, that this provision is going to come at a bit of a cost. We need to sit down again and look at what we have provided. We know that Government officers know that and that we are looking to do that bit of work. They have now said to us, well, go away and start to speak to the councils again, so we will do that. We would hope to then bring back some more refined costings that will help to inform the Government's budget considerations going forward. I will go back to Graham. Andy might want to come back on that point later on. I have one more question on the revaluation. If this goes through, the next revaluation would be in 2022. I believe that the next revaluation in England is in 2021. Obviously, we have a lot of firms operating in England and Scotland. If there was a suggestion that in Scotland, we could bring that forward to 2021, is that doable? Is that a good idea? Again, all I can really say is that, from our impression, from having met with the assessors through the implementation advisory group, the Barclay one, they were pretty clear that even getting to 2022 was going to be challenging. It is more of a question, I think, for them, but that is what they are telling us. I would echo that in dealing with the assessor that I deal with. They would have real concerns about being able to do it before 2022. Obviously, they have got to take into account where they are with appeals and other matters, but I know that it would be a real struggle for them to be able to do that. I will just follow up to that. You will still have outstanding appeals. That is how the proposed changes to the evaluation role and notices will impact on the administration of non-domestic rates. How are the proposed changes to the evaluation role and notices impact on the administration? Is it the markers for the new and improved properties and the properties under repair? That will help us greatly. We are already setting up some informal arrangements with assessors locally, whereby they will voluntarily put similar markers as are proposed on the role at the moment. However, if we can get those markers put into legislation so that they are consistent throughout all local authority areas, it will help local authorities to make the changes quicker. More importantly, it will save applications being made for certain forms of relief that can just be awarded automatically. We mentioned appeals earlier. There is a proposal for a pre-appeal mechanism. What do you think of that? Again, more a question for the assessors to answer directly, but we would welcome it, and we would welcome any appeal getting dealt with at the earliest opportunity and at the lowest level possible. That would help to reduce the number of actual appeals. It would force an earlier exchange of information, which is usually the cause of any disagreement over appeal values or rateable values. I think that it would force an earlier exchange of information, and that is all to be supported. Thank you very much. What about the expected impact of changes in the way that parts are entered in the valuation role? Will that be likely to have an impact on the services that are offered in the parts spaces? Do you have any particular views on that? In terms of the proposals that are changed, I do not think that it will necessarily impact on the services offered generally. However, there is probably one area where there is a concern, which is that, as you will be aware, a number of local authorities do have arms-length organisations that they have set up that are charitable, and a number of them are very much responsible for leisure services, which lends itself to a park environment. It was very welcome that, very early on, the Barclay review recommendation regarding allio charitable relief was not one of the ones that was taken forward. However, there were conditions put around that that set out that there is effectively a baseline being created for the rates relief that is provided to charitable council-owned organisations. If, for example, an allio of a council was to set up within a park from tomorrow, it means that it would not get charitable relief, and therefore a reading of the bill is that it would not get charitable relief, and therefore there would be a cost to local authorities in those particular circumstances. Existing services would not be affected, but there is a concern that that change means that it might cause future services that would be delivered by an allio. There would be an additional cost that we would need to take into account before setting up that service. Do you accept or disagree with the suggestion that that creates fairness over the piece if you have something in the park that is giving you pretty much the same service as some outside the park and outside the park is paying the rates, and inside the park would be getting relief? Is that a fair position to be in? I think that, in terms of the intention about the fact that, if it is another organisation, it is not a local authority organisation, as the way that the bill is written, we have interpreted it, means that it would be liable for rates. In that context, that is fair. The point that I was making was just in the considerations for local authorities and the additional costs that might fall to them because of that change. Is there any other comment on that? No, it is just that, as Morag has said, there is a restriction on the relief that allios can receive, so taking that into together with the changes in the legislation means that, potentially, there could be a cost pressure going forward. Obviously, we believe that those organisations are there for the community good and to deliver public services, so that is obviously causing a little bit of concern. Is that a technical issue that users are discussing with the Government or anybody else that is involved in the discussions? We have been quite clear to the Government all along that this is a concern. On the one hand, yes, we do understand that if you have commercial facilities sitting in a park and then you have commercial ones on the edge of the park, then why should they be paying rates and these ones not? However, I suppose, just to give you another context from the bill, the bill is proposing an exemption for specialist schools. To give you my point, it is simply that if that scene has been valuable, then if our council services are valuable within the park, then the fact that it is run by an allio is just simply an organisational consideration rather than a... That is going on just now. Thank you, convener. A brief supplementary. I will take advantage of Arlene Rownt's presence here this morning. Just a question then about Fife. The bill, as is currently drafted, would require local authority on parks generating a net profit for local authority to, for the first time, be entered into the valuation role in circumstances where either there is not free and unrestricted access to the park or where a local authority park consists solely facilities that are charged for. At this point in time, is there any park in Fife that would potentially be impacted? I appreciate that I am putting you in the spot a bit, but... I mean, we have had consideration around Creighton Park, but I think that we need to explore that a little bit further, but there could potentially be implications. Because that is run by another body rather than the council. Okay, but that is the only part that thus brings to mind. Yeah, I probably would have to come back to you with further detail. Okay, thank you. Thank you very much. Unless I am just getting any other comments to make that, I will go on to the impact of these changes to rates relief for independent mainstream schools. Does anybody have any thoughts or comments that I would like to make on that? I mean, is this going to impact hugely, lightly? I suppose that a response from a local authority that bills and collects, you know, it will be somebody else that we bill and collect rates from. So, from that perspective, I do not see any particular issue. Obviously, I would imagine the issues are broader about the fact that you now have organisations who previously had relief from rates now having to pay rates, but I think that that was kind of well discussed when Barclay first put that forward, that recommendation. Okay. Oh, sorry, Graeme. I mean, from Kosovo's point of view, there's potentially, and it is just potentially, the risk that some kids may leave the independent sector and come into the local authority sector, schools. Have you done any analysis of that and any analysis of costs to councils? Well, we haven't done any analysis around that particular issue, but it's interesting to hear that. So, I think when we put forward our submissions to, well, our submission to the Scottish Government, we said that we welcomed having, you know, that it was fair that the independent school should be treated the same as local authority schools. That's how we, that was the angle we came at, but we're not aware that it's going to drive loads and loads of children out of independent schools and into local authorities, but happy for my colleagues to us. I would just echo what Jonathan has said, that certainly we believe that there's that issue of equity and we believe that it's fair, the changes that are being implemented or suggested for implementation here. Can I just use that to broaden that, and it's more to start to ask about the impact to this bill on the cost of rates to a council as a rate payer, because councils will pay rates on their schools as they will on other buildings. Is there any concern in councils that this bill will have a negative impact in terms of council finances? We've already raised the potential cost implications around changes around the parks going forward. There's also been quite a lot of discussion about an increase in administration costs. Obviously, it's important for councils for us to look at the quantum of funding, so obviously the sums of money that are collected for non-domestic rates help to fund councils. If we improve our collection rates as well with earlier interventions, that should help us also. We are looking at the financial impact, and I think that the one that would probably flag is the one around parks. The Barkler view, one of the last bits of its remit, was that the recommendation should be based on overall revenue neutrality. In other words, all its recommendations, if they are going to result in an increase in rates, should also be balanced by decreases in rates. It's my understanding, I might be wrong, that that's what drove the recommendation, that it looked down the list of reliefs and thought, which ones can we withdraw, because we need to raise some money. That recommendation wasn't based on any fundamental appraisal of which properties that currently get charitable relief should be removed. For example, charitable relief will still be available to, as I understand it, shelter and Oxfam shops on the high street. That's not fair. I'm trying to work out why you think that picking out one particular sector from charitable relief, that is schools, not tackling universities, their charities too, why that's fair. Secondly, the provisions in the bill in section 10.3 are about music schools to exempt an independent music school. There is only one in Scotland, but there are four mainstream centres of excellence that dice and Plopton and Bearsden and City of Edinburgh. Why is it fair to—I don't understand those fairness arguments because it seems that it's just applying to one narrow bit of the non-domestic rating system. I suppose that this has already been said, maybe why the focus on independent school is seen as improving fairness is because, as at the moment local authorities provide schools and do have to pay rates for those schools. I think that some of the conclusions around what are seen as the fee paying schools or independent schools being charged rates now, because local authority schools don't get relief of rates. I think that that's probably where that fairness argument has come from. Apply to charity shops in the high street too? From the charity shops perspective, I suppose that the challenge for local authorities is those charity shops in trying to determine whether it's a national charity or whether it's a local charity. If there's benefit more locally from the funds that are raised by that charity, do they stay in the local community? That can sometimes be a consideration for local authorities. In terms of national charity shops, it's not something that has necessarily come out through the bill. It's not something that I'm aware of has been discussed more widely. Do you support the exemption for independent music schools? They don't have to pay rates, but mainstream state-supported music schools do. I suppose that the comment on the fact that some have been identified as separately would be to try and understand why they have been identified as being different from the other independent schools. I figure back to the point that I made about local authority schools having to pay rates and other schools being exempt from rates, that would be the comparison that I would draw. That would question why certain schools would continue to get rates relief and others wouldn't. From an administration perspective, it's just creating more complexity in the system in terms of administration processes going forward. What's creating more complexity? The fact that you will have certain schools who will no longer get relief, but there is still this group of independent schools who will get relief, and it will be trying to understand how you determine what those schools are, and if it's a new school that's been established, how you make sure that it is eligible for relief or it's not eligible for relief. It's a point in the context of administration going forward and what the potential challenges might be. First of all, charity shops are run by local volunteers, but to go back to the issue of independent schools, they can get an 80 per cent non-domestic rates discount at present, but surely after the bill is passed, if a local authority wastes still to grant an 80 per cent discount, they would still be allowed to grant. Under the community empowerment bill, they can give any relief that they wish to do so, but they have to fully fund it themselves, so again it's a fundamental matter. They still have the ability, because the argument that was made earlier on was that if they didn't introduce that and allow that 80 per cent discount, it might have an imposition on the state sector. Although my understanding is that the rate's increasing rate, allowing independent schools to be charged a full rate, would only have a bit 2 per cent increase in the annual fees, but there's still an opportunity for local authorities to decide discretion if they so wish to. Under the community empowerment act, the local authority is free to grant relief to anything that chooses to do so, and as long as it fully funds it itself. Again, there's an argument that that's an option based on individual financial implications. Indeed. If a local authority felt that it was losing out financially by eliminating this discount, it could indeed allow it. It could consider it. The local authority would have to consider the financial implications. We have to remember the financial position. It's fairly challenging for local authorities to get to a balanced budget position, so although the flexibility is there, we would have to look at our ability to do that. I just wanted to come back on Graham Simpson's point where he was talking about specific councils having a knock-on effect potentially, because not all councils will be in that position, but there may be a number of councils that find themselves having a larger proportion of independence in their own geographical area. If there was a knock-on effect, depending on what the rates effect had within that sector, that would potentially have an issue. I can think of Perth and Kinross or Edinburgh, where they have a large independent sector, and if any of that had to come into the state sector, that would have a massive impact or could have a massive impact on that whole process within that community. Do we identify that that is a potential problem going forward or that it hasn't been taken into the equation at all? It's obviously a potential problem going forward. My understanding is that there hasn't been sufficient analysis to know what the impact would be financially and what the likelihood of any transfers from private school to local school could be. I think that there's still potentially some argument that there's some work to be done there. Because a number of school rules that are exceeding the quantity already in some locations is at that breaking point where they don't have enough capacity, and the independent sector is taking some of that capacity off the state section supporting that. If that is reversed, there could be consequences for both. There could be. Again, going back to the point of the community empowerment bill, it doesn't have to give 80 per cent. It can give a lesser amount if it chooses to do so. Again, it's not inviting applications as such, but just making people aware that there is the scope. It doesn't have to be a full award to that value. It could be almost calculated on a case-by-case basis. The point is that if independent schools decided that they weren't making quite enough money out of getting the pupils in, would that not put at risk their charitable status in the first place? If what they were doing was describing or identifying the pupils as being profit? The whole reason that they're getting this charitable status is because they registered their charities. Surely, if they said, well, we can't take all these children in now because we're going to lose some money, that would then put at risk their charitable status. Sorry, Graeme, you wanted to come back in. We've got this exemption for a music school. Is it—would it not be relatively easy for other independent schools to re-batch themselves as music schools? The music school is, it would be quite clear to Scotland to surface and find out if the school has been operated as such or if it's trying to— So do we have a definition? I think that there is. I suppose just to make a slightly more broader point, which is one that I had made a little bit earlier, is that clearly in bringing forward the bill, there are provisions in here where the Scottish Government has taken a view. It's as simple as that. They've taken a view that they want to protect these particular institutions because they believe they have a certain value. I think all we wanted to say was that perhaps there's a point, a principle there, about some of the other services that we as local government provide, perhaps through the form of arms length organisations or whatever. So that's kind of where we've come from. We haven't really done the sort of analysis that you were alluding to. We're more than happy to take away the point that's been raised about the potential risk of pupils coming across, so we can take that away. Okay, thank you. Annabelle? Thank you, convener. Turning to the issue of collection of rates, so on domestic rates, obviously there are new provisions in the bill that seek to put recovery of money in regards to non-domestic rates effectively on the same footing as recovery of council tax. In that regard, that is intended to allow local authorities to take action sooner in terms of debt recovery, and there are various proposals in that regard. Do you feel that that will achieve the objective being sought? The provisions in the bill will achieve the objective being sought in that regard, that effectively the council now will have the same powers as regards recovery of council tax? Or would you wish to see any other provision included? No, I think that the provisions are as they should be. I think that aligning it with council tax will be easier for people to understand both from an administration point of view and customers point of view. I think that it will do what it intends to do. As well as seek collection earlier, it will seek interaction with customers earlier, so people are having difficulty paying. It will not be until October before you find out that you can find out early on, and I think that the bill gives us the right balance of bringing the powers forward. Any other comments? I agree with that submission. In that regard, do you foresee in light of the relative ease with which you will be able to now, in the future, seek to recover debts with regard to non-domestic rates? Is that likely to be of particular significant help with regard to reducing then administration generally around non-domestic rates and also, obviously, improve the financial pot available to the local authority? I think that the main advantage is that, because it is moving to installments, there will be earlier engagement with businesses regarding payments. Now, whether it is an individual or whether it is a business, the earlier that you can work with organisations and individuals to get them to a position where they can pay, that movement to installments similar to council tax is welcome. We would hope that it would improve our recovery position and, in saying that, we do quite well at recovering non-domestic rates at the moment. Obviously, if somebody is getting into debt, for that individual as well as the creditor, the best time to engage is right at that moment, because then you can seek together to come up with something, as opposed to leaving things and letting it slide. It is very difficult to find a solution at that stage. I will turn to the information notices, so that they will facilitate greater information flows to the local authority, which will then support assessments, billing and reliefs and so forth. Are those information notices generally welcome, the approach that the bill takes, so that it encourages greater information to the local authority? I think that if the references here are about the ability then, if information is not provided, both the assessor and the local authority can charge, can raise effectively a civil penalty, then that is welcome in terms of the ability to make an additional charge if rate payers are not engaging. I think that the only point that would make is that the bill is setting them at certain levels. The whole purpose of that is to encourage people to provide information, and it is probably because they do not want to provide the information that they are not doing so. I think that there is a question about whether the levels, as they are set for some businesses, may not be enough of an incentive to provide the information. I think that, for some, it will be, but for others, the levels that they are set, if it is thousands and thousands of pounds that they are due to pay, it is whether that level would be enough of an incentive. Yes, it seems that the position at the moment is that there is to be a, so in terms of the penalty vis-à-vis information to the assessor is a £100 penalty failure to comply within 21 days of the notice leads to a further £100, and then there is that daily penalty of £20 subject to a maximum of £500. Your point would be that that, for some, scale of businesses would be adequate, but your point is that, for the larger players, that is perhaps not enough of an incentive to comply with the notice. Yes, that would be the case. I think that £500 is an amount that might encourage some businesses to pay, but I think that there is a risk for others that it might not. I think that, in some of the responses to previous consultations, there had been a suggestion that we could try and introduce a scale of charges that might, in some way, be linked to the rateable value of the property. I appreciate that that might cause a difficulty if you do not actually have a rateable value of a property, but I think that the ability to vary the rate of the civil penalty might allow the intention that is to encourage businesses to pay. It might better meet that intention. Have there been discussions on that particular issue, so that you would seek for the assessors to have just discretion, full stop, or for there to be additional provisions in the bill, trying to carve out the larger player side of things? I am not clear. I do not know if my colleagues here know of that. I am certainly not clear if there have been those discussions. Obviously, the bill would probably need to set some parameters, but whether those are parameters that you could link to rateable value bandings. That might be something that is doable, but I am not aware of any discussions on that basis. We have had comments from councils about things such as the level of the penalty, but also around who it is that you can ask for the information. Kevin can correct me if I am wrong here, but I think that one of the ones was whether they can approach solicitors to get information. The party is withholding information. What we are welcoming in the bill is the fact that now, by law, both the assessors and the councils can go and request this information, so that should be enough. Do you really want to end up transgressing the law? We have put in the submission again to you that we would look to see how that actually works out in practice and whether there is a need to be clearer about some aspects of this. I have had discussions on this at the working group with Scottish Government, so they are aware of concerns about the level of the £500 and the ability for that to really act as a deterrent. The only thing that I would add to that is that one of the ones that would be really useful is if the ratepayers are limited company. It would be good if you had the powers to ask the director of the company to provide the information and hold him personally responsible for any failure to provide, because a lot of times I can imagine if the company is not going to pay rates, it is not going to be too much bothered about an additional fine as well. If its intentions are to go through a phoenixing process or something later down the line, I think that if you had the powers to ask the directors for the information and hold him personally accountable for the fees, that would go a long way to helping at the rate and position. Interesting suggestion. One last question, if I may, brief question. The position in terms of the penalties level set appears to be slightly different for local authorities, so the initial penalty is £95. I am not quite sure where that goes to in terms of max penalty cap, but why is there a slightly different level set as far as you are aware? To be honest, I do not know the answer to that question. I know that there is a second level penalty of £370 for failure to adhere to the first one, but I do not know why they have taken two different schemes. I am sorry. Okay, thank you very much. Can I ask about some of the anti-avoidance measures? In section 5, we talk about tackling the avoidance, and in section 12, we are looking at minimising the tax avoidance. The tactics that are being put into place here—obviously, do you think that they are strong enough? They are seen as a potential devolution of power down to local authority, or are they just an extra burden on the local authority? I think that they are definitely welcome, because there is certainly work to be done to tackle rates of avoidance on a wide scale. My worry is that it does not go far enough to tackle some of the real problems that are, as I mentioned before, Phoenix and companies are a real problem, and I do not think that there is anything here that would really help us to get out of that. I think that there needs to be more to help us—the phrases pierce the corporate veil—to actually find out who is behind the business, who is actually providing from the business, and scratch behind the surface of any kind of companies that are put up to appear to be running. I think that it would be welcome if there were something further there, specifically about Phoenix and companies. As I said, do you think that there is enough resource and enough capacity and that maybe work was planned behind that to achieve that, or is it the case that they do not have enough people to go and find that, so it would have to be in legislation to give you that extra bonus? I think that it would be helpful in legislation, because at the moment Phoenix and companies are not breaking any laws the way they operate, so there is not really much powers that you have to do, so I think that if there was something there that said, no, this action is wrong, it should not be happening, and it should give us the powers to actually address it head on, rather than people hiding behind the rules that they are at the moment. Just on that, in terms of the resourcing of it, part of the difficulty for local authorities just now is that the way that the legislation is framed, as Kevin has outlined, is not breaking any laws. It can be quite difficult, and I think that what we would be looking for is that the general anti-avoidance rule puts in place parameters that make it much easier for local authorities to get to a place where they can recover rates in a situation where they have a Phoenix company. What do you think needs to be there to make that happen? If I just come back on the last question, first I think that there will be increased costs for us to police, but that will be vastly weighed by the additional non-domestic rates that we will be able to collect. As I said, if you do not have the powers at the moment and unless you get more beefed up, then it is still going to be a major issue for you to try and achieve that. I think that we need to understand what is required, but in a way what we are talking about is a new proposal for a new regulation. What we have not had is that discussion yet. What we will be calling for is that we absolutely welcome the general anti-avoidance rule because it is a placeholder for being able to look at subordinate legislation or other measures to tackle some of that. We need to have that discussion with Government, with the right people around the table to say, how can we tackle some of this and is it about legislation and other measures? I think that that is all the general anti-avoidance rule was trying to give a scope to be able to do that without having to get caught up with primary legislation. There is more to come in terms of that discussion. It gives you a stepping stone to something else, and that something else would be much more beneficial to the organisations because it would bring in the revenue and it would help to fund some of the gaps and also give some of the burdens back. We would want to be fully engaged with the whole process in terms of any consideration of that. Can I ask Kevin Frayson for the record, if he could describe what a Phoenix company is? A Phoenix company is a company that will trade under a shop name or a banner, quite often common in public house trade, and that company will dissolve its debts, will have to be written off, and then a new company will open up the next day, and the sign above the pub does not change, the staff in the pub do not change, the business does not change, it is just a mechanics of doing away with that and reinventing yourself. Thank you very much for that, it is very clear. The directors individually are liable, as opposed to the name of a business that has been happening through the nuisance call bill that Patricia Gibson MP took through the Commons. Can I ask what the level of avoidance is in Scotland at the moment, estimated to be any direct figures on it at the moment? Parameters, I would think, because, obviously, if they are avoided then it is hard to know exactly. Do you know of one case that is going through at the moment, and it is about £2 million that has either been written off, or is at risk of being written off at the moment, just for one operation? There are not that many of them who are stressed at their vast, vast majority of rate payers, completely 100 per cent honest, no problem at all. They pay their dues on time when they are due, and it is a very, very small minority, but the sums involved can be quite substantial. Put it another way, then. Obviously, Llywyddyn Rowan talked about the fact that the new anti-avoidance measures would bring in more revenue than they would cost, which is obviously a very positive thing. Any idea what additional revenues you think this could be brought in through these anti-avoidance measures at all? Any ballpark figures? Anyone else knows? I realise that it is quite difficult, because if they are avoiding you, you are not able to get a hold of them. Do you see how significant the new measures would be? We are well aware that they exist, and a number of councils will have them. At the moment, we have not got the effective tools to tackle it, so that is why we welcome the anti-avoidance changes that are being brought in to give us that ability, but we cannot really put a figure on it. I think that probably individual authorities will know over the past few years instances that they have identified, but, as you say, it is not the full picture. There is a really interesting line of questioning around these Phoenix companies. I just wonder whether it is possible for us to have some kind of idea of the scale of this from individual councils and where they have been chasing rates, debts and that company has closed down and they have been unable to get the debts. Do we have any examples that you can pass on to us? You are probably talking about one or two that are kind of known, that are kind of carry on at any one time in each local authority area. It was just to come in on that. I think that it can be quite difficult to identify a company as a Phoenix company, because although you might see a pattern of a particular premise continually changing hands, quite often the directors of the companies are different. Although you may suspect that there is some relationship unless they are very obviously the same directors of each company that comes in, it can be quite difficult. Quite often it will just depend on that local knowledge as Kevin identified. The name over the door did not change, but we will know from our rates records that there have been three or four different companies in place, so that square can be difficult. I do not think that you are talking—if I look in Glasgow's case, we have got a rate space of about 28,000. I do not even think that we would be talking hundreds to try and give you some context, but it certainly happens and obviously it is unfair for those rate payers to do pay. In terms of an amendment to the bill, it sounds like Mr Frazier that you are looking for an amendment to what is there. Looking for something that would particularly highlight the fact that we need to be looking at the corporate veil or company liability, Phoenix company is ideally yes. I have already taken a note of that, but I am sure that there will be a listening. Yes, just a couple of things. First of all, Mr Sharma, you said about a note that you had given to the committee a couple of questions ago. We do not have any evidence from COSLA. So, COSLA's submission, we expect to have that with the committee for just the end of May, so we have COSLA's—well, the council leaders meet a week on Friday, and immediately, hopefully, after that, it will be available. Okay, just talking about finances, I kind of gave some raise to the financial memorandum earlier on. We have just been talking about penalties. Perhaps I should know this, but where penalties do they go to local authorities? Do you and the receipt of the monies from penalties go to the courts of administration? I do not understand why they are to be retained by the council. I am sorry? They are to be retained by the council. Okay, so they do come to the council. That is fine. In the financial memorandum, the administrative costs to local authorities, the assessors and the Scottish Government is £32 million. The cost to rate payers through NDR liabilities and potential penalties is £68 million. Have you had any—well, first of all, do you accept, broadly speaking, all the figures in the financial memorandum? Okay, I'll just take it, right? Broadly content. Let's look at those £32 million and £68 million in the summary table on page 21. Has there been any discussions with the Government about baselining those costs? In other words, if councils are to be in receipt over the next five years of £68 million, has there been discussions about netting off the enhanced administrative costs that are going to rise? In other words, will councils be no worse off as a consequence of the introduction of this bill? No, I think that it has been made absolutely clear to us that there will be nothing forthcoming in terms of any cost to a council as a rate payer. They'll just be expected to pay that, just along with all other rate payers. That is the message that we've had from the Government. We've made our point, I think, about the implication for allios and some of that is captured in the financial memorandum. The figures themselves are ones that our councils have provided, both as costs and as rate payers, and in terms of administrative costs. For the administrative costs and in particular the assessor's costs, which is the biggest one, I think that I've already stated that we welcome the funding for 2019-20, and we would expect full funding to be provided for future years. We will do a little bit more work on assessor's and local authorities' costs. You anticipate that. You're correct. Of course, the biggest single administrative cost is for the assessor's £29.1 million out of a total of £31.9 million. Of course, it was local authorities who governed the assessors. The joint valuation boards are run by councils and you pay. You're basically looking to the Government to make sure that the £68 million of income from rate payers, that the costs of that are met out of that £68 million, and you're left no worse off having to pay your valuation boards £29.1 million in extra costs. I think that we have to accept that there are some aspects of this that will come as a cost. The councils in terms of them as rate payers, and there's just no getting away from that. If there's ways to alleviate some of that through looking at the charitable relief for allios, that's what we would like to get the message across today, that to get back to Government to say, look, can we see greater flexibility around that, and that maybe will bring some of that cost down to councils as rate payers. However, in terms of all of the cost that's been identified as an administrative cost, we're expecting all of that to be covered through central funding. To be clear, I'm not asking about the impact on councils as rate payers. That will be covered in the £41.9 million. I'm merely asking about the £29.1 million, which is the biggest. The discussions that we have and any refinement around the costs of that, all of that would be intended to form, for example, if we're going into the next spending review, we would expect to see those costs being recognised. Are you content with the financial memorandums assessment of the costs to rate payers and the impact of that potential cost on, for example, independent schools and others who are going to have to pay more rates? It's probably hard for us to say for those elements that we can sign them off. We've not provided the figures necessarily there, so I think that we're happy to say, obviously, for the administration costs that have come through local government and being provided, but obviously there's work that the Scottish Government have done on the other elements. Okay, thank you. On that note then, I thank the panel for attending today's evidence session on an on-domestic rate Scotland bill. Further sessions will take place over the remainder of May and June, and the committee will consider the evidence later in the meeting. Thank you very much for attending today. Thank you and I suspend the meeting. Agenda item 3 is a consideration of negative instrument 168 as listed on the agenda, and I refer members to paper number three. The instrument is laid under the negative procedure, which means that its provisions will come into force unless the Parliament agrees to a motion to an all—no motions to an all have been laid. Delegated power and law reform committee considered the amended instrument at its meeting on 14 May 2019 and determined that it did not need to draw the attention of the Parliament to the instrument on any grounds within its remit. Do members have any comments on the instrument? Okay, I therefore invite the committee to agree that it does not wish to make any recommendations in relation to this instrument. Are we agreed? Thank you, and that ends the public part of the meeting. I now move this meeting into private.