 Welcome to the second meeting in 2023 of the Finance and Public Administration Committee. The first item on our agenda is to take evidence from the Minister for Public Finance, Planning and Community Wealth on the land and buildings transaction tax, additional amount of transactions relating to second homes, etc. Scotland's amendment order 2022. Mr Arthur is joined today by Ewan Cameron Neilson, who had a fully devolved tax as unit at the Scottish Government. I'd like to welcome you both to the meeting and advise that I own a flat that I rent out as per my register of interests. Right, Mr Arthur, to make a short opening statement. Thank you, convener, and good morning to the committee. The land and buildings transaction tax, additional amount of transactions relating to second homes, etc. Amendment order 2022 provides for the increase of LBTT ADS rate set out in the Scottish budget on 15 December 2022. The order increases the rate of the additional dwelling supplement from 4 to 6 per cent. This change is intended to protect opportunities for first-time buyers and home movers by further helping them compete with vital out investors and second home owners. The change is also forecast to raise much indeed revenue at a time when public finances are under significant pressure. The SFC estimates that it will raise an additional 34 million in 2023-24. As you will be aware, the legislation provided for the rate increase to take effect the day after the Scottish budget statement on 16 December 2022. The near immediate change was intended to prevent the possibility of forestalling, which would have both reduced its revenue impact next financial year and run counter to the policy intent. The near immediate introduction was also intended to provide certainty for taxpayers by acknowledging that the legislation must be approved by the Scottish Parliament to remain in force. As with previous rate changes, the instrument does, however, include a transitional provision so that anyone who entered into a transaction prior to 16 December will not pay the increased rate. I welcome the evidence that is submitted by the range of organisations in response to the committee's call for evidence, and I look forward to members' questions. I will begin questions and open up to colleagues around the table. We received submissions from COSLA and some local authorities who have some concerns about the impact on local authority housing. Clackmannisher Council said that local authorities pay LBTT and ADS on the same basis as private sector developers and land speculators, and no additional grannets have been available to meet the cost of the tax. However, that is in contrast to the full exemption from LBTT and ADS that is available to registered social landlords. Why is that exemption in place for registered social landlords but not local authorities? As you will be aware, convener, as the committee will be aware, we carried out a process of carrying out a review of ADS, and I will have more to say about that relatively soon. That was one of the issues that was considered as part of that. We are carefully considering the consultation responses, and on that specific issue I will have more to say in due course, but I am not in a position at the moment to grant any further detail on what the outcome of the review will be, but it is an issue that was considered as part of that. I can understand your position there, but it is somewhat disappointing in that local authorities are concerned that that is going to impact on them now. For example, Clackmannisher, as you know, is the smallest to mainland local authority, and it says that the increase in ADS from 4 per cent to 6 per cent will add a further £50,000 to the cost of our house purchase programme this year, and an estimated £204,000 in 2023-24, which is not insignificant, as I am sure you can appreciate. It goes on to talk about the unfairness of that, and it says that it will put additional pressure on rents, of high cost of living. When are you likely to have this review? One of the concerns that we have in this committee is that the Scottish Government often tells us that it is going to produce reviews or that it is going to produce reforms in the months passed by, and we do not see them. I mean, to be fair, we get the same from the UK Government, but when are we going to have a potential change that would benefit the tenants in local authorities? We consulted as part of a broad review of ADS last year. We have been giving careful consideration. This is a complex area, and it is important to get the balance right. In the near future, I will be intending to bring forward regulations for consultation. This will respond to a number of the areas that have been raised as part of the review process. Of course, this will be a matter for the committee, and I am sure to consider and be more unhappy to give further evidence once I am in the position to publish what our intentions are. At this stage, we have not finalised our decisions on that matter, so I do not want to get into a position of speculating what is going to be your response to the review ahead of that, but I would want to assure the committee that we will be bringing forward those measures quite soon. I have said that COSLA has said that that impacts on its ability to purchase properties, for example. It feels that that will be detrimental to that at a time when we have pressure on housing. There is no obvious policy objective to achieve the current arrangements for the payment of LBTT and ADS by local authorities that justify the different treatment from them and their tenants to our sales and irrespective of tenants and their additional costs involved. The point that COSLA is making to reinforce what individual local authorities are saying is that they will have to be set in rent soon for next year. You are talking about a review and potentially taking decisions, but without any date for a decision. It is quite clear that rents will have to be set without a decision being made by the Scottish Government. I mean, from my perspective, I still do not understand why there is a difference between RSLs and local authorities. That is something that has been in place for a while, but I am conscious that it is an issue that has been raised and that is why it is something that we have considered as part of the review. Do you want to come in? Yes, if you have the minister. Yes, so perhaps it is convenient to provide a bit more context on the genesis of this. Going back to the introduction of land-building transaction tax, there were, I suppose, different arrangements put in place, a specific RSL registered social landlord relief and reliefs that would have been relevant to local authorities at that time, so the planning obligations relief in the act were essentially local authorities acquiring housing through section 75 agreements. There are other reliefs in the legislation that would apply to local authorities. In the sense of the difference that has emerged in relation to the ADS, which councils and others have flagged, the fact that the RSL relief flows through or the reliefs that are available to RSLs flow through from the original LBTT relief arrangements in a slightly different way than they would do for councils. On that basis, the councils are flagging the difference in reports, so there is not a specific ADS relief as such for RSLs in this context. It is more a reflection of the overarching arrangements that are put in place at the time that the LBTT legislation was agreed to. It just seems to me as if, when it was put in place, there was not really thought given to this anomaly. If both registered social landlords, one is run by local authority and one by housing association, it just seems to me daff that it applies to one and not to the other. We will move on from that. Others may wish to look at that in greater depth. Obviously, we have received responses from the Scottish Association of Landlords and indeed the Scottish Property Federation and others. What the Scottish Association of Landlords has said is that the theory behind that increase, as you have said in your opening statement, is that it will make more housing real at first-time buyers. However, what they have said is that most of the tenants that they actually have are not in a position to buy anyway, which is why they are in the private rented sector in the first place. However, what that will do is reduce the availability of properties in that sector, because it will act as a deterrent for people to invest in that sector. What they have said is that the member survey that they undertook last month revealed that 44 per cent of landlords are planning to reduce their portfolio size in the next five years and that around 10 per cent of tenants in Scotland will be evicted over that period, so landlords can exit the sector by selling their properties with vacant possession. If there are real issues in terms of the sector at this time, how is that going to help? I cannot comment on the decisions that any individual landlord would take, but it is also important to recognise that ADS does not just apply in relation to PRS—it can be for second homes and holiday homes as well. There is a clear policy intent behind that, which is to support first-time buyers but also to raise much needed revenue. As I said in my opening remarks, ADS will raise additional revenues, forecasts will raise £165 million in the coming financial year, and £34 million is in addition because of the changes that we have taken. That is the context in which we take those decisions, but there is also a broader context that will impact on the decisions that people operate in and by the rented sector will take and not least the prevailing economic conditions. We take a balanced approach to our taxation policy and there is a clear policy intent that has been in place for a significant period of time that underlies the decisions that we take on ADS. Would the Scottish Government give consideration to a couple of areas that have been suggested to make exemptions for investment in empty and new-build properties in order to try to increase the supply of housing stock or properties that have been purchased with a certain tenant? With regard to any proposals for future changes, we have obviously been in the process of undertaking a significant review of ADS, but we would always keep our policies on tax and more generally under review, so I am happy to hear suggestions going forward about any changes that should be made. All I would ask that these proposals are made in a way that is consistent with our framework for tax. What do you consider is likely to be the behavioural impact on that? You have talked about the importance of the money that is going to be raised by this measure and an additional £34 million, but the £34 million is not net. That is following behavioural change. What is your view on the level of behavioural change? How do you feel that is going to impact the tax in future years? Ultimately, the SFC has set out its position. Because of the changes that we have made, that will lead to a net increase of £34 million once behavioural change is factored in. More broadly, looking at the revenues forecast for the coming years was clearly a number of factors at play, most obviously prevailing economic conditions. We are in the process of being into an economic slowdown. We have also seen an increase in interest rates, which is naturally going to impact on demand for properties and consequently the number of transactions affecting forecast revenue. Over the five-year horizon in the SFC forecast, we see revenues picking up going forward. The issue that is being made here is that I think that everyone is aware of rising interest rates and the prevailing economic conditions, but I think that the concerns from the market are being expressed as that the Scottish Government is actually not working to mitigate that, but is actually going in the opposite direction. For example, many have said that the accumulation of measures have reduced the supply of rented accommodation in Scotland such that, for example, there are 28 per cent fewer properties listed in 2022 than in 2016. It is starting to go downward slow and there does not seem to be any incentive to try to reverse that. For example, the Scottish Property Federation has said that following those measures, the tax will now be £12,140 in Scotland, whereas it was before it was implemented in 8,380, but it is 5,614 in England. The tax in Scotland will be more than double in England, so that could in actual fact discourage investment in new property in Scotland. That would be specific to ADS that you are referring to because people for home buyers and the threshold is £145,175 for first-time buyers. It is also important to take into account the distinction between property prices in Scotland. As of October last year, Scotland's average property price was about £195,000. In England, it was £316,000, so there is a... In the south-east, if you look at Preston and you look at places such as Huddersfield, you will find that it is not anywhere near those prices. That might be a fair point, convener, but there is also the reality that the STAM duties are as an England-wide tax. It does not have regional variation just as LBTTs are Scotland-wide tax here. The contention of the Scottish Government is that money is important for investing in a health service and other front-line services, and you do not feel that there will be a detrimental effect on the housing sector, whether it is socially rented or private rented. The point that I would make is that we have had our devolve system of LBTT in place for some time, and we have actually seen, certainly, falling with the pandemic a significant resilience and recovery within the housing market. I appreciate as we move into this year in the wake of the economic headwinds that we are facing and, as you say, the wake of rising interest rates, the impact of the many budget-leading mortgage products being withdrawn, all that is combined is going to have an impact, but when you look at the revenue that we are raising, LBTT is a very strong performing tax and, again, forecasts going forward to be a tax that provides a net gain once the BGA is factored in. The decisions that we take are balanced, so they are there to support first-time buyers but also to raise revenue, and that is what they are doing. Lastly, some of the before opening out session, you have talked about supporting first-time buyers, so where is the evidence that the additional dwelling supplement has actually helped first-time buyers and encouraged them into the market? Although it may impact on second homes, I am not aware of any evidence that suggests that it has actually helped to increase the number of people who are able to go on to the housing lad in the first place. The policy intent is to allow first-time buyers to compete more effectively, and that is ultimately what the policy intent is. It is axiomatic that when someone is a home mover of a first-time buyer, they are not going to be providing them with the conditions subject to ADS, whereas someone who is an investor or buying a second home or a holiday home or a bite-a-let property will be subject to ADS. Just in terms of the actual tax liability, it allows for first-time buyers and home movers to be able to compete more fairly and increase parity in the system, so that is a policy intent. It does not lower the price of the house for those people, it just means that the arrivals, if you like, would pay more for the same house. By definition, that is what the policy intent is. Everyone is keen to ask questions, so the first person will be Michelle to fall by Daniel. Good morning. Just following on in a similar theme, first of all, I must disclose as per my register of interest that I own some bite-a-let property and was previously a member of SAAL but not for some years. A lot of the questions that I might have brought out have been picked up by the convener, but I want to explore a bit more your thinking around the kind of market. As a statement of intent, I am not uncomfortable with the Scottish Government raising revenue through taxation and I am not uncomfortable with a longer trend of diminishing the PRS sector to private landlords and increasing social housing. That is not an issue for me, but I am interested to explore what your calculations are in the long-term effect in the market and in the round, triggered by ADS, but, as we have already explored, it falls into LBTT. Can you talk me through your risk assessment of the policy change and what you see as the risks and to whom the probability of those risks occurring and the impact when they do? I want to understand a bit more about how you are making those policy decisions beyond raising revenue, which I am entirely appreciative of. We take our policy decisions through the medium of our framework for tax, which we have previously discussed in front of the committee. That recognises a number of functions that tax can play. Yes, revenue raising, economic stimulus, behavioural change and redistribution. We try to implement tax policy changes in a way that is consistent with the six principles that we set out, the four Adam Smith principles plus effective engagement. That in itself is to contribute towards our four strategic objectives. For example, maintaining stability of revenues responding to societal shift, national outcomes and a wellbeing economy. That is a process by which we take all our decisions on tax. With LBTT, we had stability within the LBTT system for a number of years with the rates. There was an increase in the now threshold in response to the pandemic, which subsequently reverted to its previous position. The decision that we are taking here with regard to the additional dwelling supplement is consistent with the long-standing policy intent, which I have already stated to the convener. In terms of looking at the impact that this is going to be, the SFC has provided forecasts and they demonstrate that when we look at the net impact on the budget and each year forecast going forward to 2728, we are seeing a net increase to 5.6 next year to 1.9 the following year, 1.90, 1.75, 1.65. That is additional revenue that we have because we are taking these policy decisions, both on thresholds for LBTT across res and non-res, but also because of what we are doing in ADES as well. That provides funding to help us to meet a range of objectives, including as part of that wellbeing economy, our strategic housing investment to support the social rented sector as well. It cannot be seen just simply in isolation. There is revenue raising as well, which of course is revenue that is ultimately going to be deployed in supporting local services and indeed our housing programme. You make my point for me that it cannot be seen in isolation. I suppose what I am trying to explore is your consideration of the housing market, where for a variety of reasons it may well be that the supply for properties to rent is diminished. There is anecdotal evidence of that already happening. Indeed, Professor Graham Roy has pointed that out. It is not hitting yet because that is bringing in income in terms of LBTT, but it cannot be that far down the road until it is going to have an effect in the wider market that will disproportionately affect people who need to rent and continue to rent in terms of rent rises and people exiting the market. I will go back to my original question. Do you undertake a risk assessment of tax changes based on setting out the risk, the probability of occurring and the impact if it does? Do you do that kind of thing? Part of any tax policy, we consider what the behavioural impacts are going to be both in revenue and, as I said, with relation to the framework for tax, however relates to our wider objectives as a Government. It is important, obviously, to recognise that it is a transactional tax that does not impact on existing PRS. There are exemptions in place. It does. I am not saying that it is just this. We have seen a number of malignant activities that have section 24 of the 2015 finance bill from Westminster and some of the rent changes. I am not saying that I agree with the actions that the Scottish Government has taken because I recognise the restrictions that it has and the ability to support people at a time of crisis, but looking at it from the other side of the fence, there is evidence that landlords are starting to leave the market and that will absolutely have an impact on available supply and therefore rent. Going back to my point, I assume therefore that, in terms of the wider market of which ADS is just part of it, you do not undertake the type of risk assessment that I am questioning, i.e., determining the risk, the probability of it occurring and the impact on the wider market. Can I assume that you do not look at it in that way? You do not do that? We take it as consistent in terms of whether this policy supports our broader policy on housing housing in 2014. That is already set out in Government policy in all of our course of decisions are taking in tax with regard to wider considerations around Government policy. That is consistent and aligned with our broader strategic objectives. With regard to support for the PIS, I will ask you to come in about the exemption for six or more purchases. In terms of the larger-scale private rented sector, there is an exemption from the LBTT additional rolling supplement where six or more properties are required in a single transaction, which has been taken up. In terms of the Scottish Government's policy narrative, it is very much about supporting the larger-scale private rented sector. That is obviously going alongside the overall position of the PRS. I appreciate that I am straying into territory that is not yours, and there is a lot of work going on in housing. However, I am impressed upon you that, as this is being thought about within the Scottish Government, people look across the peace at a variety of stakeholders and critically look at the housing market as a market. I am not saying that I agree with all of this and that I am very supportive of what the Scottish Government is trying to achieve, but there has to be an assessment of the effects, behavioural effects and so on. Thus far, I have not been convinced as a recognition of that, and I certainly have not seen any data that would support that in terms of risk. I will be following on similar themes. Ultimately, housing supply is a significant issue. We are still in a process of recovery. The number of completions last year in Scotland was around £15,000 below pre-Covid levels, around £22,000 in housing completions in Scotland, which in turn was still significantly below pre-2008 levels. To my mind, that is the context. The contention from the Scottish Property Federation and others is that this will remove investment from housing. I wonder what evidence you have seen as to whether or not Bytelect does result in direct investment in housing stock, or to what extent it shifts existing housing stock between 10 years. Is that something that the Scottish Government has looked at? Is that where that investment goes? Is it existing housing stock, or to what extent does it create new housing stock? I agree with you entirely on the need to recognise the broader context in which housing operates within what determines demand and supply and clearly the impact of what happened in 2008, the pandemic, with the associated challenges around supply chains, the cost crisis and inflation, and the challenges around recruitment and retention within the construction sector all have a part of the plan. I am very alive to, following the Parliament's consideration of NPA4s, that we cannot just look at any one aspect of Government policy, whether it be planning or taxation as being a determining fact. There are broader macroeconomic elements to that, and I think that it is essential that we consider it within that context. The point that I would come to with regard to looking at the impact on, in particular, the example of revenue is the SFC forecast in terms of what would have been lost and core LBTT due to behavioural change. 50 per cent recovery is anticipated 75 per cent beyond that, so there are, for example, from the SFC forecast, the implication that transactions that will be lost to ADS will be made up for overtime through first-time buyers and home movers as well. I do not know if there is any point that you would want to clarify in that, un? No, that is a reflection of the fiscal commission's view on that yet. I guess the point that I am making is more fundamental, because that is behavioural impact. That is to do with direct tax receipts. The point that it really follows on from what Michelle Thomson was just asking is that she was asking about the assessment on the overall market. I guess what I am asking is really this. Has the Scottish Government undertaken not just an assessment of the incremental marginal changes on the overall property supply, but a more fundamental economic modelling as to what the investment in housing stock, where does it come from and to what extent, despite that? Let me be very clear. I am somewhat cynical about the contribution that Bytelet makes to that. My view is that it largely shifts existing housing stock between 10 years and does not necessarily contribute to that, but by the same token I would quite like the Scottish Government to reassure me that it is undertaken that kind of economic modelling and it has a view, because ultimately we need investment in housing stock and that has to be the bottom line that we view all of those measures. Has that economic modelling been undertaken? Is that something that it will undertake as part of its review of LBTT? In terms of our decisions on tax, we are taking on the roundest part of the overall budget process and that is in the context of the Government's existing policy commitments. There are clear commitments around housing, particularly around the supply of affordable housing. The policies that we take overall with residential LBTT reflect the characteristics of the Scottish property market that was touched on earlier with regard to average house prices. We take account of broader economic factors and say that decisions are taking in a way that is consistent with the policy objectives in other areas. Decisions around tax, as much as there can be a clear focus on revenue raising, we are not taking in isolation, which is why, instead of the outset, part of the key part of the intent behind the ADS—that has been the case since it was introduced—is to provide that support for first-time buyers. It strikes me, if I am sort of looking at the arguments being made by the sector, that they are claiming in broad terms that investment will be reduced. What I would observe is that they are unable to identify how many dwellings they are actually creating through that investment, nor are they actually able to give a figure to the level of investment into the existing properties. It strikes me, if you are going to invest, you are either creating new properties or upgrading existing properties. I would also observe on the Scottish household condition survey that private rented sector has the highest levels of defects and repairs being required. It is around 65 per cent, as compared to just below 50 per cent for owner-occupied and just above 50 per cent for social rented sector. Is that something that the Scottish Government takes a view of, as to how it can encourage not just investment in new dwellings but investment in existing and does that form part of its assessment of taxation policy? Are there ways that we could encourage investing in housing stock, especially thinking about things like net zero? If you forgive me, Mr Hunter, much that you are touching on there goes beyond my particular specific portfolio responsibilities in the middle line more with Ms Robes and Mr Harvey. However, touching on the specific point that you made about tax and investment more generally within the finance economy, yes. As I risk it, I do not want to repeat myself, but, of course, our tax policy decisions are taking within the context of the budget cycle, the policy cycle and our strategic objectives. As a Government, they are not taking an isolation and there is a clear policy intent behind ADS, which we are all familiar with and understand, which is around that support for first-time buyers. Beyond that, if there is any specific point that you want me to touch on? In its hands, forgive me, minister. They are not here to answer for themselves, but it strikes me. I am just trying to probe the arguments. If people are going to argue that they are creating investment, they need to say how and where they are being pointed to. As much as I am saying to the Government that I would like to undertake some economic modelling, I would say to the sector that they need to be a bit more specific. I would be able to point to the investment in new dwellings or, critically, the investment in existing dwellings. The statistics, especially in terms of the state of repair, do not tend to argue in their favour, is really the broad point that I was trying to make. I wonder whether you might share that point of view. The Government's position particularly on the work that we are doing for new rights and deal for tenants is consistent with your analysis and critique, Mr Johnson. Minister, I understand that they need to raise revenue, particularly in these difficult economic circumstances. I also understand that you believe that this policy has one principle behind it to help first-time buyers. I may not agree with that, but I understand your context for that. I also agree with the concerns that have been raised by the convener, Michelle Thomson, and Daniel Johnson, who are making it clear that we do not really have terribly much evidence when it comes to the behavioural change, because there is an expectation, even from the Scottish Fiscal Commission, that there will be some behavioural change. Michelle Thomson is quite right in suggesting to you that, to be absolutely clear that the Scottish Government is on the right track with this, we would need some evidence on that behavioural change. You have said that this has to be put in the context of macroeconomics, that is true. One of the context of that macroeconomics just now is that the Scottish working population is not as good in size in relation to the total population that we would like for improving productivity and whatever. To what extent are you comfortable that the policy effects of this tax change will not have a detrimental effect on the mobility of the working population because of the difficulties about housing stock? Specifically, can I ask about rural populations where we have got serious issues with housing? Are you convinced that that will not have a detrimental effect? I am very conscious in answering these questions that it is planning minister not to stray into that territory, because it is something that is going to occupy a huge amount of my considerations in recent weeks and months. There is a lot there that speaks to the specific points that you raised about the provision of housing and rural re-population. Sticking to my public finance remit for purposes of this committee session, the policy lead on housing sits in a different portfolio. Clearly, ministers in that place are best placed to articulate what the aims and objectives are, but fundamentally about enhancing and protecting the rights of tenants, ensuring that everyone in Scotland has access to a warm, safe home, and including the availability of affordable homes are key priorities. Beyond that, you recognise that there are a significant number of factors that impact on that, many of which are outwith our control. I recognise the point that it can be quite difficult to disaggregate what the various factors are, but having said that, that should not stop us from endeavouring to understand to the fullest possible extent what impact our tax policy decisions take. We are consistent in our policy position that we want to increase productivity in Scotland. We want to grow the number of high-skilled, high-paying jobs. We recognise that labour mobility is going to be an important part of that. We recognise that in the context of ambitions around a just transition to a green economy. That is something that is going to be particularly impactful and particularly significant for our rural populations and rural communities as well. Those inform a range of policy decisions that we take, in areas such as planning, in areas such as specifically our policy on housing and tenants, and yes, within our policy on taxation. I note that what we have for our residential LBTT race other than ADS, we have maintained them as we have in previous years, reflecting the particular characteristics of the Scottish property market. If we look at the data over the past 12 months, notwithstanding some of the challenges of tightening in the market, we are seeing more recently as a consequence of changing economic conditions, we saw a strong recovery in LBTT revenues, including ADS following on from the pandemic, which is suggesting that our policies on LBTT are effective in getting that balance right of raising revenue and doing so in a way that is consistent. The tax is hitting that particular spot where we generate that net gain above and beyond the BGA, and the tax is not at such an extent that it is having a negative behavioural impact, which we would obviously undermine in terms of raising revenue. I accept that what you are saying is that it will raise revenue. That is clear from the evidence that we have had so far. I will come back to the point that Michelle Thomson asked about this very issue. The assessment of what is likely to happen in the housing market as a result of this particular change potentially is quite serious, as we have the evidence that has been presented to the committee. We also have strong anecdotal evidence that people are withdrawing from that market. My concern is to ask the Scottish Government what potential detrimental effects that removal of quite a number of landlords from the market having extra dwellings that can support the economy could have. I come back to the point about the rural economy, because I think that there is a real danger in some cases that if too much of that activity comes out of the market, it not only could have a damaging effect on the mobility of the working population and repopulating difficult areas for the rural economy, but it could have a considerable effect on tourism. We cannot afford to have any detrimental effects on those aspects of the economy. I will ask the minister again what evidence he is considering about those aspects of the economy. My final point is to ask what discussions you have had with the housing minister over those likely effects? On the latter point, it is part of the budget setting process. There are discussions that the Deputy First Minister on his capacity is acting finance secretary will have with all colleagues across government into informing policy. That goes without saying. In terms of what the impact would be, I would note the forecasts of the SFC for the coming years. I appreciate that there can be under the fee's headline numbers of the revenue raise. There can be regional variations and things that will have to be alive to and considered carefully. Fundamentally, as much as there is a policy intent, as I referred to earlier in supporting first-time buyers, there is also a policy intent in raising revenue. We have limited levers at our disposal within the Scottish Parliament. That is the nature of the devolution settlement. We have to take a balanced approach. The Deputy First Minister has set out clearly what the Government's strategic priorities are around the budget in tackling child poverty and reform of public services and in a just transition to a new economy. Those are ultimately going to have to be resource through the revenue that we raise, a significant portion that we raise directly as well as what comes through the block grant. Policy decisions, yes, they have to take account of the behavioural aspects and the individual applicability to other policy areas, but revenue raising in itself is of significant importance as well because ultimately it is revenue that we have to raise to be able to deploy to support a lot of these other policy objectives. I am happy to give an undertaking to consider the points that have been made around how we can provide more information, more data on the behavioural impact that these tax policies have going forward. Clearly, with LBTT, there are monthly updates from Revenue Scotland on performance, so it is something that we monitor very closely. I engage regularly with Revenue Scotland directly in understanding the performance of the tax and some of the impacts that could be emerging. It is something that we keep on their continuous review. Of course, as has happened previously in the context of the pandemic, when there is a need to adjust policy to reflect circumstances—very exceptional circumstances, guaranteed—it is something that the Government is able and, if required, willing to do. To pick up the point that the convener raised where he said that there were effectively some inconsistencies in that approach. It was unfortunate that the timing of the reform to the additional dwelling supplement issue was at the same time as that. It is almost carp before the horse that you are going to be looking at the reform process. Would it not have been better to do it the other way round? I would have to exceed that as a perfectly fair and reasonable point to make. It had been our intention to have progressed further on the ADS review. However, given the complexity of the ADS review and the importance of being able to provide certainty and the need to get it right, we have taken a bit more time. However, as I made reference to my remarks earlier on to the convener, we will be bringing forward our response to the review shortly. I look forward to the opportunity for further engagement with the committee on what we are bringing forward at that point. Just for clarity, when is that likely? It will be relatively soon. I think that we are in the realm of weeks, rather than months. I was going to ask what the word shortly meant in myself, so thanks for that. Ross, before by Joan. Minister, you have talked a lot this morning about the wider policy intent around the additional dwelling settlement. You mentioned secondary and holiday homes, specifically and distinctly from the private rental sector. Could you expand a little bit on what the Government's policy intent is around secondary and holiday homes? We recognise that secondary and holiday homes can play an important part in local economies, but we also recognise that they can present many challenges as well, particularly around population retention affordability. That is why we have had this approach. It is also why through the joint working group to look at the resourcing of local government, including around council tax, which has been established following the Butehouse agreement. We are looking at measures that we can prove in conjunction with COSLA that can enhance local authorities' ability to respond to those issues, for example, around the additional council tax supplement with regard to second homes. Would you acknowledge that, given that we have got some particularly rural and coastal communities in Scotland, we are between a third and a half, and I think that there are a few instances where more than half of the properties are secondary and holiday homes and are therefore unoccupied most of the time, that once it has reached that proportion of the local community, the net impact on the community is negative. Any economic benefit during tourist season is more than outweighed by the fact that the community is, in some cases, largely vacant for most of the year. I think that Mr Greer, the concerns that you express, are well made in and over concerns shared by many, notwithstanding the positive impacts that holiday lets can provide. There is a risk that, if a critical mass is reached, it can undermine the density of population required to sustain a community. One of the things that was much explored through the passage of NPF4 was the applicability of local living in 20-minute neighbourhoods in the rural context. That does present challenges and requires a bespoke response, but those challenges would be exacerbated in a situation in which you have properties that are vacant. Those are well made points. Although it is not a solution in its own tax policy, whether it be through LBTT or enhancing the powers that are available to local government and council tax, it is important that leavers are addressing that. Government is evaluating the net impact on public finances of any tax changer in that specific case or increase to the additional dwell on supplement and the effect that it has on the housing market. Do you take into account, for example, that an owner-occupied house is contributing more through—there is no council tax relief there, for example—no NDR relief that there would be for a holiday, short-time work, business, et cetera? Is that the cumulative impact on public finances, both those that go to national and to local government, taken into account? Yes, we do consider in the round. It is also a very important point in understanding tax differences between Scotland and the rest of the UK. It could be pointed to that there are lower thresholds that were touched on earlier for LBTT when there is for stamp duty. That is reflective of the Scottish property market, but we would also recognise that in other areas, for example, council taxes, it is lower in Scotland when it is south of the border, for example. With NDR as a tax as well, we have a lower poundage, meaning 95 per cent of properties of a lower tax non-residential property of a lower tax liability than south of the border. I agree with you entirely that it is important that both in the sense of looking at the net revenue that we are raising, the impact and any behavioural consequences because of the differential between Scotland and the rest of the UK. Just finally, I will go back to the convener's original line of questioning around local authority exemptions versus other landlords for ADS. Touching not just on ADS but on LBTT more widely and the considerations that you mentioned already specific to the ADS review. Has housing co-operatives been considered there as a model of housing ownership that I presume we would want to encourage in Scotland, but which do not currently have any exemptions or relief to either LBTT or ADS specifically? Have they come under the purview of the ADS review, for example, or wider discussions about LBTT policy changes? It is something that has been reflected. I will ask you to correct me if I am wrong, but there is a very small part of the Scottish housing sector. At the moment, if, for example, the Government's policy intent was to increase the proportion of the housing sector that was co-operatives, that may be a mechanism through which to do that. Certainly, going back to the co-offer evidence in the ADS that was issued last year or late 2021, there were some questions in that around housing co-operatives, if I recall correctly, and views sought on whether there was a case for considering change in relation to that. The Scottish Government would have received views on that and would be considering that as part of that. However, just to confirm your point minister that it is relatively small, but discussions have occurred and there has been a discussion about that without co-operatives? It is something that we have come up with through the ADS review. We have also just recognised that the word that you used was minuscule, but it will be in a position to set out a response to the ADS review relatively soon. We have covered quite a lot of ground already, but we will go over one or two points again. To take some figures as an example, I am thinking that if a second home buyer or somebody who is intending by-to-let has a budget of, say, £104,000, at present that would be £100,000 for the actual property and £4,000 for tax. If we put that up to 6 per cent, that would mean that person only has £98,000 to pay for the property and £6,000 for tax, roughly. Therefore, the house price comes down by £2,000. Therefore, the competitors, i.e. the first-time buyers, will be advantaged because they will only have to beat a lower figure to get the property. It seems obvious to me that that will benefit first-time buyers. Is my logic roughly correct? I would know that first-time buyers, for any home-mover who is not subject to ADS, the nil threshold goes to £145,000 for a first-time buyer that is up to £175,000. That is where the benefit is conferred. Just for purposes of clarity, the rate now is 6 per cent as effective as of because of the provisional affirmative procedure. My example would have been better with higher figures, where the tax did come in. However, because I live in a property under £100,000, I tend to think of figures in that direction. I would just add an idea so that it does not apply to the property below £40,000. I would also advise for anyone that there is a very excellent suite of LBTT calculators in the Revenue Scotland website. I would still maintain that the point remains that it is clearly an advantage, surely, for first-time buyers if the competitors have less money to compete with them. The policy intent is to support first-time buyers. I think that the example that you give illustrates the impact that it would have for someone who is buying a second property is buying to let. The example that you gave £100,000 would be liable for ADS, whereas a first-time buyer or a home mover, who is not eligible for ADS, would not be required to pay any LBTT because they are within that threshold. Indeed, for first-time buyers, as I said, it is up to £175,000. I realise that you do not want to stray beyond your own remit, but my understanding is that a lot of constituents come to me who are in the private rented sector and who definitely do not want to be in the private rented sector. They are there because that is the last resort for them, they cannot get an RSL house and they cannot afford to buy. It seems to me that anything that moves the balance, even if it is only 2 per cent, a little bit towards the first-time buyer and away from the private rented sector, for my constituents that has to be a good thing. As members of the committee have recognised, the private rented sector plays an important role in providing flexibility for many, many people, but we would also recognise that there are many people who are renting and who would much prefer to be in a position to own their own property, so that is what the intent of this policy is designed to support. On another angle, one or two of the people who responded to us and we asked them where should the money come from otherwise to make up the difference was at £34 million, I think, and they broadly said that that has nothing to do with us. How would you respond to somebody like that? I recognise that organisations representing stakeholders have a primary responsibility to advocate for their stakeholders, but in Parliament, in terms of setting budgets and certainly as a Government, we have a responsibility to look at things in the round. There is a clear policy intent around support and first-time buyer. There is also a policy intent of generating revenue, and we all recognise the significant challenges that public finances face currently and going forward. I recognise that, as I say, it is entirely for organisations representing particular sectors and groups to advocate on their behalf, but for Government, we have to consider things in the round and how that is going to impact upon all sectors and all people in Scotland. I heard what you said about trying to encourage more first-time buyers, so is it your policy intention to try to kill off the private rental sector? Do you accept that not everyone wants to buy or has the ability to buy, and not everyone has access to the social-printed market? That is the point that I made to Mr Mason. As I recognise, PRS plays an important role for many people. We want to see a range of tenures available, but many individuals face a challenge in buying their first property or moving from one property to another to reflect a change in circumstances, so the policy intent behind what we do with EDS is to support first-time buyers. Is the best way to support first-time buyers not to build more houses? As we have heard from local authorities, the policy change may reduce the amount of investment that local and local authorities make on housing and make the housing crisis worse than it is? On the point that we can ask local authorities, as I touched on earlier, we are giving very careful consideration to the issues that have been raised for the EDS review, and I have been in a position to set out what a response is, as I have conveyed to the committee in several weeks' time. More broadly, I recognise, as I reiterate the point that I made, that there is a role for the private rented sector to play. There are a number of factors that will determine the supply of housing. We have touched on that earlier. Many of those factors are macroeconomic factors that are outwith the control of this Parliament, or indeed any one single individual Government, whether that be a consequence of the supply chain challenges that we face, cost inflation and raw materials, issues around recruitment and retention within the construction sector, and the availability of financial products following the mini-budget. Indeed, the rising interest rates all come to bear to have an impact, so it is important to recognise the role of tax in shaping supply and demand within housing. It cannot be seen in isolation. It sits within a much broader set of factors. Rodd's set of factors, which I suggest are combined, are significantly more impactful. We have to look at the factors that we have in front of ourselves today. What we are seeing is the rise from 4 to 6 per cent. We are being told by local authorities that it is going to have an impact on the investment that they make. That is a direct consequence of the policy decision that you are taking. There is nothing that can be put in place to try to mitigate that for our local councils. I am conscious of the committee's considerable interest in this area, and I will repeat myself again and say that I strongly appreciate the concerns that have been expressed by the local Government. That is something that we are giving careful consideration to as part of the ADS review, and I will be in a position to set out what the Government's response is to that view in the near future. Surely, then, you must concede that it would have been much better to have that review before such a substantial change has been made to this policy? I made reference to my answer to Liz Smith. The ADS review was initiated in the early part of last year, but given the complexity of it and the recognition of many of the issues that were raised as part of that review, we are giving very careful consideration to it. We will be bringing forward our response to that review shortly, which will cover a number of areas that have been raised, and I know what are of concern to members across the Parliament. Let's move on to a slightly different subject. Two months ago, Glasgow University put out a statement saying that, if a university tells students to drop out, they cannot find themselves somewhere to live. Will that change make that better or worse for the coming year? I am not familiar with the statement that was issued by the University of Glasgow in the broader context, so I cannot comment on that. I can say specifically that this is a transaction of tax that does not impact on existing properties. It is about future acquisitions. As you said earlier, there are provisions in place in supporting the private rented sector, where there is an acquisition of six or more properties in a single transaction. Minister, you should surely be aware of the issues that are in the housing market just now because of the lack of supply. A housing crisis that was described as unprecedented by letting agents has seen students unable to find accommodation this year, with the university recommending dropping out if housing cannot be found. It is back to the point that Michelle Thomson made. Surely there should be some risk assessment made on the policy changes that are being brought forward here, so we do not have damage to our university sector by telling students to leave. What impact is that going to have on the Scottish economy? I am not responding to comments that I made when I did not have an opportunity to study the comments in detail in the full context. The reality is that we face a challenge in providing the housing that is recognised, and we are taking action across a range of areas in Government to do that. However, the challenge and the cause of the challenge are not solely down to specific policy decisions that any one Government in any place can take. They are being influenced by a series of much broader factors, not least the fact that we have just come out of a global pandemic. We are seeing significant cost inflation as a result of the broader macroeconomic challenges that we have been facing. There is not going to be one single set of policies or sweet interventions that can address that, but the policies that we have taken around LBTT are demonstrably raising revenue. We have had a buoyant property market in Scotland, and we have seen significant revenue raised through LBTT over the past year, above and beyond the corresponding block grant adjustment. In terms of the levels of transactions in the revenue raised, it demonstrates to me any fair and impartial observer that this is a policy that is delivering on its objective of raising revenue. That is revenue that is used to support vital public services, including supporting the delivery of homes and the services that communities require. You are looking at the revenue raised by this tax, but you are not looking at the impact of this change. We have seen it. If you look, people are telling us, all the views are telling us, it is going to have an impact on the private rental sector. You have made no analysis of the damage that is going to cost to the Scottish economy. The position is that we are seeking to support first-time buyers and people to be able to buy their own home. Clearly, there is— Minister, if I am a student, I do not want to buy a home. I am only going to be there for two years, maybe three. What do you tell those students that cannot find a home and are being told to leave their course or maybe move to England instead if it is an international student because they cannot find anywhere to rent? What good is that doing to the Scottish economy? Clearly, there are going to be a number of factors at play, but to suggest that that is down to a policy decision to increase ADS from 4 per cent to 6 per cent. I do not think that to suggest that as a sole factor is credible. Clearly, there is a range of factors that are impacting on the supply of housing, and the majority of the most of the most of the most significant factors are factors outwith our collective control. Minister, I am not saying that it is a sole factor. I was asking, is that policy going to make that situation better or worse for the coming year? What that policy is doing is supporting the raising of vital revenue, which provides a range of services and support for our communities. Revenue, at least of all, ensures that Scottish students are not having to go and rack up £9,000 a year on tuition fees. That is the reality of the decisions that we take to ensure that we can maintain our social contract. The way in which we do that is by having a progressive tax system. Those progressive values are reflected in what we do in LBTT. It is a tax that is working because it is delivering additional revenue above and beyond the block grant adjustment, which allows us in Scotland to offer a broader range of services and support when we are available otherwise. You raise more of the ADS tax, but you do not care about the damage to the general economy due to students being driven away from Scotland because there is no private rental accommodation. Mr Lumsden, again, you are drawing a direct link between that and completely ignoring the broader macroeconomic factors at play. Have you made a risk assessment of what the damage is going to be to our universities? We consider our policy decisions in the round. There are a number of factors that will determine the supply and availability of housing. To suggest that the sole factor is going to be ADS, I just simply do not say— What is the sole factor? Is this going to make it better or worse? We are in a position to raise revenue and provide support for first-time buyers. There will be a number of factors that will impact upon the individual decisions that individual landlords take. ADS might or may not be a factor that is not for me to comment on, but clearly broader macroeconomic factors are going to be most impactful in determining the supply and availability of housing and the investment decisions that are taken. I will ask one more question. You said earlier that you welcomed the views that have been given to the committee on this change, but you have ignored them all, haven't you? I am not at all. I have listened carefully and I have sought to respond to them in the context. I welcome the views that all stakeholders make in the time that they take to go and share their views and the area expertise with Parliament. In Government, we have to take a balanced set of decisions. The consequence of not taking this decision on ADS would be less revenue at a time when we are facing significant challenges right across the public sector. We have to take decisions in the round. That is the approach that we have taken with regard to LBTT, as we have taken with all our tax decisions, consistent with the policies, principles and objectives that are set out in our framework for tax. None of the views that were submitted has changed your mind. I would be asking myself, why bother? We consider a range of views and opinions, and we will be balanced against a range of views and opinions from other organisations. That is part of the process of deliberating on public policy. Yes, particular taxes can have particular impacts, but on particular sectors or individuals or organisations who are liable for that tax. However, revenues raised also have an impact on the people who benefit from the public services. Decisions have to be taken in the round. We cannot be in a silo just focusing on one aspect or one implication that they have to be taken in the round. The context in which we find ourselves right now is the cost of living crisis where our public services are facing unprecedented pressure. It is an absolute imperative and a moral responsibility to ensure that we are properly resourcing our public services, which means taking proportionate fair and balanced decisions with regard to how we utilise the tax levers at our disposal. You mentioned supporting local services, but we are penalised on local authorities, but I do not want to go over that again. All the views that have been given to committee have been heard towards reduced investment by local authorities. They will drive private individuals out of the market and reduce the properties to rent. Concerns changes are made before the review, but you are plowing ahead anyway, aren't you, minister? What I am conscious of is the SFC forecast that we will continue to see significant revenue raised by additional dwelling supplements. Activity in the property market that is liable to the additional dwelling supplement is forecast to take place, not just next year, but in successive years. We are forecast to see, from 25 to 26, a growth in ADS. There is a broader context in which that has to be considered. One aspect of it is forecast growth in LBTT overall and over the five-year period within ADS specifically. I do not dispute that the figures show that there will be an increase in revenue, but I just feel that there has been no assessment done, as Michelle Thomson had said earlier, on the wider impacts on things such as universities and on the damage that will cause to our economy. I will leave it there. There are a couple of points that I want to follow up on following the discussion. First of all, on the local government, how much of the £34 million will be raised from local authorities? I do not have that figure in front of me, but I am happy to go back. If there is a means of providing any greater detail at a granular level to come back to the committee on that. That would be very helpful. The other thing is that what seems to have come out of today's discussion is that the additional dwelling supplement appears to be a bit of a blunt instrument, so there are a lot of really good aspects to it. John Mason's point, I think, was an interesting one, because the 6 per cent, I do not think, will not just make a more competitive in terms of first-time buyers, but it will probably deter a number of people from the bike-like sector from entering the market in the first place, and that could reduce upward pressure on prices, so that could be a significant positive gain from this policy. Also, if it deters people from buying second homes in the rural areas—some islands in Scotland, for example, well over 50 per cent—I was in Collins a couple of years ago and I think there are 108 people living there, and there are only two children in the school because it has been bought by retirees second homes. Some of them are not second homes, some of them are actually living in them, so that is another housing issue rather than a finance issue, but they do not apply. However, one of the things about the ADS is that it can be a blunt instrument when it comes to people buying derelict houses or houses that are a wee bit run down in order to upgrade them and live in them, and I think that that is another area where there should be further thought made to this. To me, it is too broad an instrument, if you like, but I think that it has got some really positive aspects to it, but also negative aspects. I think that it can act as an incentive and a disincentive to the Government's objectives, as I say in broad terms. Only to say that I am very grateful for the committee's scrutiny, as always. I appreciate that I understand Douglas's frustration and the question that he was asking about. That will not impact on Government policy, but I hope that when you take decisions in the future weeks, months and years, you will reflect on some of those when you consider things as we move forward, particularly in terms of, for example, local government. Let us move on to agenda item 2, subordinate legislation. I thank the minister for his evidence and we turn to formal consideration of the motion on the instrument. I invite the minister to speak to and move S6M-07288. That motion is that the Finance and Public Administration Committee recommends that the land and buildings transaction tax, an additional amount of transactions relating to second homes etc, Scotland, amendment order 2022, SSI 2022-375 be approved. I get the point about raising tax revenue. I understand that. It is incumbent upon all parliamentarians to recognise that that is very important. I think that, in this instance, there are a lot of unintended consequences of the proposed legislation that I really do not think has been thought through. Therefore, I find it pretty difficult, because I think that these are very important to the future of Scotland. I will be abstaining when it comes to the vote on that basis. I broadly agree with the ingoing rationale from the Scottish Government on this measure. However, just reflecting on the discussion that we have had, I think that it is important that we are evidence-led. I think that it is important that we undertake specific analysis of the impact, but also the broader modelling, because we need investment in increasing our housing stock but improving existing housing stock. I do not necessarily agree with the full sentiments expressed in the previous debate. I do think that we need to look at those things in the round. I am not convinced that I have heard that today, but I will be supporting the measures, but I would urge the Scottish Government to look at the broader impact so that we improve our housing stock both in number and quality and affordability. When I was younger, it was almost assumed that if you had a reasonably decent job that you would try and buy a flat and then perhaps buy a house later on and all that kind of thing, that was quite normal. I am afraid that that has changed and there are various reasons for that, but one is especially in rural areas, as Ross Greer pointed out. Second, homeowners, people from the cities, people from Glasgow going into five, all that kind of thing can outbid local workers who are not on perhaps a great wage or salary. In the cities more, perhaps the problem is that young people cannot compete with people buying to let. So anything that we can do to redress that balance—and I think that this is only a small move, we are talking about 2 per cent, not a big deal in many ways—but anything that we can do to help those younger people who are struggling to get on to the housing ladder has got to be positive. Thank you for that, Ross Greer, and then Douglas Greer. The £34 million that this will raise is going to go towards public services that we all recognise are needed more than ever during a cost of living crisis. We shouldn't also lose sight of the fact that it will raise a small amount of money in the remainder of this financial year, which will be important in closing what is quite a challenging gap in our public finances. I really want to associate myself with the comments that John Mason has just made, because there is also an issue of generational inequality here. For a lot of folk my age, a little bit older, a little bit younger, in previous generations they would have been at the point, by now I am 28, where they would have been able to own their own home. That would have been the norm, as John Mason says. For so many of my friends, for so many of the folk that I went to school and my brief time at university with, that is not the case for a whole range of reasons. However, the imbalance in the housing market that favours battle land lords is one of those reasons, and in a small way, the tax change goes towards beginning to redress. It sits alongside, in my view, other measures such as the new powers that have been given to local authorities to regulate short-term lets. There is a range of other measures that we need to take, but as well as the primary consideration here, which is about raising revenue for public services at a time when we really needed it. Redressing that imbalance in power and the generational inequality in our housing market is a strong argument in favour of that change. That modest change, we could have gone far further. That change, I think, gets the balance right. Just to second that myself, I bought my first flat when I was 21 and my children are 30, 26 and 24. One still lives at home and two rents because they simply cannot afford the deposit that is required to buy properties. I sympathise with that particular viewpoint. I think that that is having huge social economic impacts on Scotland. People will be able to even decide when to start a family, etc. All those kinds of things that obviously fall on from that. Douglas MacDonald, thank you, convener. If this was just an increase in tax on second homes and even holiday homes, I would be fully supportive of it. I do feel that there is another piece to this, a piece that I was speaking about earlier, and that is students trying to rent accommodation. My son has just been through that quite lately, trying to rent a flat. I know how difficult it is for many students that the market has shrunk considerably. I think that this will make it even worse. 34 million is always great to have more revenue coming into the Government to spend on local services. However, I do have real concerns about the unintended consequences of the impact that it is going to have on the wider Scottish economy. I was trying to highlight students being told to leave their course and go somewhere else. The amount of revenue that international students bring into this country is significant. If we are driving them away to places in England, for example, that is going to have a much bigger impact than the 34 million that is on the table. It seems that there is almost a war on the private rental market in this country. It is backed to get more people on to the housing market, more first-time buyers. The key is to build more houses. I worry that this is going to have a negative impact on that going forward. I hope that I will be proved wrong, but I have real concerns. Thank you very much for that. Anyone else wish to comment at this point? No. I now put the question on the motion. The question is that motion S6M-07288 be agreed. Are we all agreed? Yes. We are not agreed. Therefore, we will have a division and we will call for a show of hands. All those in favour against abstain. The result is that five people have voted in favour and two members have abstained. Therefore, the motion is agreed to. I would like to thank the minister once again. The committee will publish its report on this SSI in the next few days. That concludes the public part of today's meeting. The next item on our agenda, which will be discussed in private, is consideration of our work programme. We will now move into private session and I will call a break until 5-11.