Gweldwch gynllun o'r Ffanoedd Gweithreitraethus yn sefydlu i'r gynion ystod y cyfnodol swyddfaeth yma, i wrth gwrs, i gyd-doeth i'ch gweldwch, i'ch eu herfodol ychydig, i gyd-doeth i'ch cymryd o'r Ffanoedd Gweithreitraethus. Rydym ei bod yn gweithio ein cyfnodol â'i rhodaeth i'ch gyfeddiadol gyda i 13 a 14 o'r bwysig, yn gyafodol y gyfnodol a'r gyfnodol i'r oed, i ddechrau eu rawn, sy'n ddiddordeb wneud drwy'r cyfan. na o еслиig o se 힘들o. Mae'r syniad bwysig... Diolch fel y checks. Gweld gwneud gan gael beth o'r chael dessaim]. A wych chi samples nhw ar gyfer meddwl am y gyfrail sy'n wyrdd. Ti'n dechrau'n gwstdafodedd y ch 47 ac roeddwn i ei wneud i ddamuneg gan hyder arlog. Fe'n bastante lever heraus sighu payments mewn dicesilwyr ac a ch travelling rби er fyddion mis야u ei diwgion i dael eu mlynedd. Oni maeth yw cael y cyfrail pan Rodd Westin i'na nosio â hoedd sydd am awśloddau felly wrth hyn bob ydym yn sicr yn neud hynny'n gwybod, ac na fyddai'n gychwyn fwyaf oedd anghennu a'r hyn yn dynol ar greaddau cobl. Felly mae'r prif, i gael, fod yn gêmio arweithio'n lleol, yw Iso-by-Ry, a cobl o'r cyfnodau cydidoedd y cyfnodau cyfan. Rwy'r gyfaeitiau cyfan hon y maen nhw, maen nhw'n gyda unrhyw o'r cyfan hyfnodau cyfnodau cyfan, a rhoi'n dod i'r byw dae'r defnyddio'r cyfan hynny. Fel ei ffordd, dwylo'n ulyg gyda'r dyfodol yn gweithio gael ei wneud yn 5 ysgolion, mae'r lleol yn ei ffordd i ddweud o'r amser yn dweud i'r cyntafol. Rwy'n cymdeithasol i'r gweithio'n ei wneud yn 5 ysgolion. Felly, mae'n rhaid i ddweud, mae'n i'n dweud i ddweud i ddweud i ddweud, Um yma, i chi'n ddifwng yn gwelliant y gyhoedd, ond yma, ond y cyd-i'r rhaglen i ddweithio gydag gwaith ond y gyrfa ar gyfer ei ddweith, gan ond, gan gyd-i'r rhaglen i gryffwnt ymlaen, neu'r lawr, sy'n ddiweddillion i ddweithio gyrfa oedd y ddweithio, rydym ni'n fryeidio ei ch relaxedrach o'r rhaglen. Os ydych chi, yma, ond rhain ddweithio gydag, ond mae'n gwneud yn gwneud o'r rhanol yn y ddechrau? Well, I think it would be unfortunate if because of delays in planning or whatever, the development wasn't able to start until say year six. Theum. Sub-seil development relief was was all lost. I think it would need to be just a reasonable period and it might need to be something that was at the discretion of revenue Scotland, maybe to decide what was a reasonable period i'n ddaloedd y drafn hwnnw i'w ddymiannol a ddyloedd yn gweithio hwnnw gennym ein sefydliadau yn fawr. Ond mae hynny'n gweithio jeithio rhywbeth yn ei wneud i'u ddweudio'n gweithio peirwyr What if someone decides to put in for planning four and a half years into the five-year period, that's hardly the fault of local authority, for example, cos they've got to go through their processes. That would be unlikely, for someone to delay deliberately, I would suggest. Ifrougorau cyflygon ar y cwbl yr hyn? Oni, ond m restaurant ar 80. Some are more fighting than others. There could be some saving in the provision which would say that there was a delay caused by Quindi the end purchase, deliberately, or something like that, then there, there wouldn't be an extension. But also if it was a revenue Scotland's discretion, then they could take that into account. that might be, if this was to be several millions, one would assume? It is very difficult to say. Many of these transactions are structured along the lines that the development will start just as soon as possible. That's in everybody's best interest. The developer, who's involved in the development, obviously is keen to get on with it and the end purchaser doesn't want to have it hanging around for ages either. I don't think that anybody is out to delay things here, quite how many projects fall into what sort of timescales I really can't say. I'm sure that there are others—Scotland Property Federation, for example—who might be able to give some suggestions about how the figures might fall out. The Chartered Institute of Taxation, again, has said that amended relief mechanism poses a higher risk to public revenue. To accept an actual fact at the amount overall that will come into the Scottish Government is certainly not going to increase, but there is a possibility that it might decline for all sorts of reasons. Companies are going to bust whatever it happens to be if the money is not received at the beginning of a five-year period. It's not my experience of advising on those projects that a huge number of developers or end purchasers go bust. In most of the transactions we're involved in, certainly, that doesn't happen. I don't think it presents a huge risk of the tax being—the relief being allowed up front and then the development not happening. There are also other mechanisms that Revenue Scotland has. If people were to try and abuse this relief, then there is the gar. If people are setting up fictitious arrangements in order to claim the relief, that would be one way of attacking it. I don't think that it presents a huge risk of loss of revenue. You've also said that we're development is started but not being completed. The tax chargeable is an appropriate proportion of the tax that should be impaled with relief. If any of us are in the table by a house that costs £145,000, we'd have to stomp up an LBTT straight away. Why, therefore, should there be a care of only a proportion getting paid? Why shouldn't once work has actually started and the developers get the money in place to complete the project? Why shouldn't the tax just be paid? It goes down to what would be fair and reasonable in all circumstances. I think that the original wording of this regulation said that if you hadn't completely finished the development by year five, then there would be no relief. That doesn't seem proportionate really. If the development was all but complete, then you would think that you ought to be able to get a proportion of the relief. I think that it's a question of proportionality. It's obviously different from the situation of buying a completed house and having to pay LBTT. Having said that, it's not impossible for the construction of houses to be done in a different way where you don't end up paying the LBTT on the whole of the construction costs. That's not uncommon, either. The idea of this relief is to give developers who are setting up projects the same cash flow advantage as they would get in the rest of the UK, so as to ensure that Scotland isn't at a competitive disadvantage with the rest of the UK in forward funding and other projects. I wonder how big an issue that really is. In terms of the issue of clawback, I'll go back to Charlie's taxation. They've said that provision could be made to initiate a clawback or provide security cover that. When the developers plan to build a site, they often provide a bond to a local authority to pay for street lighting and roads, etc. If the company goes bust to whatever that's covered, what about a clawback, a care of indemnity to provide security? Is that something that you think should be considered? No, I don't think that that will be necessary. I think that the situations where development doesn't happen because the end purchaser has gone bust are not very frequent. The commercial arrangements are often such that everything is teed up for the development to go ahead. It's probably worth noting that the Chartered Institute of Taxation was the only one of those responding to the consultation who thought that the original version of the relief was appropriate. Everybody else looking at it took the view that developers, if they had to pay the tax upfront and could only reclaim it once the development was complete, if that was the case, developers would just say, well, this is too uncertain. We'll have to assume that we're not going to get this money back. Therefore, we'll ignore it in pricing deals, so it would have been a fairly useless relief. I think that the general consensus now is that the developer can claim it upfront. They can be reasonably certain that it will be available, and so they'll be able to price it into deals. Surely the public purse has to be protected?  I didn't ask for a bond and the developer did go bust and the council had to find £300,000 to put it in roads and street lines, etc. Surely if we're going to protect the public purse, then there should be some kind of bond or whatever in place, otherwise it's ultimately the taxpayer that's going to have to lose out. I think that arranging that sort of bond or whatever would introduce unnecessary complications into deals. There is, of course, always the possibility of keeping this provision under review, and if it turns out that the public purse has been threatened by projects going belly up, then it will be open to the Scottish Government, the Scottish Parliament to remove the relief or amend it in some way in the future. It's not set in stone forever, so it may be appropriate for the finance committee to keep it under review and to ask for detailed information about how many times the relief has been granted and what's going on in these projects. David, you've got a big focus on the 10-year homes. We talk about ensuring that no taxes paying properties costs £135,000 unless it's £145,000. What do you mean in cost terms by 10-year homes? Because I've been looking at your report and I can't really see any detail of what you mean by mid to 10-year homes and financial terms? I could certainly provide details from members of the rents that they charge. I don't have any with me at the moment, but what mid to 10-year homes really are is where a housing association or a council provide homes and the rent is set very much in the middle band between what a socially rented home would be charged that and what the private rented market would charge for a home. So it's very much aimed at people who are working but on relatively low incomes would struggle really to access a home of their own either through the private rented market or through a mortgage, but also unlikely to be a house than social housing because of the high levels of waiting lists. So it's really something that's looking to meet a gap in the market and we would argue that that's really since the financial crash and since it's become more difficult for first-time buyers to obtain mortgages I think it's potentially an increasingly important area to help meet housing needs until a young people to leave their parents homes or move to a different area in order to take up employment. Are you talking about homes that cost over £145,000 a unit each? In some cases homes might cost that to build but probably I'm talking mainly about development so for example buying land say to build 30 or 40 homes for mid rent or as had happened certainly on a number of occasions in Edinburgh with the last financial crisis where a housing association subsidiary will buy homes from a builder who decides that they can't sell them on the market and what I'm really talking about in this submission is associations can then get caught up in paying you know reasonable sums of tax and I think given that what they're doing is providing a service that the market doesn't provide and actually they tend to need either grant from the Scottish Government or land at nil value from the local authority to make the scheme stack up we're arguing that it doesn't really make sense for the government men to to draw a tax on that so safe safe at a site was going 50 houses you know it's going to cost an Edinburgh 8 million pounds or something like you're basically saying that it shouldn't be subject to LBT at all I mean even after five years it should be because of the type of people you're hoping to provide housing for really that that's the argument we're making and um while it is not a tiny part of the market it's really quite a small part of the market so really the case I would make as to why it should be excluded from the taxes firstly I don't think you would have a significant impact on the overall tax take and obviously the Scottish Government's keen to make sure that in designing the lbt t they still draw in the same amount of tax as would have been drawn in under the stamp duty and secondly as I mentioned earlier it's a fact that we're talking about housing people whose needs not met by the market it's effectively something that needs to be subsidised albeit to a lesser extent than social rent could be though that some of these houses if an example I gave for example 50 houses an 8 million pound site would be an average of 160,000 a unit you could argue that that would be above the threshold that many people would pay you know I mean I mean so for example there'd be a lot of people would be buying houses for a lot less than that you know I mean my mum's house is on sale for 58,000 pounds it's beautiful you know there's a lot of low cost private houses my assistant bought a house for 43,000 and it's absolutely lovely flat there's a lot of low cost houses but you're talking about quite significant scale of development is this where would this apply do you think is this something that would would impact across Scotland or is it only in specific areas such as Edinburgh and Aberdeen where you think this is really an issue I think it would impact across Scotland now previously the view was always that mid-market rent only really worked in pressured areas where housing for sale was expensive and there was a lack of socially rented housing and certainly traditionally most mid-market rent is in Edinburgh with some pockets in places like Aberdeen and parts of Glasgow but actually I spoke to a couple of housing associations recently Loretto and they have actually provided a development of units for mid-market rent in Springburn and Shettleston housing association have also provided a development of units for mid-market rent and what both associations were saying is that it's become so difficult for many people to access housing for sale that actually now there's a market for mid-market rent in areas like that and the people that were mainly being housed were I suppose people who were staying at home with their families but were adults and were looking to form a house and I think in that case it's probably not so much about the tax on overall cost of the property but it's the fact that the association would happen to be being a tax on the cumulative cost of land for say 20 or 30 units, cumulative cost of development and I would argue that actually I don't think that's probably what the tax aims to do because really you're talking about people who might 10 years ago have bought a property that was relatively low value in terms of the Scottish market but now you struggle to to access a mortgage. Just one last question, have you any idea how much that this costs housing associations a year, this tax would cost if there is no change to the current position? It would not be, I don't think, I mean I don't have a global figure, it's something I would need to research but I don't think it would be an enormous amount but could be an you know individual development significant and I think given that I understand and the Scottish government's refresh of its housing policy it sees mid-market rent as being a potentially significant element and it's building that into its joint delivery plan. I just think anything that can be done to make it easier for association subsidiaries to provide mid-market rent to help meet that need in the housing market and help deliver the Scottish government's aims I think would be helpful. So you're saying there's no real contradiction it's not a significant amount for the Scottish government as you're arguing but it could be for individual associations? Yes and it could potentially make schemes more difficult to stack up but also in a way the probability as I said earlier really for the schemes to work they need either land below market value or nil value transferred to the subsidiary or they need grant so in a way having a tax would really just be moving public money about I would argue. Yeah, yeah, Andy Sandy what you're saying is it would effectively mean a larger grant if you're having to pay this. Okay thanks very much for that. I'm going to open out the session to colleagues around the table with John to be followed by Richard. Thanks convener. Again if I can start with you Mr Inferno just one thing you actually said in answering questions to the convener was you used this term competitive disadvantage which I assume means building in Scotland compared to down south. I just wonder how much of an issue that is because you know if somebody wants to live in a place a thousand or two here or there wouldn't seem to make a difference to some to me I mean people still seem to want to be in London despite the fact there's a huge competitive disadvantage so does that kind of amount of money really make a difference? In relation to the sorts of transactions we're talking about developers or many developers operate throughout the UK so some of these projects they may have a choice between doing a project in Newcastle and doing one in Edinburgh or Glasgow and if there is an extra tax cost for the developer in putting the project together given the time that these projects take and given the margins are not incredibly high the developer might decide if we don't have this relief might decide he'll do the project in Newcastle which would mean it wouldn't happen in Scotland so that I think for that reason that's one of the reasons that most people were very keen to have this development sub-sale relief available in Scotland I mean clearly developers want no tax and want everything to be as cheap as possible but I mean by that logic no one is developing in London but I thought there were developments going ahead in London in the UK well throughout the UK at the moment in these sorts of transactions there is sub-sale relief because SDLT has sub-sale relief across the board for all types of sub-sales obviously in LBTT we don't have that so we're looking at a targeted relief for development transactions involving development so I think you know what once you get past the first of April a developer if this relief isn't introduced a developer will be looking at doing a project in Scotland it's going to cost more to do the project the margin will be lower compared to doing it in Newcastle and that could well lead to them deciding to do it in Newcastle but in the scheme of things is that is that not quite a small factor in the whole thing because the first one is demand that they want to build where there's demand and that's why people keep building in London despite the costs being absolutely huge because the demand's there so I mean would it be the case that actually demand is the most important thing and the tax is really pretty minimal not necessarily not in the way the costings for these sorts of projects work that the imposition of a tax charge in Scotland which doesn't exist in England could mean that a project in Scotland wouldn't be viable whereas a project in England would be so it's a simple sort of you add in a tax charge which isn't there in the other location and the developer looks at the numbers and says well I'll go for the one in Newcastle rather than the one in Scotland which would be a shame that's why we are extremely encouraged by the fact that the Scottish government proposes to introduce the sub-sale development relief to address that possibility I mean I still feel you haven't answered my question it's the relative importance of the tax but I can't force you to do that if you don't want to the other subject was this term significant development now as a lay person that seemed a bit vague to me but you actually seem quite comfortable with that in your response I think the problem with the previous iteration of this was that it was it was too rigid you know it said that you had to have planning permission whereas many development activities don't need planning permission so that that was too rigid it needs to be one of these tests that it can be slightly unsatisfactory because it is a bit subjective but it's a bit like the elephant test you know you can recognise it when you see it it's quite hard to describe it but most of the time it's going to be possible to to to see easily whether there is significant development you don't think we'll end up with kind of a lot of wrangles between developers saying it's significant and Revenue Scotland saying it's not or I wouldn't have I wouldn't have thought so I hope that there will be a degree of sort of detailed guidance time will tell but once we have some experience of what Revenue Scotland what what view they will take of these things but in many projects it'll be completely obvious that there's going to be significant development there'll be an enormous development agreement that's been negotiated there'll be a plan to build a you know an office building or a hotel or whatever it is so it will be obvious in many cases okay thank you mr stewart I mean again just following on from what the convener was saying the whole concept of mid-market rent I think previously at the committee somebody suggested to us that often mid-market rent is about 80% of private rent I don't know if that's a figure you would be comfortable with I mean it strikes me although it's called mid-market rent it's really just a slightly cheaper version of private rent as compared to social rented which is heavily subsidised is it do you see it that way? I'm not sure that I would entirely agree I mean I think the differences can be significant in terms of the rent I mean 80% I think would be the maximum that might be charged as a proportion of private rent but I think it really can make a big difference to go back to the examples I was talking about in Glasgow you're talking about providing quality housing that people have security around it's well managed and they wouldn't be able to otherwise access it so I would feel it'd be unfair to characterise it as being virtually the the same as private rent I think it meets a distinctly different market and as I said in answers to the convener it's something that can't be achieved without either land at nil value or subsidy being provided I mean presumably for you in one sense it doesn't really matter whether you get away with paying a little less tax over here or you get a bit of a grant or a subsidy from over here I mean there's like by the net figures you're looking at I take it I suppose that that's true but but I would also argue that you know there'll always be pressures on the level of grants that are available to subsidise new build council housing new build affordable rent by associations and mid market rents so really anything that can be done to keep the costs down and make the grants go further I would argue you know it would be the the best approach but but I take your point that if a scheme goes ahead and gets the grant in a way you could I mean I think the fear for this committee which we've faced with it kind of give it do we have relief for eco-friendly houses or what they were called in the past was as soon as we bring in a relief somebody out there is going to start trying to use it as a loophole they'll pretend they're a housing association or something whereas a grant or a subsidy you know we can target it we say it's only you know SFHA members or whatever that get it and so it's I would see that as more effective but from your point of view maybe it doesn't matter too much I take your point and I can't really comment I'm not an expert on taxation or the dangers of loopholes being created I mean I would hope that it would be possible to frame a relief in such a way that specified clearly what rent could be charged in order to be eligible for the relief and also who could provide the housing so I would have thought that I was something that could be avoided but but I take your point of that it's absolutely something that the committee and the government have to be wary of and introducing any relief that could potentially be used as loopholes okay thank you and your paper it was paragraph five it talks about back-to-back land sales which I think is where we are with the sub-sale relief I mean you said it was our understanding which is mine too that say the new schedule means that developer purchasing the land it will get relief but the purchasing association or subsidiary would still have to pay LBTT so I mean I think the what's happening there is instead of two people pay tax there's only going to be one but you're actually arguing that nobody should pay it I suppose really what I'm arguing what I would say is that I agree that the change is an improvement in what the situation would have been previously but I think consistent with mother arguments what I'm arguing is that mid-market rent is a provision that needs subsidy that wouldn't be provided for the market so I'm arguing it should have a relief from tax but I fully take your point that it's an improvement on the previous position from my remember's point of view thanks and my final point I mean you gave us this example on the last page your annex about multiple dwellings relief and if I'm reading these figures correctly I mean we're talking about a purchase of four million and the extra tax is 2,562 which by my calculation is 0.063 percent that's not significant is it? No I mean similar to the previous question the situation now is a big improvement from the point of view of mid-market rent from when I came to speak to the committee prior to Christmas just to go back to my previous answer I suppose what I'm arguing and making the case is that given it's a form of development or a form of housing that needs subsidy I would argue that it should be exempt from tax but yes I take your point that it's not a significant increase. Okay thank you Richard before by Malcolm. Thank you for my questions to Mr Stewart regarding relief for multiple property acquisitions now the convener earlier mentioned values of property around £160,000 now an Aberdeen in my regions of the north-east that would be significantly below mid-market so for us it's a it's a very significant issue and just to clarify then I mean to whatever extent the fact of the matter is that beyond any argument over an exemption the current proposals are detrimental financially compared to stamp duty in terms of developing these properties. They are yes it's now in a way but it's not as significantly detrimental as the proposals were prior to the introduction of the SSI that were discussing but they still would be marginally detrimental and for areas like Aberdeen or Edinburgh I think anything that can be done to reduce costs to allow mid-market provision I would argue would be would be a good thing. Certainly because there's certainly a place like Aberdeen even if you're saving 20-30% that's 30% of a very high level a rank can make a huge difference and just to pursue a little bit the proposal for an exemption I'm presumably is it fair to say that you don't feel that would be a significant financial burden on the Scottish government but could be of real benefit in terms of pursuing more of these mid-market schemes? Yeah very much so I mean in terms of the scale of mid-market rent the most significant provider of it in Scotland as far as I'm aware is the Needon-Chanmore Housing Association who have provided several hundred over a period of about 10 years so in terms in comparison to the numbers of homes developed for sale annually or even developed for social rent by associations and councils we're not talking about a huge number but to go back to the second part of your question it could make a difference in terms of making a scheme affordable and workable you know in an area like Aberdeen or indeed Edinburgh. And in terms of Mr Mason mentioned potential misuse of any exemption and presumably given regulation of housing associations it's quite hard to pretend to be a housing association I would have Yes I would think there'd be something that could be written in that could say that you had to be a subsidiary of a charitable association and as a sector it is quite strictly regulated by the Scottish housing regulator and by Oscar the charity regulator so I would hope that it would be possible to draft legislation that would you know really make it impossible for that to happen. You also mentioned issues regarding development of homes of housing association homes by their non charitable subsidiaries how does that work in practice how many housing associations have such subsidiaries. Quite a few do and it's something that's increasing really when I'm talking about development of homes by non charitable surgeries the reason that happens is that because housing associations are largely charities and have strict rules and are strictly regulated it's generally not possible for them to provide for example homes for sale for shared ownership or homes for mid market rent because that wouldn't be meeting their charitable objectives of housing those and greatest housing need so really as far as mid market rent goes for associations it has to be a non charitable subsidiary that provides and manages mid market rent and this is where they then get caught up in the tax and it's just finally then so in terms of dialogue and negotiations Scottish Government on this issue why might they be more receptive do you feel to the proposal for an exemption or at least ensuring that this proposal wasn't detrimental financially to the proposals going forward I suppose my feeling and I you know I can't be certain on this but I think perhaps associations subsidiaries initially being quite negatively impacted by the initial proposals I would have thought it was maybe an unintended consequence of the fact that the tax aim to move really the burden of taxation from higher value properties to lower value properties and I think what then happened is that because associations subsidiaries might be developing groupings of properties or buying you know significant pieces of land there was a detrimental impact I feel then that the Scottish Government have responded by introducing the sub-sale relief which means that the detriment is not so great but but as I've been arguing I feel that as it's a service that meets a need not met by the market it should be exempt Scottish Government we're trying to shift the burden from higher price properties to lower do you not mean any way around? Sorry yes yeah that's a slip of the tongue I'm in quite the opposite thank you come in okay cheers Malcolm to follow my map and if I could just continue on the same theme obviously from Edinburgh so similar kinds of housing problems as in Aberdeen perhaps certainly a lot of people can't to their antennae social rented for them and they can't afford the private rent or to buy so mid-market rents very important in Edinburgh so I was initially I think still attracted to your proposal but obviously we have to interrogate it about which many people have done so there might not be much to ask to be honest but I mean you do it in terms I mean the comparison with stamp you shall act I didn't come to a large differential but presumably if you had a total exemption then there would be a much bigger benefit from it so that's what you would yes absolutely and and if if you don't get that what would the effect be on the supply of mid market or could it be that the rents in mid market are going to be slightly higher than they would otherwise be or what do you think the effect would would be or in other words put it the other way if you do get the exemption what will the effect be will it will it affect supply or rents or both I think it probably affects supply I mean I think mid market can only really work where it's within a parameter and you can't really raise the rents above that otherwise you're not really meeting a distinct need that almost becomes a slightly cheaper private rent I think where there would be a benefit would either be enable certain schemes to go ahead that might not have otherwise so increase the supply or it means that overall and I don't think this would be a huge impact that just means that the amount of grant available to fund mid market or socially rented housing would just go slightly further than it would have otherwise. Well I mean I think we'll certainly raise these points with the cabinet secretary in a little while because stated policy obviously is particular areas like Edinburgh and Aberdeen to increase a mid market rent and so I think we'll put it to him that's an unintended consequence but he may have obviously some response that we're not anticipating but I don't I don't personally think that there would be a great deal of scope for for loop holes on this but again we'll we'll wait to see what he says but thanks for drawing it to our attention. Thank you just to let witnesses know the reason Gavin's left has been taken unwell just in case you wondered why he wasn't hearing it longer. Mark to be followed by Gene. Thank you convener as Malcolm said given this quite a good go but one of the questions that I would just like to clear up is in terms of the exemptions or the proposals that you're putting to us today have you done any calculation as to how much revenue would not be realised as a consequence of of taking that decision obviously LBTT was introduced with the the view of it being a revenue neutral scheme and any exemptions or otherwise that might impact on income as a result of that would obviously affect that revenue neutrality have you any calculations or done any educated guesswork around how much you would be speaking about in terms of the exemption? I have to say I haven't as yet as I said in answer to previous questions mid market rent certainly at the moment is a relatively niche provision it's not to say it's important but it's not a high proportion of the overall development of new build housing in Scotland it's certainly something that if time allowed I'd be happy to look into both with member housing associations but also with the Scottish Government because I'm sure they'll be able to provide through statistical returns they'll know how many mid market rent schemes or properties were developed over the last financial year and I don't think it'd be difficult beyond that to then work out broadly what tax would have been paid and would be lost so I can't say beyond the fact that I don't think it would be a significant proportion of the tax but happy if time allows to to interrogate that further and in terms of your the input from your members obviously Richard has spoken about Aberdeen which I represent and Malcolm has spoken about it have you had any direct representation from your members about specific developments that they have in the pipeline that they're saying that this goes ahead we will either put this on hold or we might not be able to develop this or this would have an impact on this particular development not as such the representation I've had has been mainly from Dunedin Canmore and it's around they see mid market rent as an important part of their business a part of their service to the community and what they've really done is looked at previous developments carried out understand duty land tax and looked at what the difference would be under the new tax and can I maybe pose the same question to Isabel because you spoke about development choices you use Newcastle Edinburgh as an example I'm not sure that that's always the calculation that is made by a developer because most developers are looking at individual areas and the need and demand in those areas but just to throw the question to you have you had any representation from developers or members of Lost Society Scotland saying that this is a real situation as opposed to a hypothetical one in relation to the development sub-sale relief yes lots lots and lots of developers have raised concerns about the the fact that there's no general sub-sale relief in LBTT I appreciate that they've raised the concern but you raised the the prospect of a developer choosing to develop south of the border as opposed to north of the border and what I'm asking is is that a real concern that has been expressed by developers that they would choose to make that decision or is it just a hypothetical scenario that you've raised on the basis of the differential no it is I mean obviously the new castles are hypothetical but it is a real concern that has been raised by by developers saying you know how does it work in Scotland how does it work in the rest of the UK and and expressing the the possibility that they would choose to do projects in outside Scotland because of the the additional costs so it's not a hypothetical one I I think that the SPF members have raised on numerous occasions you know lots of different organisations have raised the same concern so I don't think it's in any in any degree a completely hypothetical thing okay I don't know if I could just add that in relation to this relief that's being discussed by mid-market rent it's not something that the Law Society had considered in any great detail but we can certainly see that it is something that deserves to be looked at further it seems and you would imagine that it would be possible to design a relief which couldn't be claimed by those who are not didn't really deserve it you know there are plenty of reliefs that are focused on housing associations or similar bodies or whatever so it shouldn't really be too difficult to make it full proof okay thank you um I just wanted to continue with the comparison of Newcastle and Edinburgh maybe I would just have variation on that theme but it seems to me that any developer will look at you know a large range of of issues when making that decision I mean the price of land for example must be a consideration and inevitably be variable across the whole country whether you're building in Shetland or Dumfries or Newcastle or Edinburgh in addition to the cost of building materials the cost of transport and so on there's a lot of other things that must be taken into consideration rather than listening we would think that that it's just this tax relief that's become really important but in the greater scheme of things surely it's it can't be such a big consideration if all the other ducks are lined in a row let's say um I believe it comes down to the margins really so although the land may be cheaper in one location rather than another that's factored into the model and the price at which the development the finished development is sold sort of takes that into into account but if you introduce a tax charge in one jurisdiction which isn't in another then that heats up the margin um so you know it means that there isn't a level playing field that's why there was such a degree of concern about the removal of sub-sell relief across the board from lbtt I think people appreciated that the reasons for it but there was a lot that's why there was such a lot of concern about it in development projects do you just finally do you accept that there was such a lot of concern also from hmrc and in redesigning the tax form that that actually was one of the biggest loopholes in tax avoidance and that that tightening up these loopholes was it was seen as really a key importance and also given that westminster seemed to have followed the scottish governments changes that it's made in in some areas that it could change elsewhere too and that these reliefs may actually not be available in new castle in due course um the thing is that the UK government considered sub-sell relief in in relation to stlt and taking into account um all of what what they knew about avoidance and all the rest of it nevertheless decided to continue to have sub-sell relief in stlt so in stlt there is sub-sell relief for any sub-sell transaction um it's been the rules have been tightened up you have to claim it now um but it is available for all transactions so um that that there is quite a difference between lbtt and stlt in that respect so for a similar transaction um after april you pay lbtt in scotland you won't pay stlt on the same transaction in the rest of the UK so it is that's why it's very important that we do have this development sub-sell relief you know the targeted relief for transactions where it's where it's terribly important um without creating a vehicle for avoidance which i'm sure we haven't done or we won't have done assuming that this order is is passed okay thank you okay well thank you very much that has concluded the deliberations of the committee um so i'd like to thank you very much for your evidence this morning i'm just going to call on one minute um recess while we have a change of witnesses now go straight into the next session okay folks we've still got another 11 items on our agenda so let's fire away agenda item four is an item to evidence on the land and buildings transaction tax tax rates and tax ban scotland order 2015 draft from philip hog of homes for scotland and john hamilton of the scottish property federation i'd like to welcome our witnesses once again to the finance committee members of the committee have copies of written submissions for witnesses so as in the previous session we'll go straight to questions from the committee and as you're aware i always start with the questions and then open it out to colleagues around the table so let's see first of all the submission from homes for scotland good a place to start as any i notice in the second page of the submission there's a comment that an english fan moving for what reasons and i guess i thinking why should they be penalised for moving to scotland in terms of lbtd but would they really be penalised i mean i mean the average price of a detached house in scotland's 170 000 pounds i think it's much the same in england and it's 510 000 pounds in london so you'd pay a colossal amount more tax surely if you lived in london and moved to scotland and is it not the case that under the proposals currently that scotland have anyone buying a house under 392 000 pounds or pay less tax and then they're paid before december of this year every last year so i think the first thing i'd like to say is that that we our members welcome the new system the new progressive tax system we think is a massive improvement on where we were so i'm coming here today being complementary rather than critical however um we have always maintained in our submissions and oral evidence that we need a fully functioning housing market that allows movement up and down the scale that's been a consistent line that we've always maintained the other point i'd like to make is that um scotland has a housing crisis that no one really seems yet to have taken consideration of or did scotland has said that we need to build 500 000 homes in the next 20 years that's 25 000 each and every year last year we built 15 000 the lowest since 1947 we have a major problem here and whilst of course today we're talking about lbtt and addressing all of the the stamp duty levels we have to promote a healthy housing market and that is is the basis on which our members have provided me evidence no rather than submit a dry submission what i sought to do in the evidence i'll provide you today is an unedited um completely authentic view of member feedback that i received upon the latest announcements so i don't seek to sort of justify each and every senders within here but it is provided to you as is to say you get a real sense of what's happening there is as we move up into the the prices above 325 350 around about that sort of level there is a very steep increase in the amount of tax payable in scotland compared to south of the board that that that is a fact that the figures show that and what our members are saying is that they think that that is uh that is too steep too quickly and it could be better evened out if that five percent tax man were broadened out from where it is at the moment to a little bit further that's what we're calling for we think it will promote a healthier market we think it would allow much more movement much more fluidity in the market and um all in all provide a better tax system and a better tax break the contrary of that is we do have genuine concerns that that market above 350 between 500 000 and possibly higher will start to stagnate and i think that what we have to bear in mind is that home moving is largely a discretionary choice that people make in those sort of price brackets many of them don't have to move it's it's a it's a decision that they make and they can equally not make that decision and that was partly the reason why we had the housing crisis of a few years back is that yes mortgages became more difficult absolutely but also people were very very concerned about taking on bigger commitments about moving and about their job security so i think that given the context as i've said of that we have a real housing crisis that we need to tackle and you know we really need to be talking about how we're going to solve the housing crisis and i have a lot of sympathy with with david that provided evidence before about the need to address mid market as well as all 10 years i think that you know we should be looking at what can we do to keep to get the housing market back so that we're housing all of our population across all 10 years and hence the reason that's that's the basis of our submission it has to be said i don't think anyone considers that you know stamp duty was a major factor in terms of the slowdown in the housing market over the last few years i mean i don't think anyone seriously considered that the whole variety of reasons we all know you know what those are there's no point going into them in any great detail but one of the things that did cause difficulty was house price inflation house price inflation year and year out was much higher than the increase in wages and of course we ended up without a bubble one would have thought that if there are significant tax impositions on the purchase of large houses that in itself would have a counter inflationary impact on house prices therefore would that not make houses more affordable overall rather than less if there is a reasonable tax imposed upon them not only does it bring in revenue of the scottish government but if you were actually for example to remove taxation from somebody you know from the means of large houses would not just lead to greater house prices and no one would really benefit in terms of the general public because everybody would have to pay more for houses that already in many parts of scotland not many but in some parts of scotland Aberdeen and Edinburgh will not hear a bit more of chronic lower priced already I think you're absolutely right that there is that housing prices do need to be brought back closer to the affordability levels absolutely no no issue with with that at all but I think the best way of addressing what is classically a supply and demand issue is to resolve the supply situation um by adjusting taxation levels as I've said with a larger discretionary move some people will simply say well if that means the price of my property that I'm currently living and has gone down I therefore may decide simply not to move and therefore that creates the stagnation that that we're talking about people to say unless they're moving for personal reasons or job relocation many people will simply say well it's easier to just stay where we are if the price of our property has on in theory devalued then that then that's not promoting the healthy market that we're looking for and we do need that healthy market again as as we have an aging population and maybe with people maybe older people that maybe have equity in their homes or maybe living in larger family homes than they necessarily need as they reach later stages of life and could consider downsizing again if they see property prices declining they may decide that it's just not palatable so not concerned with building homes and that would make them more affordable if the prices are lower rather than higher sorry I don't know sorry I'm just saying you're talking about you know people might not decide to move but I mean if other people who want to enter a market who are aspirational if the house price that they would have to pay is less for for example a new home because house inflation is less then would that not boost the industry and indeed to help your members the best way of boosting supplies to tackle the land the lack of land availability in the planning process as I said the best way to address affordability and pricing is to resolve the supply demand equation which simply as you can see from the figures I quoted you earlier on is so far out of kilter that filling with taxes is not going to make a significant impact on the supply demand or the house price scenario I would argue okay matt wants to come in with a brief supplementary follow some from what you're thinking I'm struggling with the logic here that you say you're in agreement that there needs to be a a reality brought about in terms of pricing of housing and and the market needs to be much more affordable it strikes me therefore that coming to the committee and saying that we need to increase the value the increase the threshold for the 5% band on to higher value properties when what you seem to conversely be arguing for is a much greater supply of more affordable properties below the probably below the 250,000 band those don't seem to me to match up in terms of what you seem to be aspiring to if what you're saying is we need to be providing more houses below the 250,000 pound rate that shouldn't then be of any consequence in terms of where the bandings are because those are properties which under LBTT will pay less in terms of tax I didn't argue for more properties below 250,000 I said we needed more homes across the board and including my colleague was arguing before more mid market more socially rented we need more homes at all stages all parts of the market and we simply don't have that at the moment but at the moment there is no part of Scotland where the average house price the average house price is above it is going to pay more under LBTT than it did under stamp duty because it's not until you get as the convener said way above 300,000 pounds that you're going to see people paying more compared to previously and there's nowhere in Scotland that that is the average house price so again I'm not entirely sure how that meets what you're seeing in terms of increasing supply let me quote you there's one quite large example in there which which I think is quite significant that that I think might help illustrate it the majority of the housing in Scotland new build housing is provided by the large volume UK wide home builders who will typically provide products at the entry level lower entry level of the market the sort of prices that that you may be recall the the small medium-sized home builders that tend to operate in more rural or secondary locations outside of the big renovations have almost halved in number as a result of the recession we desperately need to encourage these home builders back into the marketplace and I know that there's some work being started by Scottish Government to address this so we welcome that that recognition that we need to bring these people back these smaller home builders typically will be providing higher value properties um and they're operating on a smaller scale so their operational costs are a lot higher and I think that example I provided in there was that sort of larger example was from a smaller home builder operating in five providing uh aspirational family homes and he's saying as as are others that I have similar evidence for there's another one in the borders that has just lost the sale uh price the property at 425,000 which represents 10% of their turnover saying that these are the discretionary purchases that are now starting to drop away and one sale on on that sort of level can make a massive difference to these smaller home builders now if we don't get those people back providing capacity in the marketplace then increasingly we've got a smaller supply chain and we will never get anywhere near the 25,000 homes a year that Audit Scotland tells us that we need and therefore we will never have any way of tackling the house price issue so all of these things are interconnected. First of all I'd point out that under the Scottish Government proposal there'll be a 53 million pound less tax will be recouped than was previously the case in a given year so that there is a significant reduction in the amount of tax it is going to be paid by people buying houses relative to previous year but just switching to Mr Hamilton I mean you say the average price for the tax property in Edinburgh you know is 394,000 which is 2,000 more than a figure I quoted that everyone would be better off under. What proportion of houses in Scotland sell for that amount of money or more? Well I think a key point for us is the proportion of houses which contribute to the tax that's generated so we haven't focused particularly on the average house price across the board because it gives a slightly distorted picture in terms of amount of revenue that's generated in any particular sector category. We have made the point that you know 8% of residential transactions are expected to count for 75%. The principle involved there is quite a small proportion of the market that's contributing a very large proportion of the tax that's generated. From the start in our consideration of the position of the new proposals that have been put forward we understood the need for some neutrality in terms of the revenue that's generated previously against the revenue that's generated under the new proposals. You've made the point that the estimate with the current proposal is a slight reduction in that but I understand that that would be expected and it would be hoped that that difference would be closed in future years so that there isn't a long-term shortfall in the revenue that's attracted by this new tax system. If that's not the case and there's part of the market isn't operating effectively then in the long term there could be a shortfall to the Scottish Government in terms of the revenues attracted. I think in a sense there's an element of us wanting the same thing which is a stable market which operates effectively at all levels and allows people who may be in a position selling whether this is a new build or resale properties. If someone's in a position where they have to make a choice about selling their property they may be dissuaded from putting that property on the market. If you're selling your house and you're actually paying any tax it's only the purchaser that's paying it. But you may be mortgaged, you may have bought a certain level, you may have a high mortgage, you may be getting advice that the cost of selling that house to a new purchaser is just not going to work in that equation so those properties may not come to the market. Surely the whole market must have been stimulated by the fact that you know a year ago you would have paid seven or six months so you'd have to pay seven and a half thousand pound stamp duty on a quarter of a million pound house you'll now have to pay £2,200 that's a £5,000. I'm not talking about the £250,000 house. I'm aware of that but surely the whole market must have been boosted by this. The fact that overall there's a £53 million reduction in tax that's about to be paid and you're focusing on a very small, I mean where's the evidence that there's actually going to be a significant reduction in transactions or indeed houses being built at these costs? I mean to me there's a lot of assertion rather than actual evidence that this is actually the case. I mean we've seen in London where house prices are absolutely sky high. I don't see the market having collapsed there. What we've got is a lot of people who just can't afford to live anywhere more or less because of the sky-high prices and what I think we would have if what you suggest was brought in is all we'd have is higher house inflation and fewer and fewer people able to buy these houses. No that's not the case. I think we agree that it's not particularly healthy for the UK to have prices which are too high in London and you know where the market is too active at the expense of other parts of the market or other parts of the country. What we would like to see is an improvement in market conditions and more house building in Scotland, more property transactions generally in Scotland you know so that there's demand for property business to take place in Scotland outside of London. You know I've heard this London's been quoted you know quite a lot this morning but London is a good example in our minds in the situation where there's too much happening in that part of the country and we would argue that we need to make Scotland more competitive. There's over demand in London for property. We don't have that situation in Scotland. We want to create the situation where there is demand in Edinburgh, Aberdeen, Glasgow, the major cities but also in the more regional parts of Scotland and putting a higher burden of tax on all those areas will not improve Scottish competitiveness. Okay okay if each of your proposals were actually implemented as you've suggested what would be the revenue implications do you think? I mean there seems to be a suggestion that it wouldn't actually impact on revenue because there'd be more transactions. Is that your view? Well again we were satisfied with the principle of the 5% rate being introduced to the proposals. We haven't suggested quite such a high figure as Homes for Scotland did but the principle of moving the band up from three to five is important because as it stands at the moment we think that will lead to a distortion in the market where house builders and that matter homeowners will be looking at a very very narrow band of pricing where houses will come to the market at the expense of larger properties which will not. So I think the principle of what we've considered here is very much the same the numbers are slightly different although we do agree on the rates which have been set we're slightly at odds I think on the on the band but the band of a £75,000 band between 250,000 and 325,000 in an important part of the market is too narrow. Okay now Mr Hogg you've suggested half a million rather than 400,000 have you done any figures to suggest how that would impact on the revenue? We haven't made any calculations on all of that because I think that what we're talking about is we're all trying to forecast the future and I make no claims of being any better at doing that than the next person but what we are bringing to our case today is our first-hand experience of dealing with home buyers at the sharp end and our members first-hand experience we're talking by a behaviour and we're all trying to second guess what might happen in the event of these these new rates being put in so what I can bring to you today is the evidence that we have from our members the evidence we have from potential home buyers and that was the reason why I thought I would give you a base in comments of what's happening on the ground we're not economists but we are telling you what people are saying to us and what their likely actions might be and therefore our evidence is based on on those those forecasts. Okay just one further question for what we're talking about this session and it's actually to yourself Mr Hamilton and it's just about the the non-residential rate we did ask Mr Swinney about this change from 4% to 4.5% and it's talking about a £2 million in a £2 million development he didn't he was not of the view that a half percent would make a difference in terms of deciding strategically whether you had a development in Scotland or not £10,000 a £2 million development. We covered this in the last session I think and I gave an example which was far higher most of the large well all large scale residential developments are now being undertaken by the major UK house builders there are very very few small house builders either in Scotland or probably in England you know SMEs you know as Philip has said have dwindled so the market is now dominated by a relatively small number of UK house builders virtually all of whom have if they have a presence in Scotland they have a presence in England and I don't agree that the issue of competitiveness is one that should be ignored and I gave an example at the last session we're typically house builders that my company deals with are selling land not at £2 million but in the six to eight or £10 million price bracket the people that are making the choices about whether they proceed with those transactions are largely based in England and I know from personally experience in dealing with those companies that they will make a choice they operate in their own companies there's an element of competition in those companies about whether a development proceeds in Edinburgh or it proceeds in Newcastle and you know there's one very large business located in Newcastle which you know I don't have to name here but I know that that company makes those choices and another half percent imposition of tax on that landfill will come into the equation for that company thank you very much for that I'm now going to open out the session John two for my mark very much mr hog to follow on one of the comments you made earlier on was about land not being available and I think that might apply in some areas but I don't think it applies in all areas because in my constituents in the east end of Glasgow we've got a lot of land no problem with applying permission and nobody wants to build on it despite the fact there's a housing need I mean at the end of my street there's an area laid out the roads are laid out the street lighting's been on for 25 years and nobody's building do you think tax could get movement in some of that kind of land without knowing what the land is and I'm not a developer so I'm not going to assess the viability of any any piece of land at the point I was trying to make in general is is that whilst whilst we need the tax system to work efficiently it's only a very small part of a bigger market problem that we have as you said in some parts of Glasgow we don't have the right type of housing in Aberdeen we're finding that the market is racing away and again affordability is an issue planning processes is a major problem and as I think has been referred to this morning the Scottish Government is just in the process of finalising a joint housing delivery action plan I was at a meeting late last night working on some of the land issues related in all of that the reality is is that there simply isn't enough land across the whole country to meet the Scottish housing needs and even in places where there is enough land the planning system is so painfully slow and difficult to get through that we cannot progress the land at the rates that we need so if we're looking to tackle a house price affordability that is where we should be directing I would suggest most of our efforts but in some cases you do accept that there's land there's planning permission but still nobody's building absolutely and and the reasons for that there could be a whole raft of reasons it could be maybe there's no market for it or maybe there are constraints on the site maybe the financial viability doesn't stack up but I don't the tax is probably not the major factor in that situation you mean LBTT well yes I'm simply no idea but I suspect probably not it depends on the house prices I mean the example kind of following on from that you give some bullet points with quotes which is helpful I mean the second one it's talking about £3,350 I think that probably means the tax it says it just about it was about just about to cost me £3,350 however the example is a house which might have cost £430,000 I think it's been bargained down to £400,000 now the bargaining therefore has affected say £30,000 which is about seven and a half percent of the total I guess that's not unusual the tax the 3350 is 0.8 percent of the total so I mean that suggests to me that in that example the tax is a very very small part and almost irrelevant whereas really when you bargain over a house price that's where the big movement comes is that your understanding I think that example goes to support John's case that with such a high proportion of the total tax take under this new scheme being on a very small number of properties or transactions that example there shows the fragility of that case because if let's suppose a good number of those properties are then are negotiated the prices are negotiated downwards and the corresponding tax comes from there that would potentially leave a big hole in the forecast tax take. Okay I mean that Mr Hogg refers to yourself Mr Hamilton about in that band that you feel is too narrow the 250 to 325 I mean if there was going to be a bit of bargaining in there I mean would you be happier if the band was wider but say the 5% went up to 7%? I think that the numbers in that case you know as I said before the principle of us you know to you know a large extent looking for the same thing here which is a stable market which generates if it's not you know we can't predict exactly how much business is going to be done you know next year or the year after but you know what we are looking to do is to try and maintain the kind of budgetary conditions in which we can all operate our businesses and I think that to an extent you know we make it over complicated again by bringing in yet another proposed tax rate you know we we've said that we feel that the 0%, 2%, 5%, 10% and 12% is probably now appropriate and I would still make the point that what we should now look at is the bands rather than the rates and ensure that there is enough market activity in each of these bands which generates the amount of revenue year after year in which you know the government can see tax revenue being generated and the property and housing industry can see stable business but I mean you're in a market where bargaining is very much part of the whole equation yeah I mean you're asking for a wider rate reduced tax level is there nothing you're willing to give in a wider band which means reduced tax take is there nothing you're willing to give in to balance that out well I think we are giving you know what we the point that you know has conceded being conceded from the start is that there has to be or there should be a similar amount of tax being collected and in a way we're always almost arguing from the government side that we think there's a risk that that tax will not be collected that's not good for the industry though because it's going to show that part of the market isn't functioning correctly and there isn't a choice in the market in which you know not all of our members and not all of homes for scotland's members serve the same part of the market you know I suppose the extreme example just now is that we've got members in the Aberdeen area who have very very difficult training conditions in front of them and the changes in legislation which are in front of them are making that worse you know and that's a combination of you know an unforeseen drop in oil revenues which hadn't been factored in when you know these proposals came forward and the new tax rates themselves are making it extremely difficult for those businesses to survive so I mean the other side of course is constituents like mine who think that you know if you spent more than 750,000 pounds in the house you are fabulously rich 12% is far too low you know let's go to 20% but you're not even willing to concede you know wider band higher rate anything like that no um as I say I think the the rates are probably set pretty much in the in the right place now there may be some debate about whether it should be a five or six percent five and a half percent rate um the the point we are making though is that the steps you know there's often uh you know discussion about the the housing ladder and the importance of that is that the the steps in the housing ladder have to be manageable you know people have to have the ability to make those steps and if they don't then they can be stuck there for a long time and the market doesn't operate effectively so I think you know the rates that we don't have a great issue with the rates as I say but you know you could you know we would concede that there could still be some room for negotiation around the the mid that mid rate there the five or six percent okay thanks um I mean I'm I'm interested that in your in especially in paragraph two in your paper you look at detached properties uh and you refer to that at least twice in Edinburgh and elsewhere I mean it strikes me certainly I've got very few detached properties in my constituency I mean that detached property is per se a luxury yeah I mean would you accept that nobody needs a detached property it's not a necessity I have lived in also properties in you know my lifetime the housing market tends to address where there's demand for housing and that demand you know it has to be it has to exist across the market and as Philip said that applies to mixed tenure social rent mid rent private rent and all levels of the housing market but it still comes back to the the point about which part of the market is making the biggest tax contribution so I don't want to sort of over egg that point but if you put so much of the burden on one particular house tenure and house type then you have to give some consideration you know as to the ability to sell that property and if you don't sell that property there will be an implication on the the tax that's generated the other side to that is that the people who need the tax are at the bottom end yes I mean is your paper and are you as an organisation basically arguing for the richer part of society no not at all you know the welcome elements of the the proposals are that a larger part of the housing market has been removed from tax and you know I'd like to welcome the changes that have been made in that respect and it doesn't though you know detract from the point that there is a larger market we don't feel that you know it's a case of penalising one part of the the market at the expense of others what we would like to see is a fair tax system and fairness comes into the you know it always comes into the question of tax at the levels that have been set here we don't believe it's fair and we don't believe it's it's appropriate for such a burden to be carried by a small element of the tenure and house types that are going to be sold okay thanks so much okay thank you for my Gavin thank you convener the other day I saw a friend of mine sharing on facebook a property a four bedroom semi-detached family property in bridge of dawn in my constituency located quite close to a local primary school obviously a very desirable property offers over 250 thousand pounds I think it's important to put that on record because I think we're straying into the realms of assuming that you can't get a family size property in my constituency or in Aberdeen at that kind of at that kind of price I'm struggling with some of the evidence we're getting today Mr Hamilton you seem to be suggesting that this that these rates which nobody is paying yet are creating great difficulties for businesses in the northeast of Scotland I've not said are the rates you mentioned it in combination with other factors I mentioned the bands yeah so the bands so presumably then you would be advising your members to be building properties at 250 000 pound value or below because if what you're saying to this committee today is that house price purchases are going to be driven as a result of the rates that are being paid under the bandings then there will be a rush of people seeking to purchase those properties because as the convener has highlighted they will pay significantly less than they would have paid under stamp duty yes I agree with that okay um but at the same point uh and one of the things which I'm interested by technically nobody's paying more or less on this because the only point at which you pay stamp duty or land and building transaction taxes at the point of purchase is not an ongoing tax so I paid stamp duty when I bought my house um but I've not paid it since so I'm not paying that tax at present the only time I will pay it is if I decide I want to buy another property so it's not it's not an ongoing tax as for example income tax so surely it's misleading to to to portray it in those terms that people are paying more or less people only pay it at the point at which they purchase a property I'm struggling to to see the point well the point the point is that um in terms of the grand scheme of what is driving the behaviour of house purchasers I'm struggling to conceive that this is the the primary motivation if people are looking to upscale to a larger property then that will be driven by a whole range of factors and most people if they're buying a property at the rate um here will have the ability to pay that as part of the purchase particularly if as is highlighted in the homes for scotland submission they've managed to negotiate a 30 000 pound reduction in the purchase price in some of these instances because the home home seller is making that and you're really struggling with the idea that you know people have no concern about paying tax you know people I didn't say they have no concern about paying tax yeah it's whether it's paid once or whether it's paid annually you know no matter what the frequency of that tax is due to be paid it will have an influence in people's choice on what type of property they buy and it would also influence the type of property that's brought to the market so from mr hog from your perspective are you detecting um a change in market behaviour currently as a result of the introduction the future introduction of these bands when you say market behaviour who purchases yes to what extent to the extent that the feet anecdotal feedback that I have is that the higher price properties um the market has slowed down significantly since these rates have been announced that's interesting because surely um these rates are not yet active yet surely if that if it were the case that behaviour were to be driven by this you would expect to see sales taking place in advance of the rates but being introduced but the real estate is being brought forward as a consequence as you'll know yourself the house moving process is not a short it's not the sort of thing you do over a weekend um anyone setting out making a decision today to purchase a new home realistically they're in for a probably three to six month process so anyone deciding today that they wanted to buy a new home has got I would say virtually no chance of purchasing before these new tax rights are introduced but the rate if you'll forgive me for the interest the rates were previously announced to the the previous rates were announced in november in terms of the initial consultation now that that's still that's more than three months three four months before about six months before they've become live um so at that point did you notice at that point we saw an acceleration of people wanting to conclude sales those that would have been disadvantaged from April we saw a rush of people wanting to conclude sales early but now that we've come to this side of the year where the realistically no one's setting out on a sale purchase from january probably could have completed before that point that so since then the market has gone we're told has gone a lot quieter on those higher value properties and do you anticipate I mean I notice in one of these that um again this is my concern around the way that this is being portrayed that you have one of your developers suggesting that people are being penalised for moving to scotland which I don't think is is is helpful language to use presumably by that same token eyes if I as a first time buyer were to go south of the border I'd be penalised for moving to england because I would pay a higher rate under stamp duty than I would pay under lbtd so are you anticipating movement if you're anticipating a lack of people moving to scotland at the higher end because they would pay more in tax are you anticipating a higher rate of people moving to scotland at the lower end because they'll pay less well the first thing I should say that these as I say these are verbatim comments so whether you like what people are saying is that's how they feel and that's their experience so I you know I make no apology for giving you verbatim comments rather than trying to couch up what what what I think our members are talking about I think what one factor that that maybe you need to take into consideration is that as a general rule not always but as a general rule people purchasing higher value properties tend to be more mobile in terms of their career maybe more senior levels in organisations so they tend to move around maybe a little bit more have the opportunity to move around a little bit more tend to relocate and we have heard examples of you know senior people looking to move not only themselves but then to bring colleagues along set up departments businesses divisions and if the main person decides that you know hey I'm not going to move there I could using the example we've had 30 today I'm going to move to Newcastle rather than Edinburgh not only does does that person not move with all the corresponding tax benefits but also their colleagues who they would subsequently employ do not follow them as as well so you know there is there's quite a long chain of events that that happen okay you're not economists as you said but I mean what is what is your best estimate and what the likely market impact will be on the Scottish housing market after the first of April if this regulation is passed today and these are the actual rates and bans that happen in April I think that we will see a prolonged period of below average activity in that that section of the market that's not to say we'll stop because it won't some people have to move I think we'll see suppressed levels of activity in that mark in place and as I say to discretion and movement generally at that sort of level so people will say well if that's what it means I'll choose to stay where I am and I think also what we will see as I've tried to to explain in here is we'll see a disproportionate effect on to smaller medium sized home builders who have to build was sorry that's not true who are more likely to build at those higher prices because they cannot compete with the larger home builds the larger volume home builders they don't have the economies of scale so as you see in the examples there I think that some one of them has said you know that's the market he aims at it's a small five base company probably builds 20 homes a year something of that scale he will be disproportionately hit because he can't compete with the larger volume guys on the the entry level products the sort of the below the 250 market and he will he will start he will see that effect that impact so that takes more capacity at the marketplace and it takes homes away and those people that might have bought at the 400,000 may decide that they you know that they'll they'll stay where they are and not release a property for more entry level product. I agree with you know Philp's points here but also I think you know it's important to see the differentiation in the housing market between the new build market and the existing sales market most sales and tax revenue therefore is generated from the sale of existing property but the importance of the new build market to the economy can't be ignored you know because of the massive shortfall that we have in the number of houses that are being built and the wider economic implications of that and the lack of business activity that goes around that gap you know in Scotland we should be aiming to be building 25 to 30,000 new build houses a year and we're struggling to build somewhere between 11 or 12,000 houses at the moment. I think generally the implication of making it less attractive for a house builder to look at the full range of new housing which he might bring to the market is would be a detriment to that position and it wouldn't generate more house building activity which in the wider economy I think is key. Okay um let's assume Mr Oglen your your best estimate comes to pass and there is I think to use your words a depressed level of activity on that section of the market I think you know I think you were referring specifically to three to five to five hundred but presumably it applied to properties above that as well potentially let's assume that happens does that section of the market exist in a vacuum or will that then have an impact on other parts of the housing market and houses at lower values in the three to five? Well I think that we've often referred to the sort of the concept of a housing ladder is a generalisation of people through their different life stages you know we'll move from maybe moving from the family to the first one bedroom flat and my family comes along look for something a little bit bigger and you know that that is is a well proven path albeit not the scientifically accurate for everyone but we talk about progression through and if we if we find that there's lack of product available suitable product available at the higher levels then clearly that means then that those that can and want to move upwards they'll have fewer opportunities to do so and where properties are available again we come back to our classic supply and demand if there is only one four bedroom property at a certain price range available that suits that purchaser then you know this the seller has the opportunity to to bargain on the price so if we're looking about house price inflation then I think that you know having a market that doesn't move fluid fluidly isn't going to help tackle house price inflation okay mr hamilton do you share that view what's your thought yeah so I think it's certainly you know a point we've come back to more than once where the market would operate most effectively where there is a fair demand for it which is generated by the wider attractiveness of living and working in that area um you know we fundamentally don't think it's helpful to have more severe differentiation or too severe a differentiation we accept the point you know that people generally are buying houses more expensive houses should generally be able to afford it but you know people often you know that are heavily mortgaged they are in many cases in that side of the market people who are starting businesses and are making contributions to the economy that applies both in terms as we say specifically to this tax that's been generated in that part of the housing market but also to those people who will make contributions to the to the business economy okay and the way to get a better functioning or optimal functioning housing market and your respective views in is to make the changes to the bands that you've submitted your written evidence yes I believe so the the widening of that five percent band I think would make what I I reiterate my opening comments I welcome the new system and I welcome where we are compared to where we were this time last year we're coming here today to genuinely provide our advice you invited us here to provide our advice based on our members experience based on the market with them we're bringing you that genuinely and with a suggestion that that five percent band if it was broadened up to circa five hundred thousand we think it would it would go a long way to creating a better more robust tax system thank you go ahead okay gee I just wanted perhaps a wee bit of explanation mr hog on and I'm quoting I think correctly I'm sure the clerks will tell me if not simply isn't enough land across all of Scotland to satisfy housing needs and can you say what you mean by that enough enough land where or yes every local authority has to provide a five-year effective land supply without boring you with the intricate details but only a handful of local authorities do have an effective five-year land supply this is say this was a meeting I was at late late last night and we've we've long argued that shortage of land shortage of raw material you know any basic economics tell you will will drive the price upwards so we have to we have to ensure there's enough land effective land where people want to live that can be developed that will then start to tackle the housing shortage and ultimately then impact on on on prices house prices but it's not a shortage of housing house building land that's that's holding up house building at the moment where you would say I would say that yes that is it is a shortage because because there isn't enough land that affects the price of the land and it affects the availability and would you say that that's common across all of the UK yes it is and I fully recognise that that home building can be very contentious at local level it can be very difficult at local level it's interesting to see the UK policy political parties all talking about in the run-up to the general election we're going to build 200,000 we're going to build 300,000 and you know it's great that there is a recognition that more home building is needed however translating that top target to then saying oh and by the way we're going to now build 50 of those just around the corner all of a sudden everyone that signed up to that that that need is then it's that little bit difficult but it's an issue that's not going to go away we have a growing and aging population we're simply not building enough to house our population and that is is a sad sad reflection that is an issue that subsequent governments and I make no political point here subsequent governments have failed to recognise and grasp with we're here today spending two hours talking about tweaks to a tax system but I'm much much more welcome spending two hours saying how we're going to address the housing crisis in Scotland we're not having that discussion and that's really where we should be spending two hours talking today so the problems are really much bigger than the tax and the tax band it pales into insignificance it pales into insignificance I'd like to thank John and Philip for coming along again today thanks very much for your evidence it's very much appreciated I'm going to as we've been in session now from on tours gonna call a break until 1145 to give members a natural break as we still have another 10 items of energy okay we agree to start back until 1145 so that's what we will now do our next item of business is to take evidence from the cabinet secretary of a finance constitution and economy on two stats to the instruments relating to land and buildings transaction tax the cabinet secretary is joined for this item by Neil Ferguson, Alison Cumming and John St Clair of the Scottish Government I'd like to welcome the cabinet secretary to the meeting and ask him to make an opening statement explaining the instruments and remind him not to move the motions at this point thank you the purpose of the do you wish we could be here to give an opening statement in relation to both orders or both orders okay the primary purpose of the land and buildings transaction tax sub-sale development relief and multiple development relief scotland order 2015 is to provide for a relief from land and buildings transaction tax in relation to land transaction involving sub-sale arrangements but only where the development of the land in question is in prospect the work to development of provisions in this order followed the number of meetings of a working group involving industry professionals and tax specialists which was convened to explore the issues associated with a sub-sale development relief and I'd like to place my record my thanks to those who participated in this exercise given the experiences of sub-sale rules applicable to stamp duty land tax my core considerations in the design of this relief have been to ensure that the relief supports economic activity in the form of property development whilst not supporting land speculation and minimizing any risk of tax avoidance activity members may recall that I made these points during the passage of the bill and placed my position on the subject on record during stage stage three debate on the 25th of June 2013 to achieve these aims a consultation paper was published in June 2014 seeking views and draft regulations that would introduce a sub-sale development relief where the full tax due would be paid by the first buyer in a sub-sale arrangement and then provided significant development of the site had taken place within five years the relief would be claimed and the tax return by revenue scotland on receipt of a tax return however the consensus of the responses to the consultation was that to help with cash flow and development transactions the relief should be available at the outset if development was not completed within the five-year period the relief could be clawed back otherwise the industry argued developers in scotland would be placed at a disadvantage in terms of cash flow in comparison with their competitors in other parts of the united kingdom this issue has been addressed in the revised regulations that are now before parliament and the subject of the committee's discussions today this order provides for relief which has a number of features firstly it will only be available to the first buyer in a transaction involving sub-sale arrangements where significant development is in prospect and the order defines significant development as has always been envisaged the relief is available to the first buyer when the whole site is sold to a second buyer partial relief is available where part of the site is retained by the first buyer and the remainder is sold to a second buyer or further partitioned to other buyers to be clear no relief is available for that proportion of the site that is retained by the first buyer however the relief is restricted to the first buyer only it is not available to a second or subsequent buyer where there is a series of sub-sale arrangements in place this reduces the risk of tax avoidance and it is an important improvement on the corresponding arrangements relating to stamp duty land tax recognising the concerns of the development industry the relief is to be claimed and granted at the point when the land transaction return is submitted by the first buyer revenue scotland may request specific evidence to be provided by the first buyer that the claim is valid for example that there are no there are firm plans to undertake significant development lastly a significant development does not take place within five years the relief is withdrawn or partially withdrawn the tax that should have been paid would then become repayable and confident that this relief will provide a robust mechanism that provides appropriate safeguards for the property development industry in scotland balance with the need to protect the revenue and to maintain a position a firm position on tax avoidance in addition the relief has been discussed in detail with revenue scotland administration of the relief will have implications in terms of checking that significant development has indeed taken place and of recovering the relief where this is not the case which will increase the administrative cost for revenue scotland in due course taken in the round though my view is that this represents an appropriate balance between equity collection of revenue and administrative effort finally on this question convener this order also mends paragraphs 11 and 12 of schedule 5 to the act for multiple dwellings relief to ensure that the calculation using the minimum prescribed amount of 25 per cent applies only to the acquisition of multiple dwellings not multiple dwellings and other property under the drafting as enacted it was felt that there might be ambiguity on this important point which was undesirable and which subject to parliaments agreement will now be clarified this order also makes a consequential change to provide that the minimum proportion prescribed in the land and buildings transaction tax prescribed proportion scotland order 2014 which has already been considered by the committee that stays in force on the amended basis. In moving now convener to the land and buildings transaction tax tax rates and tax bans scotland order 2015 the primary purpose of this order is to set tax bans and percentage tax rates for land transactions that will be subject to land and buildings transaction tax the instrument sets these rates and bans for residential property transactions for non-residential property transactions and with respect to leases tax rates for each band applicable to chargeable consideration which consists of rent. The Scottish Parliament legislated for a marginal progressive rate structure for LBTT back in 2013 this was intended to replace the much criticised slab structure of stamp duty land tax which was shown to cause distortions in the housing market around the tax thresholds. The reform was recently replicated across the United Kingdom although for residential transactions only following the reforms to SDRT which the Chancellor announced in the autumn statement. I set out the Scottish Government's proposed rates and bans for LBTT in the budget last October and updated Parliament on planned residential rates and bans during the stage 1 debate on the budget bill in January. I made clear to Parliament last October that I intended for the devolved taxes to be revenue neutral in their first year of operation. The Government did not want to raise any more or less than the two devolved taxes would have raised had the UK taxes remained in place and we wish to maintain devolved spending at planned levels. Of course at the time of the draft budget we still had to reach agreement with the UK Government on the block grant adjustment for the devolved taxes despite two years of effort in this respect. The LBTT rates and bans presented in this order taken with the proposed rates of landfill tax are designed to be revenue neutral against the block grant adjustment in aggregate as I set out to the committee in my letter of 22 January and in the chamber on 4 February. The Scottish Government forecast that we will generate revenue of £381 million from LBTT in 2015-16, 235 of which will come from residential property transactions and 146 million from non-residential property transactions, including the taxation of leases. Those forecasts have been endorsed as reasonable by the Scottish Fiscal Commission as the committee is aware that work is continuing on the estimation of the revenue losses arising from forestalling and the Scottish Government's estimates will be subject to review by the commission. The impact of forestalling on the block grant adjustment also remains to be agreed with the United Kingdom Government. I will now turn to the policy objectives underlying the decisions that I have taken on the three sets of LBTT rates and bans presented in this order. In setting the rates and bans of tax payable on residential property transactions, I have sought to prioritise support for first-time buyers and those progressing through the housing market by redistributing the tax burden from lower to higher-value transactions. Those rates are consistent with the principle that taxes should be proportionate to the taxpayer's ability to pay. The nil rate threshold is set at £145,000, which will take around 50 per cent of house purchases out of tax altogether—10,000 more purchases than under the new rates of UK SDLT. The marginal rate of 5 per cent, which I announced in January and which is to apply to the value of a purchase between £250,000 and £325,000, also ensures that the tax due on over 90 per cent of transactions will either be less than the UK charge or will be zero. Turning to the non-residential property transactions, those rates and bans are designed to ensure that Scotland remains an attractive location for business investment. They will reduce the tax charge for the majority of transactions below £2 million, ensuring that the tax due on around 95 per cent of transactions will be the same or lower than the SDLT charge. Finally, the rates and bans for non-residential leases are set to ensure parity with the UK rates, which are also set on a progressive basis. I consider that those rates and bans demonstrate very clearly that the Scottish Government has placed fairness, equity and the ability to pay at the very heart of the first decisions that we have taken on national tax rates. Thank you very much for that, cabinet secretary. One of the reasons why this session started about 45 minutes later than with schedules is because we are obviously taking evidence from a number of witnesses with regard to those items. I am just going to ask one or two questions before I open out to colleagues around the table. The first one is really that in evidence that was presented to us earlier this morning, we were advised by Homes for Scotland and the Scottish Property Federation that, in their view, the band restriction of 5 per cent from £1,000 to £325,000 is likely to lead to market distortions for more expensive properties, particularly those in the £325,000 to £400,000 range, although Homes for Scotland would like to see that band widen to £1.5 million. Do you have any views on what impact, because some of the evidence suggests that there has been an adverse impact on transactions in that price band as a result of the announcements being made? The only published data that we have, convener, is for the fourth quarter of 2014 in relation to property transactions. That is the data from Registers of Scotland on property transactions and property prices. Obviously, the volatility in the market or in the issues with which we are wrestling only crystallised for a limited period of that time. Obviously, I set out rates in October, but the UK Government's changes were announced in early December. I don't think that we are getting a particularly reliable period of analysis. However, there is nothing in that data that strikes me as indicating that there is a particular change in the pattern of property transactions. Obviously, we will consider carefully the further statistics that emerge from Registers of Scotland as that information becomes available for the whole of quarter 1 2015. In terms of the Scottish Shed Property Federation, there are concerns about the non-residential rate. They said that the 4.5 per cent rate, as opposed to 4 per cent in the UK, would have a detrimental effect on the likelihood of investment decisions being made to Scotland. I put this to you some months ago in the viewer of the view that it would not have in your view any significant difference, but we have been advised that, from personal experience, the Scottish Property Federation representative said that he was of the view that in investments from the £6 to £8 million range, that is having a potential impact. Again, is the Scottish Government getting any detailed information as to whether that is the case or whether it will be the case? There is certainly no detailed information or any information on this point that has come to me, convener. I think that when we discussed those issues, I think that it was in your constituency at the French Committee hearing on the end of iron, I set out some of the scenarios that would be relevant here. For a £10 million transaction, the increase in the tax charge would be £40,250, which is 0.4 per cent of the total transaction value. I consider that a change of that level is at the margins of the assessment of that transaction, but I am not aware of any information that contradicts what I said to you when we discussed the issue in your constituency. Thank you very much for that, cabinet secretary. I am going to open out the session now to colleagues, and the deputy convener will be first to be followed by Richard. In the Chartered Institute of Taxation, it made comments about sub-sale development relief, and there is a question of the term significant development. Obviously, if a significant development has happened within five years, then tax would not be payable. Are we happy with the term significant development that it is not going to lead to a lot of wrangles and court cases and things? I set out a definition of significant development within the order, convener, which, if I can quote in section 7 of schedule 10A, means that development is significant in regard to, among other things, the nature and extent of the subject matter of the qualifying sub-sale and to the market value of that subject matter. There are a couple of points that I would make about that. The first is that we have defined as clearly as we can what we would consider to be significant, and that relates and takes into account the market value of the subject matter. It takes into consideration the nature and the extent of the development. It would require that, for example, if we took an example where planning consent had been given for the building of 100 houses in the development and one house had been built, then clearly it would fail the test of significant development. If the committee will forgive me, I will not start to police where the line should be deployed because that brings me to my additional point, which is that the definition says that having regard to, among other things, which is designed to give flexibility to revenue Scotland to look reasonably and credibly at a situation. If 99 houses have been built, I think that, without creating precedent in the committee today, that would feel to me as if significant development had undertaken, but if one had been built, then clearly it is not. Revenue Scotland would have to judge in, among that range, what was a censor. It would be taken into account market conditions and other factors. Without wishing to prescribe, I think that prescription is the next place that we could go to in that definition. We have tried to give as much clarity as we possibly can do. Those will ultimately be matters that are subject to debate and determination by revenue Scotland, but we have set out enough detail to inform that judgment. Another point that the CIOT made was, if there were external events outside the control of the developer, would the five years be able to apply for an extension of that five years? No, they could not, no. The question of competitive advantage or disadvantage has been raised by a number of witnesses. I think that I got a slightly confusing picture from the witnesses because some seem to say that the tax was very important and would affect a development going forward or not, and others said that the tax was only one part of it. How significant do you see the LBTT being on whether a residential development goes ahead or not, or do you see it as other factors that are causing a development to go ahead? The LBTT will be one factor in the judgments that are made. I do not think that it will be the central factor. I think that it will be a marginal factor in the judgments that are deployed. I think that much more significant will be what is the capacity to raise the capital, to fund the development, what is the likelihood and implicit in all of that, how likely will that capital have to be held on to before it is replenished by sales. All of those factors are much more material to the judgment about whether a development proceeds rather than the rate of LBTT. The LBTT, in principle, is a marginal consideration in whether developments are taking forward and certainly not a central factor. The difference in the levels that we are setting out, both in terms of where we are more competitive to use that terminology or less competitive to use that terminology, are marginal factors in the judgments that would be deployed. The final area that I wanted to touch on was that we had evidence from SFHA about mid-market rent. Most of us in the committee are sympathetic to the concept of mid-market rent whereby it is a bit more affordable than the completely private sector. The suggestion was that in order to encourage mid-market rent, there should be further reliefs to those who are seeking to make that kind of development. If we are helping that kind of sector, is it better to do it by tax relief or is it better to do it with a direct grant? We had a similar debate around eco-friendly housing as to whether you do that by relief or by subsidy. I am not asking you to commit to supporting mid-market rent, but I wonder how, if we were doing it, what is the best way of doing it? The first thing to say—I have read the SFHE evidence and I have seen some of the dialogue that the committee has had with the SFHE this morning—is that the Government will always give consideration to propositions that come forward and suggestions that are advanced. I have a couple of caveats that I would apply to that. One is that I was very clear with Parliament and with the committee and I felt throughout the process of the bill that I had very firm support from the committee in the judgments that I was arriving at. We did not want to create, if I could call it or describe it, a relief strewn bill. I was clear with the committee and I felt that the committee was supportive of the position that where relief was required, was necessary, was genuine and had firm purpose, it should be granted, but we should not replicate all of the reliefs that were available, for example, under SDLT, because that would simply replicate some of the difficulties and challenges that exist with SDLT in terms of tax compliance. We are just going through a debate within the United Kingdom about tax compliance and tax avoidance. As the committee knows, the Government has decided to take the strongest possible stance that we can on tax avoidance. Of course, the more reliefs we have, the more ground is opened up to potentially have practices that we might not have envisaged at the conception of the legislation. That is one caveat that I am naturally cautious about extending reliefs. That is why I was reluctant when I was in front of the committee in the earlier stages to go into the territory of sub-sale relief. I have been persuaded of the merits of that argument by the industry, and we have gone into it in that fashion that I think is consistent with the legislation. We have to be careful about how much we open up that process. The second caveat is really the point that Mr Mason has raised in his question. When we are looking at solving a challenge like improving the availability of mid-market rent properties, we need to take the most effective intervention to do that, not to take another intervention because a piece of legislation happens to be in front of Parliament that seems a good idea to advance when it may not be the most effective mechanism for stimulating mid-market rent properties. I would much prefer us to take forward a policy and a more direct financial support mechanism. If I think, for example, about the national housing trust, which aims to deliver properties for mid-market rent into the bargain, that has been very successful. It involves a very low level of government to financial support and relies on the private market, but it has been very successful in rolling out the delivery of mid-market rent properties. When we have mechanisms for that around, we should do all that we can to ensure that they are successful. That's great, thank you. That's different to you then, thank you. Richard Caffee is followed by Haig Gavin. Excellent, thank you convener. Cabinet Secretary, my questions are also regarding multiple dwellings relief with regard to the evidence that we had from the Scottish Federation of Housing Associations on homes for mid-market rent, which is a big issue in terms of enabling more people to get the housing in need. So, it's a big issue in terms of a progressive approach, which we welcome the fact that you've sought a progressive approach through the act, but in three areas, the SFHA say changes are made, which in fact are detrimental to proceeding with schemes for homes for mid-market rent. In terms of the costs that there will be for housing associations, being higher than understanding duty in terms of the transactions for the homes for mid-market rent and on the purchase of land through a back-to-back sale from a developer as well as a purchase of multiple properties. Given the fact that you said that you wanted this to be a measure that brought in a great relevant of progressivity within these provisions, why didn't you ensure that, with this kind of very important scheme in terms of housing provision, it wasn't a detrimental impact but preferably in fact something that would encourage more mid-market rent homes to be built, because there seems to be something of a danger that it will actually discourage those developments if the instrument goes through as it's currently proposed. I challenge some of the evidence that's been put in front of the committee. For example, the point that Mr Baker makes about posits a particular scenario of land purchases from a developer, for example, that's one particular scenario. It doesn't have to be the scenario in which land becomes available or is accessed by a housing association to take forward mid-market rent properties. We have to be very careful about the positing of particular scenarios that, because of a general view that Parliament has taken, we want to minimise the risk of tax avoidance. That is used as an argument for suggesting that, somehow, there is a disadvantage being created as part of the process. I think that we have to be very careful about some of that evidence. What the Government has set out is a progressive approach to the delivery of this policy. It is designed to ensure that the payment of tax relates to the value of particular developments and the significance of those developments. Some of the issues that Mr Mason raised earlier on are more material to whether or not a development takes its course rather than the assumption that, somehow, an action with an LBTT, which, as I said in my response to the convener, will be a marginal factor, has any effect on the decisions to take forward a particular development. The SFHR gives quite a clear example on its evidence, which shows an example of buying 20 properties. It may be slightly marginal, but under the provision that you are putting forward, there will be a greater cost to the housing association for the purchase of those properties than there is under stamp duty. That seems to me to be going backwards, not forward, in terms of encouraging these kind of developments. That is going to be a marginal factor in all of this. I have made my point to the convener that this is all in the marginal territory. Secondly, the committee has got to be very careful where it goes here because the reason why the tax charge may be higher is not because of the absence of a relief, it is because of the proposed rate of 4.5 per cent. If the committee believes that we should start to litter the legislation with reliefs to provide exemptions, the committee will open up the opportunities for tax avoidance in the legislation. That is the danger that the committee would run if it follows that line of argument. What we have done with the rates is that we have related the rates much more closely to the size of transaction, to encourage and to motivate a greater level of activity by having a more competitive rate at the lower end of the property transaction. There is a higher rate at the larger property transactions. If we then try to temper that by putting a relief in place, I caution the committee that it is going into the territory that the committee expressly tried to avoid when it scrutinised the legislation some months ago. I am not suggesting that because one suggestion is quite specific. Surely it should not be beyond the width of the Scottish Government on an issue where it involves a housing association. A quite clearly defined entity in law is very difficult to pretend to be a housing association, as we heard earlier on, to ensure that this was not even beneficial to those proposals, but not detrimental compared to the provisions that were in place on the stamp duty. It is clear that it is a proposition that can be advanced if people wish to advance that proposition, but I am simply setting out to the committee the issues that it would have to consider if it wished to advance some of those arguments. Finally, what is the Scottish Federation of Housing Associations said that it would be quite a good, strong case for an exemption for housing associations pursuing these kind of developments from LBT to encourage their development? It would not actually be a huge cost to the Scottish Government at all, given that it is quite a specific area, but it is very important. What consideration has been given to that by the cabinet secretary has not been in any dialogue with housing associations on that issue. I can understand your caution on that area, but is it something that you will be prepared to consider for the future? As I said in the outset of my answer, the Government is always prepared to consider those issues and I certainly will consider that. In the evidence that the committee heard this morning, there was no financial impact placed on those proposals put in front of the committee this morning. Obviously, if it was not just a relief but an exemption, that would affect the tax take and the estimates that I make. That money has to come from somewhere, and the judgments that are being arrived at here are about what is the appropriate tax charge to be made on particular developments. Obviously, there is flexibility in the legislation to determine whether that tax charge should be varied for one organisation or another, but that is certainly something that I am happy to discuss with the Scottish Federation of Housing Associations. The cabinet secretary mentioned some work on forstalling being done by the Scottish Fiscal Commission. Is there a timescale for that work to be completed and published? The discussions are on-going. We are carrying out further research work based on what the Fiscal Commission has requested of us. It is not a matter for me what judgment the Fiscal Commission will come to. It will come to its judgment and they would have to set out the timescale. The issues around forstalling, I expect—indeed, I think that the chief secretary to the Treasury, when he appeared before the committee, indicated that he expected forstalling discussions to go on into the start of the next financial year, which is later than I certainly would like to be the case, but it takes two to make a negotiation. Obviously, we will carry on the work that has been undertaken with the Scottish Fiscal Commission, but the management of that work and the determination of that work is a matter for the Fiscal Commission. In December, when you gave evidence to us, it was your view at the time—this was just before the autumn statement—that there would be no behavioural impact as a result of the LBTT rates that you were setting. Obviously, we then had the autumn statement, which changed things, but is it still your view that there would be no behavioural impact at all if we hadn't had the autumn statement? Do you put all the forstalling down to that, or do you accept now that some of it was down to LBTT being different from the existing stamp duty? There will obviously be—individuals will make their judgments about property transactions on a wide variety of factors. I do not think that LBTT leads to a particularly significant behavioural response, but clearly there was an additional impact on the market, which came from the autumn statement, which has added some further uncertainty into the marketplace. I suspect that we will see reflected in the forstalling. You were asked about the impact so far, and you basically said that the evidence that you had was the quarter of the house price index, which was published in February, and that related to quarter four. I was a bit surprised. Does the Scottish Government, given that you deal with Registers of Scotland more regularly, have figures for January, for example, at this stage? What I said was that there is no published data, and the published data is all that I can deal with in terms of the official output of Registers of Scotland. I take a very close interest in the performance of the property market. I look at a range of different information sources, but there is nothing that is indicating to me anything to substantiate a change in performance. We heard ever and certainly from witnesses who took the view, and that was their opinion, obviously, but they believed that, as a consequence of LBTT, if those rates are set, we will see a depressed level of activity at the higher bands of the property market, and that would have a detrimental impact on other steps of the ladder, too. That is their view, and I assume that the Scottish Government takes a different view. If they are correct, if that does play out post April, will the Scottish Government act? In what respect? If it turns out that the Scottish property market is hit as a consequence of the rates that you have set, and there is a different result from, say, the north of England or the Midlands, for example—I would treat London separately—if the Scottish market appears to be hit detrimentally as a result of those rates, will the Scottish Government act and change those rates to try to help the market function? No. Okay, but you would review it. Presum that this is reviewed at budget time each year, but your position now is that you would do nothing prior to then. My question was dealt with by Gavin. He asked why I was going to ask. That is what I get for saying that I would wait until after Gavin. It is a great mind that I think I like. I feel nervous, I am not quite sure. Anyway, let us move on to agenda item 6, which is the debate on the motion S4M-12346. I invite the cabinet secretary formally to move the motion. I now put the question on the motion. The question is that motion S4M-12346 be agreed to. Are we all agreed to? We are agreed to. I now move straight on to agenda item 7, which is to move to the debate on motion S4M-12347. I would like to invite the cabinet secretary formally to move the motion. I now put the question on the motion. The question is that motion S4M-12347 be agreed to. Are we all agreed? We are not agreed. There will be a division. All those in favour of the motion. All those against. The motion is carried by 6 votes to 1. We now will have a one-minute recess while we have a change over in witnesses. Nobody butch. I now move on to agenda item 7, which is the debate on the motion S4M-12346. From the cabinet secretary on four statutory instruments relating to public service pensions. The cabinet secretary is joined for the item by John St. Clair, Chad Dottrey and Jim Preston of the Scottish Government. I invite the cabinet secretary to make an opening statement explaining the instruments and remind him not to move the motions at this point. The Scottish Government is currently implementing reforms of public service pension schemes required by the Public Service Pensions Act 2013 of the United Kingdom Parliament. The changes in the instruments that the committee is considering today form part of those reforms. Those Scottish ministers have executively devolved responsibility for these schemes. Overall, occupational pension policy remains reserved. Indeed, the key terms, often timetable 4, the reforms were set out by the UK Government in the Public Service Pensions Act 2013. That act also requires that instruments that amend primary legislation are considered under affirmative procedures. As the committee knows, the reforms will effectively close the existing pension schemes on 31 March 2015. That means that the new schemes and important transitional protections for pension rights already built up to that point need to be in place from 1 April. Those instruments make necessary consequential modifications to the Pensions Schemes Act 1993 and to the Finance Act 2004 to ensure that the NHS teachers, police and firefighters pension schemes work as intended within the complex, wider framework of pensions and tax law, and that pension scheme members who transfer to the new schemes retain accrued pension rights. In brief, the proposed modifications that are set out in parts 2 to 4 of each instrument are common to each of the four schemes. Additional provisions are set out in part 5 for the teachers, police and firefighter schemes. Under part 2 modifications are made to regulations governing contracting out of the additional state pension. Though contracting out will end in April 2016, the new schemes remain contracted out until then, and the changes introduced in part 2 reflect the UK Government's simplified contracting out election process for the new schemes for this financial year. In part 3, modifications are made to the Pensions Schemes Act 1993, so that members who move from the current schemes to the 2015 schemes are not wrongly treated as deferred members of their existing schemes. Modifications under part 3 ensure that pension benefits that scheme members have accrued to date are revalued correctly and not as if those individuals were deferred members. A scheme member's right to a cash equivalent transfer value, a refund of contributions or to a cash transfer sum, applies only when they leave the new scheme and guaranteed minimum pension safeguards operate as intended by modifying anti-franking provisions. Those modifications will mean that, for those purposes, such individuals do not cease to be active members of their existing scheme until they leave their new scheme. Part 4 modifications to the Finance Act 2004 make sure that members with service in both pre and post 2015 pension schemes who retire with an ill health pension do not face unintended tax consequences. Part 5 of the Police and Far Fighters instruments modify the Pensions Schemes Act 1993 in line with the requirements of the Public Service Pensions Act 2013 to permit active and deferred members in those schemes to have different pension ages. Part 5 of the teachers instrument is designed to reflect in the short service provisions of the Pensions Scheme Act that different rates of actuarial reduction for active and deferred members are provided for in the teachers pension scheme regulations for members with a normal pension age above 65. In conclusion, those are very technical modifications to wider pensions legislation that seek to ensure that teachers, NHS workers, police officers and far fighters in Scotland can get the pensions that they expect without any unexpected effects as a result of potential conflicts with wider pensions and tax law. Thank you, cabinet secretary. I have no questions, but the deputy convener does. I have the privilege of being on the Delegated Powers and Law Reform Committee, so I have been at both ends of this. Their convener, Nigel Don, has written to you, cabinet secretary and has also written to this committee, about the timing of when the regulations were laid and especially making the point that the new scheme regulations, other than the teachers pension scheme, were laid after the regulations making consequential provision, which has caused and potentially could cause a bit of a problem. Could you comment on that? I deeply regret the fact that the deputy convener is on the Delegated Powers and Law Reform Committee since this has flushed out this issue, but there is an issue here. The Government is obviously trying to operate as helpful as we can in this respect, but I accept that it is not an ideal situation that we face. Essentially, the instruments that are in front of the finance committee today are required to make alterations to primary legislation, which is provided for but has to be undertaken by the affirmative procedure. Those issues became apparent towards the end of last year and affect pieces of statute under which the substantive regulations that the Delegated Powers Committee had sight of those modifications before they had sight of the substantive regulations. My reason for going to that explanation is to say that those orders in front of the finance committee today address problems that arose from the interaction of new legislation with old legislation, which had not been seen at the time of the pension reform act of 2013. There are two quite different spheres of impact, and the substantive regulations were on a pace of development that we had been working on and expected to take the course, but those new issues have emerged that have required additional orders. That is about the best that I can do. Was the timing under the control of the Scottish Government or was it partly because of the UK timing? The timing of the substantive scheme regulations has been a product of the UK legislation, but the Scottish Government obviously had to act in a fashion to make sure that those regulations were in place to be effective from 1 April 2016. In that respect, we have had to take action to get those regulations in place and, subject to parliamentary consent, they will be in place and, according to the timescale that we envisaged, the difficulty has arisen out of the interaction between new legislation and old legislation, which has essentially flushed out some very technical issues that have had to be raised in those orders, and that is why they have come to the committee in the sequence that they have come. I think that one example that I accept is fairly minor was that the different terms got used in the different regulations. In part 13, it talks about upper tier ill health pension, whereas elsewhere it is called higher. That is not ideal. I suppose that the main thing that I would look for is an assurance that this might not happen again. My officials are meeting with the clerking team from the Delegated Powers and Law Reform Committee after this session of the finance committee to talk through all of the issues that have arisen out of here. The information is absolutely correct. Both the Minister for Parliamentary Business and I have had correspondence with the convener of the Delegated Powers and Law Reform Committee. I would not for a moment suggest that the arrangements that we are wrestling with today are ideal. I would be very keen to make sure that we do not find ourselves in this circumstance again. It is arisen out of the fact that new material has emerged that has had to be rectified to make sure that pensioners could maintain existing rights from 31 March into 1 April, which would not have been the case unless we have brought forward the instruments t