Building Safety Levy (Scotland) Bill: business and regulatory impact assessment

Section 1: Background, aims and options

2. Background to policy issue

2.1 Introduction

On 14 June 2017, a fire broke out in Grenfell Tower, London which led to the deaths of 72 people and the loss of homes for a community. The Grenfell Tower fire highlighted concerns about the safety of medium and high-rise buildings with external wall cladding across the UK. The Scottish Government has taken a range of actions following the tragic events at Grenfell, including changes to Scottish Fire Safety Standards in 2019 and then again in 2021. Changes to the requirements on the fire safety of cladding systems were introduced in June 2022, including banning highly combustible external wall cladding systems of residential and high-risk buildings over 11 metres.

On the day following the fire the then Prime Minister, Theresa May, announced that there would be a formal Inquiry into the tragedy. The Inquiry, chaired by Sir Martin Moore-Bick, opened on 14 September 2017 and concluded with the publication of the Phase 2 Report on 4 September 2024. Phase 1 of the Inquiry focused on the factual narrative of the events on the night of 14 June 2017. Hearings for Phase 1 began on 21 May 2018 and concluded on 12 December 2018. The Grenfell Tower Inquiry Phase 1 Report was published on 30 October 2019. Phase 2 of the Inquiry focused on the causes of the events leading up to the fire, including how Grenfell Tower came to be in a condition which allowed the fire to spread in the way identified by Phase 1. The Inquiry’s Phase 2 report was published on 4 September 2024 and contained 58 recommendations made by the Inquiry that cover building regulation, British Standards, professional competence, construction product regulation, civil contingencies and fire and rescue. The Scottish Government published its Response to the Phase 2 Report on 25 March 2025.^[3] The report provides an update on the work already underway in Scotland and identifies where further action is required to support change to strengthen systems across areas where responsibility is devolved and on reserved matters working with UK Government and other administrations.

Building construction and safety are devolved policy areas. In England, the UK Government established a Cladding Safety Scheme (formerly the Medium Rise Scheme) in November 2022. The aim of the scheme is to meet the costs of addressing life safety fire risks associated with cladding on residential buildings over 11 metres in height (11-18 metres in London only – buildings over 18 metres in London fall under the Building Safety Fund administered by the Greater London Authority). The Building Safety Act 2022 (“The 2022 Act”) was introduced by the UK Government to strengthen the regulatory system for the construction and maintenance of residential buildings in England, including measures to protect certain leaseholders from the cost of works to remove cladding from external wall systems which pose a risk to life.

On 2 December 2024 the UK Government published its Remediation Acceleration Plan which set out measures for increasing the pace of remediation for buildings in England with unsafe cladding.

In Scotland, the Scottish Government established the Cladding Remediation Programme to identify, assess (through a Single Building Assessment) and address the safety risks for buildings within scope of the Programme. The Cladding Remediation Programme aims to improve the safety of residents and owners by addressing the risk to human life that is (directly or indirectly) created or exacerbated by a building’s external wall cladding system, as well as the consequential negative impacts which can currently exist in relation to the buying, selling and re-mortgaging of relevant flatted residential properties in Scotland. The Cladding Remediation Programme scope is limited to multi-residential domestic buildings (which may include commercial premises), constructed or refurbished between 1 June 1992 and 1 June 2022, 11 metres and over in height and incorporating a form of external wall cladding system.

The Scottish Government introduced the Housing (Cladding Remediation) (Scotland) Act 2024 (“the 2024 Act”) to facilitate the delivery of the Cladding Remediation Programme. The 2024 Act introduced the concepts of a Single Building Assessment (SBA) and Additional Work Assessment (AWA). An SBA is an assessment which results in a report on any risk to human life that is (directly or indirectly) created or exacerbated by a building’s external wall cladding system, and what work (if any) is needed to eliminate or mitigate this risk. An AWA is required where additional information comes to light in the period between an SBA being completed and the date on which Scottish Ministers were satisfied that any work identified in the SBA or a previous AWA had been completed. This may occur during opening of works, or in an unexpected situation where previously unobserved material is found. The Scottish Government published the standards that must be complied with when carrying out a SBA or an AWA on 6 January 2025, on which date the Act also came into effect. The 2024 Act also requires Scottish Ministers to maintain a register of buildings (the Cladding Assurance Register), and that an entry for a building will be created once an SBA has been carried out in relation to it.

On 25 March 2025 the Scottish Government published its Plan of Action on Cladding remediation, setting out a series of the actions intended to increase the pace and breadth of cladding remediation in Scotland. This included the launch of a ‘Single Open Call’ process for residential property owners (or their representatives) to notify Scottish Government of their concerns about cladding in their properties; work being undertaken to finalise the Developer Remediation Contract; and work being undertaken to take forward assessment, mitigation and remediation for properties for which the Scottish Government has taken the lead.

The Scottish Government’s Cladding Directorate have produced initial, indicative capital costs estimates that to reduce the risks associated with unsafe external wall cladding systems in Scotland could require Scottish Government led capital funding in the range of £1.7 billion to £3.1 billion over a potential 15-year programme of works. These costs are set out in the financial memorandum published alongside the Bill.

The methodology behind the estimates is based on analytical work undertaken by Scottish Government analysts to estimate the number of residential buildings over 11 metres in Scotland. It then utilises existing information from the rest of the UK including the percentage of buildings that are likely to need remedial works; the subset of these buildings that will be Government funded; the extent of these remedial works by height; and unit costs by height.

A range is shown to account for a degree of uncertainty in the scale of remedial works required and the unit costs involved. Further adjustments are made for construction sector inflation and optimism bias (an adjustment to the tendency, especially at the onset, of a capital project to underestimate costs. These adjustments are significant to the final estimation.

This is not a best case and worst-case scenario. The costs illustrate potential capital spend if the built sector in Scotland were to have a similar historical profile to that in England and therefore require a comparable degree of remedial works to take buildings to a tolerable level of risk. However, it is recognised that Scotland may not be like the rest of the UK due to differences in the profile of the building stock and building regulations. The costs will continue to be refined as more information becomes available, including updates from the rest of the UK.

We are currently undertaking several pieces of work that will allow us to appraise our assumptions for the Scottish context, including Scottish Government led single building assessments, the open call, and determining the status of high-rise buildings that are likely to be at a higher risk.

These estimates may not represent what will be spent on cladding remediation in any given financial year. The budget that will be available to spend on assessment, mitigation and remedial works will be dependent on the overall budget passed by Parliament, and the allocation to cladding remediation which is decided by Scottish Ministers.

Scottish Ministers have committed to invest the equivalent of any consequential funding received from the UK Government for cladding remediation in Scottish Government funded building identification, assessment, mitigation and remediation activity. Any such equivalent spend that Scotland has received or will receive in the future will not necessarily be invested at that point in time but when costs (investment) are incurred.

What is clear from these estimates that the intended revenue stream from the SBSL is only going to provide partial funding for cladding assessment, mitigatory and remedial works and it is going to require a collective endeavour and action by developers and other public sector bodies to address the risks posed by unsafe cladding.

Overall, as with other parts of the UK, Scotland operates a mixed funding approach to address these risks that seeks to manage the overall amount of taxpayer investment required in delivering a demand-led programme subject to changing costs, against difficult decisions (trade-offs) about where other taxpayer investment should be directed.

In addition to the SBSL, the following revenue streams are currently available:

2.2 Developer-led remediation

Where a developer has accepted responsibility for the assessment and remediation of a property, it will remain for that developer to take forward and fund the work. The Scottish Government is working with large developers to secure agreement on a remediation contract. We hope that, once agreed, this contract will unlock a further programme of assessment and remediation in 2025. Draft terms of the contract were shared with developers in September 2024, with significant progress made towards agreement of key terms in principle. The Scottish Government continues to work constructively with developers that are taking steps to assess or remediate buildings of which they were the developer.

2.3 Residential Property Developer Tax (RPDT)

This is a Corporation Tax supplement levied by the UK Government on the UK’s largest residential property developers, in operation since 1 April 2022. The UK Government’s aim for the tax is to obtain a contribution towards the cost of dealing with defective cladding in the UK’s high-rise housing stock. The RPDT is limited to the largest residential property developers by each group having an annual allowance of £25 million, with only profits from residential property development activities above this amount being subject to the tax. Only residential development companies liable for UK Corporation Tax fall within scope of RPDT, which is charged at 4% on residential property development profits that exceed their annual allowance. The UK Government intends to raise at least £2 billion from RPDT over a ten-year period. In its first year of operation (2022-23), RPDT generated £200 million in revenue.

As a UK-wide tax where revenues are used to fund spending on cladding remediation in England, the Scottish Government expects to receive Barnett consequentials of around £194 million over the expected ten-year period. The Scottish Government has committed to spending the equivalent of all Barnett consequentials generated from the RPDT on cladding remediation in Scotland.

2.4 Capital budget allocations

Where Government led cladding costs cannot be met through a combination of revenues generated through the SBSL and consequentials in relation to the RPDT, funding will be required to be drawn from the overall Scottish Budget envelope in any given financial year.

2.5 UK Building Safety Act

The UK Parliament passed the Building Safety Act in April 2022. Section 58 of the 2022 Act allows for the UK Government to introduce through secondary legislation a levy on applications for building control approval of new residential buildings. These regulations will set out the detailed design of the levy and include: the basis for the levy and rates; who must pay and when; the consequences of non-payment; refunds; and disputes. Provision will be made to allow the withholding of building control approvals unless the levy has been paid.

UK Government’s regulations are expected to be laid later in 2025, with the Levy coming into force in Autumn 2026. The Levy aims to raise £3.4 billion over 12 years to fund the cost of cladding remediation. The levy will not have sunset clause and will run as long as required to ensure that the funding requirements for improving building safety are met.

2.6 Devolution of Powers

The UK Government’s decision to create a levy in England only means that no consequential funding will come to Scotland as a result of its introduction. The decision to introduce an England-only Levy has, therefore, created a gap in the funding options and powers available to the Scottish Government, relative to those available to the UK Government.

The Scottish Government set out in its Programme for Government 2023-24 a commitment to pursue the devolution of powers under the above process and to create a devolved Building Safety Levy (the SBSL).

The UK Government set out in the Command Paper ‘Strengthening Scotland’s Future’^[4] the process for consideration of new tax devolution proposals. In line with this process, the UK Government and the Scottish Government jointly held a consultation seeking views and evidence on the proposal to devolve powers to the Scottish Parliament for a SBSL. The consultation produced no evidence that the power to introduce a Building Safety Levy should not be devolved to the Scottish Parliament. A summary of responses to the consultation was published on the UK Government website^[5].

Following the consultation on the devolution of powers, the UK and Scottish governments both agreed that no evidence was surfaced to prevent the transfer of powers from proceeding. The Scotland Act 1998 (Specification of Devolved Tax) (Building Safety) Order 2024^[6] (“the Order in Council”) was laid before and approved by both the Scottish and UK parliaments, coming into force on 19 December 2024.

The Order in Council inserts into the Scotland Act 1998 provision to introduce a tax in connection with the building control process for a relevant building, for the purpose of meeting any building safety expenditure. A ‘relevant building’ is defined as a building in Scotland consisting of or containing one or more dwellings, or other accommodation (including temporary accommodation).

2.7 Purpose/aim of action and desired effect

Providing funding for the Cladding Remediation Programme is a vital step towards tackling the negative impacts of unsafe cladding, including those on the housing market and on the wider economy.

The Bill establishes a revenue raising measure intended to generate funds to support the Scottish Government’s Cladding Remediation Programme. The policy intention is equivalent to that of the UK Government’s England-only Building Safety Levy.

The Cladding Remediation Programme aims to safeguard residents and owners by addressing the risk to human life that is (directly or indirectly) created or exacerbated by a building’s external wall cladding system, as well as the consequential negative impacts which can currently exist in relation to the buying, selling, and re-mortgaging of relevant flatted residential properties in Scotland. The Cladding Remediation Programme scope is limited to multi-residential domestic buildings which may include a commercial premises, constructed or refurbished between 1 June 1992 and 1 June 2022, 11 metres or over in height and incorporating a form of external wall cladding system.

In addition to the primary aim of raising revenue to fund vital building safety work, the design of the tax will aim not to disincentivise behaviours in the industry which support existing Scottish Government strategies, such as the utilisation of brownfield sites and viability of island housing developments. The Scottish Government recognises there may be benefits to including a reduced rate on previously developed land to support the reuse of buildings. Scottish Government are therefore considering setting a reduced rate for brownfield through the regulation-making powers in line with the Uk Government’s England-only Levy. The UK Levy is to include an additional discounted rate per local authority for development undertaken on previously developed land or ‘brownfield’.

As such, the intended outcome is the introduction of a SBSL to provide a sustainable revenue stream to support the funding of cladding remediation in Scotland, and which places minimal impacts on the housebuilding industry.

Outcomes will be measured through the revenue collected from a SBSL and the work of the Cladding Remediation Programme which will be funded.

Impacts of the SBSL will be continually monitored with the Bill containing a provision for Scottish Ministers to report on the operation of the SBSL within the Act. The reports may occur at such intervals as Ministers consider appropriate and must set out how the proceeds of the levy have been used and anything else that the Scottish Ministers consider appropriate.

2.8 Options considered so far

Option 1 – Do nothing (no changes to funding streams)

An alternative approach to the SBSL would be a ‘do nothing’ option. This option would mean a new tax would be applied to residential housing developers in England but not in Scotland. This option would see no changes to the existing funding streams to support delivery of the Cladding Remediation Programme in Scotland. While Barnett consequentials from UKG spending related to revenues from the Residential Property Developer Tax would still be available, it is anticipated that the scale of the work required in Scotland will exceed this amount and therefore additional revenue will need to be made available to the Cladding Remediation Programme.

In lieu of the SBSL, Scottish Ministers would be required to fund the outstanding costs of the Cladding Remediation Programme through reprioritisation of its capital budget or through changes to other devolved taxes. However, neither of these would meet Scottish Ministers’ objective of ensuring that the costs do not fall directly onto homeowners or disproportionately onto the general taxpayer. Moreover, not introducing the tax would create sustainability issues for the funding of the Cladding Remediation Programme, meaning either further pressures to the Scottish budget, or delays to work to remediation buildings fitted with unsafe cladding.

Option 2 – Change Existing Devolved Taxes

A second alternative approach would be to utilise the Scottish Government’s existing devolved taxes and revenue-raising powers. The Scotland Act 1998 (“The 1998 Act”) provides the Scottish Parliament with powers over following devolved taxes:

• Scottish Income Tax
• Land and Buildings Transaction Tax (LBTT)
• Scottish Landfill Tax (SLfT)
• Scottish Aggregates Tax (SAT) – to be commenced in April 2026

The policy aim of the SBSL is to ensure that the fiscal burden of cladding remediation does not directly fall onto homeowners, or disproportionately onto the general taxpayer. Increasing the thresholds for the existing devolved taxes would place the fiscal burden firmly onto the general taxpayer, thereby failing to meet the intended policy intention.

On local taxation, consideration has been given to utilising the existing local tax powers in the 1998 Act to create a local levy administered by Scotland’s 32 local authorities. However, the Cladding Remediation Programme is a national programme, and for the tax to meet the requirement of a local tax the responsibility for cladding remediation would need to fall to local authorities to undertake. This would be an additional burden for local authorities and require a significant change in the Cladding Remediation Programme at a time when the need for acceleration of work is high. In addition, the localised nature of such a tax may not lend itself to the concentration of high-rise buildings affected by cladding in Scotland’s urban areas. Where local authorities find themselves with a higher proportion of buildings requiring remediation, a local tax may not be sufficient to support such work without additional funding measures in place.

Option 3 – Introduce the Scottish Building Safety Levy to provide funding for the Cladding Remediation Programme

The third option is to implement the Scottish Building Safety Levy. As above, this would establish a revenue raising measure intended to generate funds to support the Scottish Government’s Cladding Remediation Programme. The Levy would also safeguard residents and owners by addressing the risk to human life that is (directly or indirectly) created or exacerbated by a building’s external wall cladding system, as well as the consequential negative impacts which can currently exist in relation to the buying, selling, and re-mortgaging of relevant flatted residential properties in Scotland.

2.9 Sectors/Groups affected

The taxpayer for a SBSL will be residential housing developers. The SBSL will therefore have a direct impact on those developers who will be liable to pay. This impact will be a financial impact (on the additional cost of the SBSL charged, plus any costs associated with administration), and an administrative impact (for example, the time and resources needed to calculate the levy, file returns, and store information required for compliance purposes).

Revenue generated from the SBSL will tackle some of the negative effects and impacts of unsafe cladding. By providing funding for Scotland’s Cladding Remediation Programme, the Building Safety Levy will contribute towards mitigating the burdens faced by residents, as well as reducing the broader costs and negative effects associated with unsafe cladding.

These include the costs associated with fire such as property damage and emergency service response resources, the cost of interim safety measures including waking watches and temporary rehoming, and the negative economic impact of slowdown and blockages in the housing market among other costs faced by residents and property owners.

UK Cladding Action Group’s 2020 Mental Health Report^[7] demonstrates the devastating impacts of unsafe cladding on affected residents, with 9/10 survey respondents reporting a deterioration in their mental health as a direct result of the situation in their building. The same report details the practical and financial difficulties faced by affected residents, including with selling and insuring their properties.

2.10 Employment in the residential construction industry

According to the Scottish Annual Business Statistics^[8], there were 2,169 enterprises involved in the construction of domestic buildings in 2022. Together, these enterprises had 22.4 thousand employees (headcount) and had a Gross Value Added (GVA) at Basic Prices of £2,111.6 million.

Domestic building construction enterprises are registered throughout Scotland – the local authorities with the highest number of enterprises are Highland (196), Glasgow City (163), and North Lanarkshire (162). Conversely, the local authorities with the lowest number of enterprises are Inverclyde (13), Clackmannanshire (15) and Orkney (22).

2.11 Employment in Real Estate Activities

In 2022 there were 7,181 individual business sites in the real estate division. Together, these businesses had 32.9 thousand employees (headcount) and a GVA at Basic Prices of £2,641.1 million. Note that, ‘real estate division’ will also include non-domestic real estate activities, which will be out of scope of the SBSL.

2.12 Location of Residential Development

Residential development occurs throughout Scotland. In 2023-24, the official statistics reported that there were 14,589 private sector led house building completions and 12,904 starts^[9]. The local authorities with the largest volume of private house building completions were City of Edinburgh (1,704), Glasgow City (1,570), South Lanarkshire (1,071) and West Lothian (1,049). The local authorities with the highest per capita rate of private house building completions were Midlothian, East Lothian and West Lothian.

According to the Competition and Markets Authority (CMA), the majority of new homes in Scotland are delivered through the ‘speculative model’ of housebuilding (over 50% in 2021-22), whereby housebuilders buy land in advance of the construction and sale of homes, for profit, and without knowing exactly the final prices at which they will sell the homes.^[10] In comparison, around 45% of homes built in 2021-22 were built as affordable homes.

There is limited data available on the composition of the housebuilding industry in a Scottish context partly because several larger housebuilders operate both in Scotland and the rest of the UK. At a UK level, the CMA estimates around 40% of new homes are provided by the largest 10 housebuilders. These firms are (in alphabetical order): Barratt Redrow, Bellway, Berkeley, Bloor Homes, Cala, Crest Nicholson, Miller Homes, Persimmon, Taylor Wimpey, and Vistry.

The Scottish Government has worked with industry stakeholders and our partners in local government to develop a taxpayer profile for the SBSL.

There may also be indirect impacts arising from other businesses engaged in the residential construction industry, such as contractors, surveyors and those engaged in legal services relating to the sale and purchase of land and property. These indirect impacts will be dependent on behavioural responses from an introduction of the levy, which are explored in further detail in Section 3: Costs, Impacts, and Benefits.

In addition, there may be ‘knock-on’ impacts to purchasers of residential property, whether through sale or lease. This includes businesses involved in the renting of residential property (i.e. buy-to-let), homebuyers purchasing housing for residential purposes or for operating a self-catering business from.