Building Safety Levy (Scotland) Bill: Fairer Scotland Duty assessment

Building Safety Levy (Scotland) Bill: Fairer Scotland Duty Assessment

Title of policy, strategy, or programme

Building Safety Levy (Scotland) Bill

Summary of aims and expected outcomes of strategy, proposal, programme or policy

This Fairer Scotland Duty Assessment considers the impacts of the Building Safety Levy (Scotland) Bill, which will introduce the Scottish Building Safety Levy (SBSL) – a revenue-raising measure to generate funds to support the Scottish Government’s Cladding Remediation Programme.

The Grenfell Tower fire tragedy in London in June 2017 highlighted concerns about the safety of medium and high-rise buildings with external wall cladding across the UK and demonstrated the need to take action to remediate buildings with unsafe cladding.

The Housing (Cladding Remediation) (Scotland) Act 2024 was introduced by the Scottish Government to facilitate the delivery of its Cladding Remediation Programme, which aims to identify, assess, and address the safety risks of buildings within scope of the Programme.

Funding cladding remediation presents a shared challenge across all the governments in the UK. In order to meet associated costs in England, the UK Government legislated through the Building Safety Act 2022 for the introduction (through secondary legislation) of a Building Safety Levy on the development of new residential buildings.

The UK Levy will only apply to developments in England, meaning that the Scottish Government will receive no consequential funding from its introduction. This creates a gap in the funding options available to address cladding remediation in Scotland.

The Scottish Government set out in its Programme for Government 2024-25 a commitment to introduce an SBSL to support the funding of Scotland’s Cladding Remediation Programme, following the devolution of the necessary powers which was finalised on 19 December 2024.

The SBSL will be charged on the construction of new residential buildings in Scotland, with an estimated revenue target of £30 million per annum. The Bill proposes that the SBSL will apply to:

• New homes built by developers for onward sale
• Purpose built student accommodation and build-to-rent
• The redevelopment of existing buildings for the purposes of providing new or additional accommodation, irrespective of whether the existing building’s current or past purpose is/was for non-residential use

The Bill also proposes that the following types of buildings are outside of the scope of the Levy:

• NHS Hospitals, NHS Medical Centres and NHS GP practices
• Non-NHS hospitals and hospices
• Supported Housing, Residential Care Homes, Children’s Homes
• Conversions, improvements to owner/occupied homes and refurbishments
• Refuges and residential domestic abuse facilities for example, rape crisis centres
• Criminal Justice Accommodation
• Military Barracks and other Military establishments (including accommodation provided for military personnel and their families by or on behalf of the Ministry of Defence)
• Hotels, hostels and similar establishments
• Monasteries, nunneries or similar establishments
• Seminaries and other religious colleges which include accommodation
• Drug and/ or alcohol treatment centres
• Temporary accommodation for homeless people
• School premises to be used for the sole or primary purpose of housing its students
• Social and affordable housing designated at completion
• All housing constructed on islands

Summary of evidence

The SBSL will be a wholly new national devolved tax in Scotland. There is no existing UK measure to compare to when considering impacts. The consultation and engagement therefore sought contributions from stakeholders on what the potential indirect impacts of the SBSL could be. These views are set out below.

The Scottish Government ran a consultation^[1] on the SBSL for a period of eight weeks which received a total of 78 responses, predominantly from property developer organisations. A partial Business and Regulatory Impact Assessment (BRIA)^[2] was published alongside this consultation. The consultation invited responses to a range of open and closed questions on several aspects relating to the SBSL, including the strategic context for the tax, scope, calculation, operational considerations, and impacts (including a question on potential impacts of the SBSL on groups or areas at socio-economic disadvantage).

The consultation was accompanied by a programme of engagement with stakeholders to facilitate further collaboration with the residential property sector. These engagement sessions provided further evidence in addition to views gathered through the Scottish Building Safety Levy Expert Advisory Group, comprised of representatives from the residential property development sector, as well as representatives from relevant professional bodies in connection with tax and local government building standards.

Responses to our consultation expressed the view that the SBSL could lead to a reduction in housing delivery and/or an increase in house prices, and that this would create disproportionate impacts on those at socio-economic disadvantage, particularly if there was a reduction in the provision of affordable housing.

Some consultation responses also raised that the delivery of new housebuilding generates wider economic benefits, for example through the creation of employment opportunities in housebuilding and related industries, and through developer contributions to community facilities and infrastructure. It was expressed that a reduction in these benefits would disproportionately impact those at socio-economic disadvantage.

A further potential impact identified by consultation respondents is that the SBSL may have disproportionate impacts on rural areas (where market values and average incomes may be lower, and construction costs may be higher) and on areas of high deprivation. These respondents submitted that property development viability in these areas may already be marginal, with the further cost of the SBSL therefore having a disproportionate effect on the delivery of new housing in these communities.

Summary of assessment findings

The proposal concerns the introduction of a new tax on the construction of residential buildings, which will be mainly paid by residential property developers. It is therefore not anticipated that the Bill will have any direct impacts on those at socio-economic disadvantage. Any potential impacts on those at socio-economic disadvantage arising because of the Bill will be indirect, resulting either from the impact on the housebuilding industry or from the impact of funding the Cladding Remediation Programme.

As the SBSL will be a wholly new national devolved tax in Scotland, there is no equivalent UK-wide example to draw from when considering impacts. The Scottish Government has engaged the housebuilding sector and relevant stakeholders to gather a wide range of informed views and, where available, evidence in relation to the impacts of the SBSL.

The BRIA prepared for this Bill presents existing data relating to the current state of the Scottish housing market alongside previous and current examples of cost increases that may be analogous to the introduction of the SBSL.

This existing data has been considered alongside views from stakeholders to evaluate the potential impacts of the SBSL on the housebuilding sector. A full consideration of these impacts can be found in the BRIA which will be published on the gov.scot website.

When a tax is introduced, there will be an associated behavioural change (transactions may be initiated, postponed or cancelled) and measuring the extent of these things relies on accurately predicting the tax elasticities (the responsiveness) associated with that change. The scale of these responses will vary depending on the economic significance of the tax.

In the case of introducing a Scottish BSL, the impact of the tax will depend on how developers respond. For example, developers could absorb the costs associated with the tax, pass the costs on at some point during the development process (e.g. through decreased land prices or increased house prices), or decide against proceeding with certain developments where viability was already marginal.

The evidence gathered does not indicate that the proposal will have any direct or significant impacts on those at socio-economic disadvantage. It is our assessment that any indirect impacts identified are likely to be minimal and mitigated by the design of the policy which aims to minimise impacts on the broader housebuilding sector.

We consider direct impacts to those at socio-economic disadvantage to be unlikely. Short-term and indirect impacts may vary, but as there has never been an SBSL (or equivalent in the UK) these are challenging to quantify. However, as the proposed revenue target for the SBSL (£30 million per annum) is low relative to the value of the new build housing market, we anticipate that the associated costs will be similarly low and that the resulting impacts of the SBSL will be minimal.

If the Scottish Government did not introduce the SBSL, this would require additional funding for the Cladding Remediation Programme to be drawn from the overall Scottish Budget envelope in any given financial year. This would necessitate reprioritisation of existing spending commitments, or future decisions not to allocate capital expenditure to new projects or infrastructure. These options would create their own impacts, as would failing to provide adequate financing for the Cladding Remediation Programme which would limit the scale and pace of remediation work.

The Scottish Government is proceeding with an exemption for new social and affordable housing provided through the Affordable Housing Supply Programme, in support of the commitment to deliver 110,000 affordable homes by 2032, of which at least 70% will be available for social rent and 10% in our rural and island communities. This exemption aims to mitigate impacts on the delivery of affordable housing and subsequently seeks to protect those identified as more likely to use this tenure of housing from any indirect impacts of the SBSL.

The Bill also proposes that differential tax rates may be set by geographic area, to ensure proportionality and reflect geographic variation. This mirrors the proposed approach of the UK Government’s Building Safety Levy, and reflects concerns that the SBSL could have a disproportionate impact on areas of higher deprivation.

The Scottish Government intends to monitor and evaluate the potential impacts of the SBSL once the tax is operational. Further impact assessments will be carried out if identified as necessary, including when setting rates in secondary legislation. The Bill contains a provision for Scottish Ministers to report on the operation of the SBSL, including how the proceeds from the levy have been used.

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Name: Lorraine King

Job title: Deputy Director, Tax Strategy, Engagement and Performance