The Non-Domestic Rates (Liability for Unoccupied Properties) (Scotland) Bill - Business and Regulatory Impact Assessment

Section 3: Costs, impacts and benefits

Quantified costs and benefits to businesses

The “do nothing” baseline option (Option 1) would require local authorities to stop billing owners of empty properties for NDR and to refund rates paid on unoccupied properties by their owners since 1 April 2023. This might lead to an annual reduction (compared with current forecasts) in tax billed to owners of empty property of around £130m to £140m in 2025-26, growing to approximately £150m to £160m by 2030-31, and a one-off refund of approximately £350m to £400m to owners of property that is empty, or has been empty for some time since April 2023, including any interest that is required to be paid on refunds of overpayments of NDR. Up to September 2025, this amount would be expected to be around £300m to £350m. There would be an equivalent loss of income to the public sector in Scotland.

This was covered in more detail in the “sectors / groups affected” section of this document.

Under Option 2, owners of empty properties would be refunded rates paid on empty property since April 2023 and until the Bill comes into force but they would not have reduced bills after that date compared to current forecasts.

Under Options 1 or 2, the cost of refunding rates would fall on the Scottish Government given the latter guarantees the sum of general revenue funding and non-domestic rates income to local authorities each year, and NDR income to Scottish Government would fall, all else being equal. Should the Scottish Ministers wish to maintain the same forecast NDR income as the status quo forecast, they would need to increase rates from 2026-27 for occupied properties and/or reduce the generosity of reliefs. (see Sectors / Groups affected section) There is therefore a potential secondary cost to businesses liable for NDR on occupied properties (which make up over 95% of the NDR tax base), whose net bills may increase because of decisions precipitated by not providing a proper and permanent legal basis for local authorities to levy rates on unoccupied properties from 1 April 2023. Any decisions on rates are a matter for future budgets.

Under Option 3 (the preferred option), businesses would neither receive a refund nor see reduced future bills compared to the status quo, though in the period before the Bill comes into force, it would be for local authorities who administer and collect NDR to consider any temporary action as they saw fit.

Other impacts

As previously covered, knock-on effects on ratepayers would be possible should Scottish Ministers decide for example to recover lost income from within the NDR system. This could lead to an increased tax burden on occupied properties which in turn could lead to more empty property and upward pressure on rents for businesses occupying non-domestic properties.

This effect is not currently quantifiable given the range of unknowns including on future NDR policy and how ratepayers would react to that.

Even with greater certainty around future NDR policy, the significant resource required to undertake this analysis would be disproportionate given that the intention with the proposed legislation is to bring legislation in line with the current operational understanding of councils and ratepayers. Any effect that is quantified would be purely hypothetical.

Scottish firms’ international competitiveness

There would be no impact compared under Option 3 (the preferred option) as it is a continuation of the status quo.

Under Options 1 and 2, there is potential for a positive indirect effect as operating costs of businesses which are trading but hold some unoccupied properties would decrease with a decrease in NDR liabilities on unoccupied properties – Scottish firms who currently pay NDR on empty property and are also trading would incur savings, which they may choose to invest in increasing their international competitiveness. This is anticipated to be a minor effect given that a majority of the benefit would be estimated to accrue to owners of empty office and retail space, which tend to be domestic focussed businesses – UK retail is by definition not an export (tourist spend in UK shops are estimated and accounted for as part of tourism service exports), and the leasing of office space would be, also by definition, to a UK domiciled client (i.e. the occupier of that office space).

There is potential for some negative indirect effects under Options 1 or 2, if the Scottish Ministers increased the rates from 2026-27 to make up for the NDR income ‘loss’ compared to the current forecast, and ongoing costs on Scottish non-domestic properties are increased. This has not been quantified and is not currently quantifiable.

Even with greater certainty, the significant resource required to undertake this analysis would be disproportionate given that the intention with the proposed legislation is to bring legislation in line with the current operational understanding of councils and ratepayers. Any effect that is quantified would be purely hypothetical.

Small business impacts

With Option 3, the preferred option, there would be no direct effect on small business compared with the status quo of the Bill passing. There would be no administrative burdens or calls on staff time, no additional costs and no additional monitoring, reporting, and compliance requirements for any businesses.

While refunds and changes in future bills for ratepayers would be anticipated in Options 1 and 2 the main affected businesses would be expected to be businesses with multiple properties, which implies a lesser effect on smaller businesses with a single property, as shown in Table 4.

If empty property is no longer billed under Option 1, and the cost of refunding payments made since April 2023 on empty property and ongoing lost income were to be recovered through the NDR system itself (which would require an increase to rates and/or a reduction in the generosity of reliefs), the tax burden would move away from empty property and on to the ratepayers of occupied non-domestic property, possibly including small businesses.

The main beneficiaries of this hypothetical shift in tax burden would be owners of empty properties that currently pay NDR. Table 4 shows that these are disproportionately businesses that are liable for multiple properties, implying a larger operation.

The converse to this is that smaller businesses could be disproportionately exposed to hypothetical measures to recover lost income, if it were recovered from within the NDR system. They may be more likely to face a higher bill to compensate for lost income on empty properties. This may come through higher rates charged on the non-domestic tax base, or reduced tax reliefs, the largest of which is the Small Business Bonus Scheme, specifically targeted to support small businesses in Scotland. This is also true for Option 2, where the retroactive fix would not be included in the Bill, but the potential requirements for new revenue-raising policies could be levied on unoccupied properties (as well as, potentially, occupied properties) once the Bill came into force.

It is worth noting that, if lost revenues needed to be recovered in Options 1 or 2, a decision may be taken by Scottish Ministers that protects smaller non-domestic property from bill increases by only increasing rates charged to larger properties.

With Option 3, the preferred option, the NDR system in Scotland would continue to operate without any sudden shift in tax burden away from owners of unoccupied property and towards, for instance, other ratepayers.

Investment

There would be no direct effect on investment in Scotland in any option. There is potential for some indirect effects, when comparing Options 2 and 3 to Option 1, if effective tax rates and the property market is affected as previously explored in the “Sectors / Groups Affected” section and the “Quantified Costs and Benefits to Business” section. This has not been quantified and is not currently quantifiable, but it could emerge through some businesses having higher or lower NDR bills, affecting their resources available to invest in their business.

Even with greater certainty, the significant resource required to undertake this analysis would be disproportionate given that the intention with the proposed legislation is to bring legislation in line with the current operational understanding of councils and ratepayers. Any effect that is quantified would be purely hypothetical, and the preferred option, Option 3, would involve no change compared with the status quo.

Workforce and Fair Work

There would be no direct effect on the workforce in Scotland. There is potential for some indirect effects, when comparing Option 1 to the baseline, if effective tax rates and the property market is affected as previously explored. This has not been quantified and is not currently quantifiable.

Even with greater certainty, the significant resource required to undertake this analysis would be disproportionate given that the intention with the proposed legislation is to bring legislation in line with the current operational understanding of councils and ratepayers. Any effect that is quantified would be purely hypothetical.

Climate change/ Circular Economy

No impacts on climate change or the circular economy have been identified.

Competition Assessment

There would be no direct effect on competition in Scotland. There is potential for some indirect effects, when comparing Option 1 to the baseline, if effective tax rates and the property market is affected as previously explored. This has not been quantified and is not currently quantifiable.

Even with greater certainty, the significant resource required to undertake this analysis would be disproportionate given that the intention with the proposed legislation is to bring legislation in line with the current operational understanding of councils and ratepayers. Any effect that is quantified would be purely hypothetical.

Consumer Duty

Individual consumers would see no direct effect from this measure, as it only affects NDR, a property tax levied on non-domestic land and heritages in Scotland. It is not considered that persons are consumers in relation to their liability to pay NDR.

Given that small businesses can also be considered consumers, they are taken into account in the analysis of groups affected in Section 1. Given that the preferred option aims to bring the legislative position into line with what ratepayers already understand it to be, no potential harm to consumers is expected when compared to the status quo.

Potential impacts on small business, when compared to a baseline Option 1 (do nothing), are part of what is covered in the quantified costs and benefits to business section and specifically considered in the small business impacts section.

To summarise, there are no effects on individual consumers, and this BRIA has considered the hypothetical effects on small business consumers of bringing legislation into line with the current operational reality in Sections 1 and 3. No further measure or amendment is required to avoid harms or improve outcomes for consumers, and the intended effect is to effect a continuation of the operational status quo,