Last edited 25 Sep 2024

Scottish Building Safety Levy

1 Legislation to raise funds for fixing cladding issues in Scotland.
2 Comments
3 Key points of the proposed levy as published
4 Related articles on Designing Buildings

[edit] Legislation to raise funds for fixing cladding issues in Scotland.

Consultation invites views on the proposed introduction of a Building Safety Levy on new residential development in Scotland. Proposals for a tax on developers, aiming to raise funds to fix building safety issues in Scotland, have been published for public consultation.

Views are being sought on the proposed Scottish Building Safety Levy, which will be introduced under powers due to be devolved by the UK Government later this year. The consultation opened on 23 September and runs for eight weeks, closing on 18 November.

The levy would apply to the construction of new residential buildings, mirroring measures being introduced in England through the UK Building Safety Act. Funds raised would support the Scottish Government’s cladding remediation programme.

Discussions around direct sector contributions are ongoing. Where there are buildings where a developer no longer exists, sometimes referred to as orphaned buildings, then any significant remediation costs may fall to the Scottish Government. The Scottish Government’s position is that it is appropriate to recover the costs of government intervention on cladding remediation from the sector where that intervention is required (i.e. the residential property development sector), consistent with the approach of the UK Government for intervention in England.

[edit] Comments

In a Parliamentary Statement on the Cladding Remediation Programme in May 2022, the then Cabinet Secretary for Social Justice, Housing and Local Government, Shona Robinson MSP, set out this Scottish Government’s position that

“developers must play their part in making unsafe buildings safe wherever they are” and that “it is my clear expectation that developers linked to buildings with problematic cladding will fund remediation where this is identified”.

Shona Robison now Finance Secretary said:

“We are keen to hear from people across Scotland about our proposals, which would raise funds from developers to help safeguard people living in buildings with unsafe cladding. I know that developers share our determination to keep people safe and have continued to make significant progress. This legislation will build on that momentum, ensuring developers make a fair contribution to address building safety defects in Scotland, just as the UK Government is asking them to do in England. We are continuing our work in partnership with developers, in line with our New Deal for Business and Framework for Tax, to ensure this levy best contributes to our mission of keeping people safe.”

[edit] Key points of the proposed levy as published

The Scottish BSL would seek to complement and accompany the two existing strands of funding for the Cladding Remediation Programme:

Direct remediation by the housebuilding sector
Barnett consequential funding from the spending related to revenues from the UK Government’s Residential Property Developer Tax (RPDT) being a UK wide tax and thus UK wide revenue.

[edit] Direct Remediation by the Housebuilding Sector

The Developer Commitment Letter was signed by nine developers in 2023, with ongoing work now to develop of the Developer Remediation Contract. The Scottish Government continue working closely with Homes for Scotland and developers on the scope, scale of assessment, the Scottish standards required for remediation and mitigation on buildings in scope with potentially unsafe cladding. The costs to individual developers will depend on the number of their buildings within scope of the Programme and the level of remediation required for each.

In 2023 the UK Government estimated individual contracts with 39 developers who by then had had signed might lead to an additional contribution £2 billion to address cladding remediation in England. By 31 January 2024, 55 developers had signed the UK Government’s developer remediation contract.

[edit] Residential Property Developer Tax

The Residential Property Developer Tax (RPDT) was a Corporation Tax supplement levied by the UK Government on the UK’s largest residential property developers, introduced on 1 April 2022. The aim for the tax was to obtain a contribution towards the cost of dealing with defective cladding in the UK’s high-rise housing stock, 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 intention being to raise at least £2 billion from RPDT over a ten-year period, with £200 million generated in the first year.

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

[edit] The Building Safety Levy in England

The UK Government’s proposed Building Safety Levy is England only in scope. The powers to create and set the terms of the Levy are set out in Section 58 of the Building Safety Act 2022. Funding raised through a Scottish BSL will help to meet the costs of fixing historic building safety defects in buildings in England and ensure that the residential development sector makes a fair contribution to costs. The UK Government have publicly stated that the intention is to raise an estimated £3 billion from the Levy over a ten-year period.

In November 2022, the UK Government issued a consultation seeking views on the delivery of the Levy in England including how it would work; what the rates would be; who would pay; sanctions and enforcement as well as who would be responsible for collection. A further technical consultation was issued by the UK Government in January 2024 seeking views on methodology for levy calculation, the collection process, disputes and appeals and further exclusions.

[edit] Cost of Cladding Remediation in Scotland

The costs associated with the delivery of the Cladding Remediation Programme fall into a number of different categories: the cost of assessing risk; the cost of any urgent mitigations to manage that risk prior to remediation; and the cost of remediation. In addition, there are a number of associated costs, for example: the costs of engaging with residents and homeowners; costs associated with assurance of work undertaken; and costs of professional advice on mitigation measures.

It is estimated there are around 1,000 high rise and 5,000 medium rise buildings within the scope of the Programme based on data currently available. The Scottish Government is currently undertaking work to estimate the number of buildings within scope of the Programme. Until this exercise is completed the total cost for the Programme cannot be defined.

A Scottish BSL will not be introduced in Scotland before April 2026, by which point there will likely be greater clarity on the scale of the funding challenge.

As noted above, the UK Government has identified a need to introduce a Building Safety Levy in England in order to contribute to the funding needed to address building safety issues on buildings that require mediation. As the cladding remediation landscape in Scotland is broadly similar to the landscape in England, it is reasonable to expect that the Scottish Government will be required to meet an outstanding cost for its Cladding Remediation Programme, as has been identified for the UK’s programme in England. We, therefore, estimate that a Scottish BSL would seek to raise £30 million per annum.

Given the pressing need for a fully funded Programme to remediate cladding that may present a risk to life, work to prepare a proposed Scottish BSL is proceeding on the basis that the associated revenues will be required. Should the highly unlikely scenario transpire that no additional funds are required, then Scottish Ministers would be in a position to take an informed view on the future of a Scottish BSL at that stage.

[edit] Infrastructure Levy

The Planning (Scotland) Act 2019 (“the 2019 Act”) provides powers for the Scottish Ministers to make regulations to introduce an Infrastructure Levy, that is, a charge payable to a local authority on development in that local authority’s area, to be spent on the provision of infrastructure. This is intended to provide an additional stream of funding for infrastructure which is needed to support growth on a wider scale than individual developments.

The Scottish Government’s Programme for Government 2023-24 committed to a discussion paper on options for an Infrastructure Levy was published in June 2024, with a view to implementing new Infrastructure Levy regulations by Spring 2026 – in advance of the next Scottish Parliament election.

Given it is likely that new housing developments would be within scope for a future Infrastructure Levy, its potential impacts on the residential development sector and viability of sites should be taken into account when considering a Scottish BSL.

[edit] Alternative Options

In assessing the need for a revenue stream for the Cladding Remediation Programme, the Scottish Government has considered alternative options to a Scottish BSL. The majority of taxes and duties remain reserved to the UK Government. No powers exist within the limited competence available to Scottish Ministers in respect of taxation which would meet the objective of ensuring that the costs of cladding remediation do not fall onto homeowners or the general taxpayer.