Aggregates Tax and Devolved Taxes Administration (Scotland) Bill: Stage 1

– in the Scottish Parliament at 3:03 pm on 16 May 2024.

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Photo of Liam McArthur Liam McArthur Liberal Democrat 3:03, 16 May 2024

The next item of business is a debate on motion S6M-13221, in the name of Tom Arthur, on the Aggregates Tax and Devolved Taxes Administration (Scotland) Bill at stage 1. I invite members who wish to participate in the debate to press their request-to-speak button.

Photo of Tom Arthur Tom Arthur Scottish National Party 3:44, 16 May 2024

The Aggregates Tax and Devolved Taxes Administration (Scotland) Bill provides for the key elements of a new devolved tax on the commercial exploitation of aggregates in Scotland, which will replace the United Kingdom aggregates levy when it is introduced. It reflects an all-party recommendation of the Smith commission, and draws on the powers that are provided in the Scotland Act 2016. The bill’s proposals will also support effective and efficient collection of all devolved taxes by Revenue Scotland.

I thank the Finance and Public Administration Committee for its detailed scrutiny of the bill and its stage 1 report. I am pleased that the committee supports the general principles of the bill.

I also take this opportunity to thank everyone who gave evidence during the stage 1 process, and the many stakeholders who have supported the development of the legislation thus far. The bill has been drafted with the help of significant expert feedback and has been informed by a programme of quarry visits, meetings with aggregates producers and businesses that are focused on production of recycled materials. I am keen to maintain positive engagement as we move forward and prepare for the future operation of the Scottish aggregates tax. In particular, I note that the expert advisory group that was convened specifically to provide advice on the bill will continue to be in place.

Before I address the committee’s report, I want to acknowledge the important contribution that aggregates make to the Scottish economy, and to reflect briefly on the different types of aggregates.

Photo of Fergus Ewing Fergus Ewing Scottish National Party

I welcome the minister’s assurance on continued engagement. I believe that the industry has asked for a mineral products forum to be established—perhaps in statute and to be statutorily agreed to. That would be an excellent idea that would ensure that, going forward, there is stability, continuity and collaborative working. Will the minister consider the suggestion sympathetically?

Photo of Tom Arthur Tom Arthur Scottish National Party

I am happy to give the assurance that ministers will seriously consider all constructive suggestions, such as the one that Mr Ewing has offered. I record my thanks to Mr Ewing for his constructive engagement on the bill at an early stage.

Aggregates provide materials for housing, energy infrastructure, construction and road building. The aggregates industry supports employment across Scotland, including in rural and remote areas. Most aggregates that are currently used in Scotland are primary aggregates—crushed rock, gravel and sand—which are produced from naturally occurring mineral deposits and are then used for the first time. Those vital aggregates are produced in quarries the length and breadth of Scotland.

Secondary aggregates are by-products of industrial and construction processes, and recycled aggregates are materials that have been previously used in construction. Thanks to the industry’s on-going innovation, the range and quality of recycled materials is continuously improving.

To encourage the minimum necessary exploitation of primary aggregates, to maximise the use of secondary and recycled aggregates, and to incentivise innovation and the development of alternative materials, the bill provides for a tax on commercial exploitation of primary aggregates in Scotland. Combined with other measures, such as the Scottish landfill tax, that will support our wider ambitions to deliver a fair, green and growing economy and, more specifically, our ambitions for the circular economy.

Photo of Daniel Johnson Daniel Johnson Labour

The minister has made an important point about the need to improve the proportion of secondary and recycled aggregates. Does he agree that we need to look at non-fiscal measures—such as the use of standards for construction, road building and other activities—to encourage that, and does he agree that we should ensure that those practices keep pace with technology? We should not just use fiscal measures.

Photo of Tom Arthur Tom Arthur Scottish National Party

I absolutely agree. Mr Johnson has made an important point. As I highlighted at committee, the aggregates tax is just one of a suite of tools that will be available to ministers and Parliament to help to promote a circular economy. I agree with Mr Johnson that the proposed tax has to be situated within the broader suite of regulatory and non-regulatory interventions, in order to support our ambitions.

I turn now to the specifics of the committee’s stage 1 report. Concerns were raised about the lack of data on the impact of the UK aggregates levy and the challenge that that presents for assessing the behavioural impact. In particular, there are no disaggregated His Majesty’s Revenue and Customs data available for the UK aggregates levy at Scotland or sub-Scotland level. With that in mind, the approach that is taken in the bill—in particular, the decision to align with the UK aggregates levy—is pragmatic and sensible. It considers the views that I have heard throughout our consultation and engagement process, and the data limitations that the committee highlights. The Scottish Government is also working closely with Revenue Scotland and the expert advisory group to consider opportunities to improve the evidence base.

The committee also asked whether there is a potential tension between the desire for continuity and effective incentivisation of the use of recycled and secondary aggregates. The approach that is set out in the bill will ensure that there is a price signal to encourage use of recycled, secondary and alternative aggregates, while also ensuring stability and certainty for taxpayers.

The bill also allows for the tax to evolve over time, informed by the collection of Scotland-specific data and by increased understanding of the tax and its impacts on the aggregates industry in Scotland.

I am conscious that there is strong interest in the future tax rate. The proposed introduction date for the tax is two years away and decisions on any tax rate will be set out as part of the Scottish budget process, but I recognise the desire for clarity on that matter and am mindful of the importance of stability and certainty for taxpayers, as we introduce a new tax. We will therefore work closely with stakeholders to inform decisions on future tax rate policy.

Separately, the committee report noted the importance of cross-border movements of aggregates—in particular, the interaction between the UK aggregates levy and the new Scottish tax. Extensive consideration, informed by stakeholder engagement, has been given to what would be the appropriate approach to accounting for cross-border movements. The approach that is set out in the bill is the most administratively straightforward one for taxpayers and businesses more widely.

The committee also reported concerns from taxpayers about the current levels of compliance with the UK aggregates levy regime. On that, our focus is on ensuring that the arrangements for the Scottish aggregates tax work as intended and that there is a level playing field for all. The bill therefore includes a distinctive provision that allows for the charging of a tax on those who purchase taxable aggregates from unregistered suppliers.

The tax will also provide an opportunity to demonstrate the operational benefits of tax devolution, thereby making best use of Revenue Scotland’s operational expertise.

The second part of the bill includes a small number of provisions to further optimise the administration of all devolved taxes. I know that stakeholders have raised concerns about the lack of consultation on those provisions; however, the provisions have been informed by detailed engagement with Revenue Scotland and either are minor points of clarification, create consistency with powers already applying in Scotland to UK taxes, or are enabling powers through which a full public consultation will be conducted in advance of any secondary legislation.

Part 2 includes two enabling powers that will allow Scottish ministers to make regulations about how Revenue Scotland communicates with taxpayers and how it will make use of automation. The aim of those powers is to future proof our tax legislation and ensure that Scotland can continue making use of advancements in its tax system.

I am ever conscious of the need to safeguard taxpayers: my response to the stage 1 report sets out a number of ways in which taxpayers’ interests will be protected. I am sure that that will be discussed in more detail during the debate.

Part 2 also includes provisions that will allow Revenue Scotland to set off undisputed amounts of taxpayer debits against the same taxpayer’s credits. That provision will aid Revenue Scotland’s ability to collect taxes efficiently while not disadvantaging the taxpayer. Once again, I am happy to discuss the safeguards that will be available to taxpayers in that regard.

Overall, the bill’s provisions will allow us to create and maintain a modern, efficient and effective tax system that is fit for a modern Scotland. The bill is just one element of the Scottish Government’s ambitious programme to drive progress towards a circular economy and net zero, but it is a key element.

The bill delivers on a cross-party agreement to devolve further tax-raising powers to the Scottish Parliament. Its proposals are the result of extensive stakeholder engagement: ministers are committed to continuing that engagement as the bill progresses through Parliament.

I look forward to our discussion and debate and ask members to support the bill at decision time.

I move,

That the Parliament agrees to the general principles of the Aggregates Tax and Devolved Taxes Administration (Scotland) Bill.

Photo of Elizabeth Smith Elizabeth Smith Conservative 3:54, 16 May 2024

First, I extend the apologies of our convener, Kenny Gibson, who is unable to be present. He has given me quite a lot of ideas for how to reflect our deliberations.

As part of our scrutiny, the committee ran a call for written views, which received 10 responses. We took oral evidence from stakeholders at three meetings throughout March, and we visited an aggregates recycling facility in Livingston. We are grateful to everybody who took the time to share their insights and help inform our consideration of the bill.

I will highlight some of the key issues that were raised in the committee’s report on the bill, which we published on 29 April, and I will respond to a few of the comments in the Scottish Government’s response.

Part 1 of the bill introduces the Scottish aggregates tax, which our report describes as

“a tax on the commercial exploitation of primary aggregates, to be administered by Revenue Scotland.”

The proposed SAT retains the fundamental structure of the UK aggregates levy, with the stated aim of offering

“a degree of continuity for taxpayers ... while also ensuring that the devolved tax can evolve over time to support the Scottish Government’s circular economy objectives.”

The bill provides the legislative framework for the operation of the tax, but does not set the specific tax rate, which would obviously be established as part of a Scottish Government budget process.

The evidence that the committee received broadly supports the general principle that a tax be levied on the commercial exploitation of primary aggregates. Most respondents agreed that the proposed SAT aligns with the Scottish Government’s “Framework for Tax 2021” and with the principles and strategic objectives that underpin the Scottish Government’s approach to taxation. They also generally welcomed the consistency with the UK treatment of the tax.

On exactly the same basis as the UK levy, the SAT is an environmental tax that aims to reduce the extraction of primary aggregate, so part of our scrutiny focused on the tension between maximising recycling rates, which will contribute to the environmental aims of the bill, and keeping the tax as simple as possible.

Witnesses broadly agreed that

“to prevent behavioural change and competition”

it would be preferable to match the rate that is charged by the UK levy. It is good to see that the minister acknowledges that stability and continuity are vitally important.

We also heard that

“use of secondary aggregates could be expanded”

and that

“the quality of recycled materials is continuously improving”.

Stakeholders told us that

“the availability of materials fluctuates according to the changes in the construction and demolition markets”.

That said, it is

“the market and financial incentives available”

that dictate

“the amount of aggregate that is recycled.”

Stakeholders told us that there is still “a general perception” that secondary aggregates are somewhat inferior and that the lack of demand for them, coupled with the current low rates for the aggregates and landfill tax, contribute to potentially recyclable material still ending up in landfill.

The committee has expressed

“reservations regarding the potential of the SAT to incentivise the switch to recycled secondary products and reduce the use of natural products”,

which is a key ambition of the bill, without there also being

“an increase in the tax rate above that currently charged, or broadening the use and classification of recycled aggregates”,

which is a key point from the committee’s deliberations.

One of the main challenges that we identified during scrutiny of the bill was the lack of relevant data, which I hope that the Scottish Government understands is a serious concern, since it impacts on the scrutiny process. For example, we heard that

HMRC does not currently hold Scotland-specific data on the volume of taxable material located in Scotland or moved throughout the UK.”

Although we understand the current limitations with regard to the availability of disaggregated data, our committee is strongly of the view that such data is essential in order to establish tax elasticities

“and enable future governments to set an appropriate rate of tax”

that will achieve the circular economy ambitions.

Photo of Michelle Thomson Michelle Thomson Scottish National Party

I, too, will speak about referencing data in my speech. However, we need to be clear that the data that the Scottish Government does not hold is actually data that the UK Government does not collect, and we need to emphasise the need for disaggregated Scottish data across the piece. Does Liz Smith agree?

Photo of Elizabeth Smith Elizabeth Smith Conservative

I agree absolutely, and I know that Michelle Thomson has been very active in citing several instances in which we feel that the data is not appropriate for some of the legislation. It is not just about the UK Government’s inability to disaggregate the information that we need, but about the Scottish Government’s need for access to that data, in order for us to do our job properly, whether that is in committee or in the chamber.

We also heard concerns regarding non-compliance with the existing tax regime. Those were based on anecdotal evidence rather than anything scientific, so we do not have terribly much information about that aspect. However, it was put to us by many stakeholders that there is anecdotal evidence about such non-compliance, and that is an area of concern to the committee.

Our report welcomes Revenue Scotland’s intended approach to ensure that compliance and enforcement are very much better in the future. It calls on Revenue Scotland to

“work closely with local authorities”

to identify

“quarrying activity”

and how that works.

With regard to part 2 of the bill, the minister mentioned that there have been considerable concerns about the lack of consultation on its provisions. Although I appreciate that the minister has said that the proposals in part 2 followed detailed discussions with Revenue Scotland, those in the industry want much greater consultation on that area.

The lack of consultation so far has given a bit of cause for concern; there is a view that the bill will not be complete unless there is consultation on part 2 and views are taken on board. The committee shares those concerns, and we therefore note in our report that

“This approach does not support effective policy-making”

unless we have that full round of evidence.

I still have a lot to say, but I will finish now, as I have only seven minutes. The committee’s general feeling is that we would like to support the principles of the bill. As yet, however, we do not feel that we have enough information to enable the scrutiny process to be as accurate as it could be.

Photo of Jamie Halcro Johnston Jamie Halcro Johnston Conservative 4:01, 16 May 2024

I am pleased to open the debate for the Scottish Conservatives. I have the great honour of closing it, too, so there will be two speeches from me, both on the aggregates tax, all in one afternoon. Colleagues across the chamber must feel that all their Christmases have come early.

The Aggregates Tax and Devolved Taxes Administration (Scotland) Bill is a notable piece of legislation. The aggregates levy was devolved, alongside other taxes, as part of the Scotland Act 2016—and here we are, just eight years later, finally getting round to it.

As a member of the Finance and Public Administration Committee, I thank all our witnesses for their contributions to our stage 1 scrutiny, and I thank the Scottish Parliament information centre and our clerks for their support and efforts in helping us to put together our stage 1 report.

As my colleague Liz Smith highlighted in speaking on the committee’s behalf, the bill will update the levy on aggregates that are collected in Scotland and the administration of devolved taxes as part of the Scottish Government’s circular economy goals.

The Scottish Conservatives are supportive of the principles of the bill, but we recognise many of the concerns that are raised in the Finance and Public Administration Committee’s report. We hope that Scottish Government will address the outstanding concerns that were highlighted during the evidence sessions on the bill.

I will focus in my opening speech on just some of those concerns. First, although it is welcome that there appears to be a collaborative relationship between Revenue Scotland and HMRC, and that there will be formal data-sharing arrangements with HMRC, it is not expected that data on the aggregates tax will be transferred at the start of the process, which will leave Revenue Scotland “starting from scratch”.

Concerningly, one of the issues that the Finance and Public Administration Committee has heard about time and again—which also Liz Smith raised—in relation to the bill and in other areas, is a lack of relevant data. There simply is not the disaggregated data at a Scotland or sub-Scotland level available from HMRC relating to the UK levy or more widely.

The committee was strongly of the view that that

“data is needed ... to establish the tax elasticity”

and to allow future Scottish Governments to set an appropriate SAT rate to both achieve its aims and to manage the risk of behavioural change.

I recognise that—as Michelle Thomson pointed out—that is an issue with how HMRC collects its data. I welcome, in the Scottish Government’s response to the committee’s report, assurances that it is working with Revenue Scotland on how to improve data collection when Revenue Scotland takes over administering the tax.

The committee was also concerned about the issue of compliance, or current non-compliance, and how that would be addressed in the future. There was anecdotal evidence from industry that non-compliance was at significant levels, including in the islands, and that that was impacting on some businesses and their economic competitiveness with others.

I have to admit that, certainly on the smaller scale of non-compliance, I am surprised that the reward outweighs the risk. The current SAT rate of £2.03 per tonne—I know that it is increasing—would amount to only around £40 for 20 tonnes of aggregate. I suspect that much of the non-compliance is due to lack of awareness, or because the activity is either traditional or occasional extraction. Perhaps Revenue Scotland can target compliance in that area by promoting better awareness of responsibilities. However, I accept that it would be a different picture for larger amounts, and the committee welcomes Revenue Scotland’s assurances that there will be a focus on compliance and on enforcement.

I remain slightly sceptical that, because this is only the third tax that Revenue Scotland is administering, that will somehow allow it—certainly in the early days—to more effectively target non-compliance and ensure that all tax is collected. However, engagement with industry and other stakeholders will be key, and it is welcome that that appears to be part of the approach that Revenue Scotland is advocating.

Of course, given that we do not have the full data on how much UKAL is currently paid in Scotland, it will be harder to make judgments on how efficient Revenue Scotland is when compared to HMRC.

The last area that I will look at is effectiveness. Will SAT work and meet its objectives? There are reservations there, too. As Liz Smith highlighted, the committee heard that although the quality of recycled material is improving, it is still considered inferior to primary aggregates, and there are issues about availability and consistency of supply.

That suggests that decisions on the use of recycled materials—which are the reason for the tax—will come down to price point, and that the rate will likely dictate the SAT’s success in achieving its environmental objectives and encouraging the use of more recycled material and less primary aggregates.

Witnesses mostly agreed that the rate should be kept in line with the UK rate, and the minister—in his response to the committee and in the chamber today—accepted that stability and continuity will be important considerations in how any changes to the rate are made.

Given the importance of the construction sector, and with Scotland finally declaring, only yesterday, a housing emergency and a recognition of the need to increase house building, the Scottish Government will likely have to choose between environmental and economic targets, because putting up the rate to a level that could see real behavioural change and significantly increased use of recycled materials risks increasing construction costs and tightening margins that are already tight.

I will draw my initial contributions to a close there, and will comment on the other issues in my closing speech. I look forward to hearing other colleagues’ thoughts on the bill.

Photo of Michael Marra Michael Marra Labour 4:07, 16 May 2024

Scottish Labour welcomes the establishment of the Scottish aggregates tax, and we will support the general principles of the bill. I thank the minister for his engagement with me and colleagues early on in the process.

As members have already mentioned, the power was originally devolved in the wide-ranging application of further powers to the Parliament after the Smith commission report and the ensuing Scotland Act 2016. It is perhaps not the leading light of some of those powers—we often talk about the Scottish child benefit that was brought into being as a result of that—but, no matter what, we have to get on and ensure that the tax is introduced by 1 April 2026.

The policy memorandum for the bill states that the Scottish aggregates tax will retain

“the fundamental structure”

of the UK aggregates levy because

“this approach offers a degree of continuity for taxpayers”.

It is welcome that the Scottish Government has heeded the request of industry to mirror the UK aggregates levy to a very large extent, given that many businesses will be operating in both jurisdictions. Difference for difference’s sake would serve absolutely no one. However, there are some conflicting signals coming from the Scottish Government as to the future intentions for the tax. The policy memorandum for the bill states:

The Scottish Government intends that SAT will align with wider ambitions to deliver a fair, green and growing economy; in particular, the Scottish Government’s ambitions for a circular economy.”

Those are laudable ambitions, and Scottish Labour certainly wants a fair, green and growing economy. The policy memorandum goes on to say that the tax will achieve that by

“encouraging the minimum necessary exploitation of primary aggregates”


“maximising the use of secondary and recycled aggregates”.

As the Mineral Products Association Scotland highlighted in evidence to the Finance and Constitution Committee, the tax does nothing to increase the availability of recycled or secondary aggregates. There are also limits to the extent to which recycled materials can be used instead of primary aggregate, with the Scottish Environment Protection Agency noting that

“recycled aggregates are very unlikely to displace virgin aggregate use altogether”.

Therefore, it is hard to see how that will be achieved without increasing the rate of SAT. Continually increasing the rate of SAT to incentivise the use of recycled material will lead to greater divergence from the UK levy, which industry and Government have both said that they wish to avoid.

My concern is not so much that vast quantities of aggregate material will be transported south of the border—the clear evidence taken by the committee was that, given the costs of transportation, there is not a significant flow of aggregates across the border. I am sure that Parliament and industry would appreciate clarification from the minister as to how the balance will be struck between the circular economy aims and the stability and continuity that he spoke of when appearing before the committee.

I turn to part 2 of the bill. Some of the provisions could be akin to using a hammer to crack a nut. Section 52 seeks to prevent a taxpayer from making a repayment claim where they have failed to pay an amount of a different tax, and section 56 would allow Revenue Scotland to offset a taxpayer’s credit against the debit.

At present, there are two devolved taxes—land and buildings transaction tax and Scottish landfill tax. Should the bill pass, there will be three. The Chartered Institute of Taxation questioned the proportionality and necessity of those measures, and the Law Society of Scotland suggested that it was

“disproportionate in a tax system which only includes two devolved taxes”.

The Institute of Chartered Accountants voiced similar concerns.

Section 56 is based on equivalent provisions of section 130 of the UK Finance Act 2008, but those provisions have been used only on very rare occasions in the UK, which is a much larger jurisdiction than Scotland. The Law Society of Scotland pointed out that the provisions in the 2008 act are seen by some as an extreme measure.

Responding to concerns regarding taxpayer protection—

Photo of Michelle Thomson Michelle Thomson Scottish National Party

Arguably, the UK Government should be using such measures much more frequently. I am on record commenting in this Parliament that an estimated £262 billion is lost to UK gross domestic product every year as a result of tax avoidance, money laundering and so on, which I think rather puts that into context.

Photo of Michael Marra Michael Marra Labour

I very much agree with Michelle Thomson. Financial crime and tax avoidance are far greater crimes and a greater problem for this country than is often recognised. However, in relation to the provisions in this bill, it was stated that

“set-off would come into effect where there was no dispute about the amount of tax that was due”.—[Official Report, Finance and Public Administration Committee, 12 March; c 27.]

Therefore, it is not necessarily a particularly sharp instrument to deal with the issues that Michelle Thomson raises. However, that is not explicitly set out in the bill as introduced, and I would welcome clarity from the minister as to whether it has been made explicit that there has to be agreement between parties in regard to the offset.

In closing, I welcome the introduction of the Scottish aggregates tax and the sensible approach that the Scottish Government appears to be taking, recognising that Scotland’s taxes do not exist in a vacuum but rather interact with the wider UK tax system. That is essential if we are to build a system in Scotland that works for the benefit of taxpayers and businesses and raises revenue in a sustainable way. I urge the Government to take the same sensible approach with all its fiscal decisions.

Photo of Ross Greer Ross Greer Green 4:12, 16 May 2024

The Scottish Greens welcome and support the bill. I feel like somewhat of an interloper in the debate, because as much as I am a member of the Finance and Public Administration Committee that scrutinised the bill at stage 1, I was absent from all the stage 1 proceedings because I was substituting on the Health, Social Care and Sport Committee. I even missed the committee’s visit to a quarry. I am still waiting on Michael Marra to bring me the pet rock that I was promised.

I am glad that the bill is finally before Parliament. It does not have the headline-grabbing elements of what was agreed 10 years ago, but it is important. It is timely that it is going through concurrently with the Circular Economy (Scotland) Bill. The policy memorandum makes it clear—indeed, the minister made clear in his opening speech—that the bill forms an important part of the Government’s ambition for Scotland to develop a model for a much more circular economy and to reduce our waste, which I believe is an ambition that is shared by members across the chamber.

We want to maximise the use of recycled aggregate and minimise the extraction of fresh aggregate, but there is a challenge here, which is highlighted in the committee report. It is not yet clear the extent to which the bill, or the aggregate tax once it comes in, will contribute towards that objective. The Scottish Government has emphasised, for understandable reasons, the desire to have continuity with the existing UK-wide scheme.

Daniel Johnson made an important point in the opening speech for Labour about the need for us to consider, as part of the wider package, non-fiscal measures such as construction standards to further incentivise the circular economy in the construction industry. I agree on the need for the tax to be as simple as possible, particularly given that it is not likely ever to have a particularly high revenue yield, and the more complicated that we make it, the more the administrative costs take up a chunk of what is raised. I urge the minister to give more detail on the Government’s overall direction of travel ahead of stage 3 as to how the bill will maximise its contribution towards a more circular economy.

To add something new to the debate, I highlight that one part of the overall picture is missing. Far too often, buildings that can be refurbished are demolished because it is simply more cost effective to do so. Demolition is cheap—in fact, demolition and most elements of the construction of new buildings are exempt from VAT. The construction of new buildings is typically far more carbon and resource intensive than refurbishment, even when that construction uses recycled material.

The Scottish Greens have long supported calls to reduce VAT on refurbishment and restoration, but that is a reserved issue and not for this Parliament. We need to look at the financial levers in our power to further incentivise those less carbon and resource-intensive and environmentally degrading forms of work.

It is in our power to create a demolition levy, which the Chartered Institute of Building and a number of figures and organisations in the construction industry have long advocated for. An aggregates tax together with a demolition levy would be a much more effective way to incentivise those less carbon and resource-intensive forms of building practices.

A demolition levy under the current terms of the Scotland Act 2016 would need to be a local power, but that is no bad thing, as it would give local government yet more fiscal empowerment. It would also contribute to the preservation of our built heritage. It is not hard to see how much good a demolition levy would do in areas such as Glasgow, where we have lost so much of our built heritage in recent years, primarily for the reasons that I have just mentioned.

Overall, this is a competent bill. I agree with the recommendations of the Finance and Public Administration Committee and the Delegated Powers and Law Reform Committee about the changes that are required to it. However, the changes that are primarily required are outwith the scope of the legislation and are more about the operational challenges, particularly in relation to data.

I congratulate the minister and the bill team on a very competent and well-put-together bill, which the Scottish Greens will be more than happy to support. However, there are significant challenges, so, for the purposes of post-legislative scrutiny, I encourage the minister to bring as much information to Parliament ahead of stage 3 as possible to inform the debate.

Photo of Willie Rennie Willie Rennie Liberal Democrat 4:16, 16 May 2024

I have a direct interest in well-managed quarries, as I have several of them in my constituency. They are incredibly important for the construction of houses, railways, schools and key public infrastructure.

This is an incredibly important debate, although it might sound incredibly dull—[ Interruption .] Daniel Johnson says that it is only me who is dull.

In the early stages, the industry was concerned because the Government spoke about creating a new and distinctive tax and also about the pace of the progress on the legislation. It had particular concerns in relation to cross-border issues, which we have already discussed this afternoon. The industry highlighted to me the nature, complexity and scale of the issues involved for what is, rightly, a small revenue. Nevertheless, it is important for that sector that we get it right, so I urge the minister to include representatives of the sector in a working group similar to the one that helped to develop the UK levy.

I am using this opportunity—thankfully, on a sleepy Thursday afternoon, during a debate that, I hope, nobody is watching—to praise the minister effusively for responding positively and engaging the industry. I had very positive responses from the sector about his particular engagement with it and his ensuring that its voices were heard; I give full marks to the minister in that regard. The technical advisory group met several times, which included meeting the industry, and I understand that a visit to Angle Park Sand and Gravel Company near Ladybank in my constituency was very helpful for explaining those complexities.

It is good to have a bit of stability in transition. This is an important piece of legislation and an important new tax power. However, when we do not really know all the aspects of the revenue—where it is coming from and how it is spent—we need to move slowly so that we understand more. I understand the criticisms about the lack of information. However, that emphasises the point about having a smooth transition so that we do not disrupt the industry and cause anxiety, and so that we are able to get a cost-effective delivery of the aggregates for the construction sector at a time when inflation is going through the roof. We need to ensure that we keep that under control.

I noticed that the minister was not giving anything away about the rate that would be set, but I read the mood music with which he indicated caution, which I very much welcomed—that was the right thing to do.

When I was MP for Dunfermline and West Fife, Longannet power station was within my constituency. A company called ScotAsh used to take the fly ash from the chimney flues and turn it into cement. It was a much more low-cost, low-energy-intensive cement-making material. However, it was incredibly difficult to get the industry to engage with it and use it, mainly because it was different. The quality was very good, but, because it was different and people were used to using the materials that they had always used, they wondered why they should change. The tax approach will therefore be important to encouraging new behaviour, because the industry is used to doing what it is used to doing. I can understand why we need to ensure that we incentivise use of secondary and recycled materials in a sensible way, because, as I am sure that the industry itself would recognise, it needs encouragement.

The other aspects of part 2 of the bill that the Law Society of Scotland thinks are worth airing are on LBTT group relief and sub-sale development relief—that is the limit of my knowledge on those two fronts—both of which I hope we will consider for amendment. An annual round of care and maintenance as part of the finance bill that is introduced every year could perhaps be considered as well.

Photo of Alison Johnstone Alison Johnstone Green

We move to the open debate.

Photo of John Mason John Mason Scottish National Party 4:21, 16 May 2024

I welcome the opportunity to take part in the debate. Many people might see the introduction of a new tax as not all that exciting, but for members of the Finance and Public Administration Committee, it is our bread and butter and we will all be queueing up to speak this afternoon.

The aggregates tax will be the third fully devolved Scottish tax, after LBTT and landfill tax. In one sense, it is not new, because it just replaces the UK Government’s aggregates levy. However, it is still important and has potential, not least if we are serious about encouraging recycling and depending less on primary aggregates such as crushed rock, gravel and sand.

The committee heard somewhat conflicting evidence on the use of recycled materials and how far that could be expanded. MPA Scotland told us that the tax

“cannot directly minimise the exploitation of virgin aggregates.”

However, representatives of the aggregate recycling industry told us that the use of secondary aggregates could be expanded. They feel that the current tax regime, including the UK Government’s aggregate levy and landfill tax, discourages recycling. When committee members visited Brewster Brothers, we saw the kind of equipment required, and clearly it adds cost to the company’s product when compared with using virgin material.

The bill does not set the rate of tax—that will happen in the budget—but the current assumption is that it will match the UK Government’s current rate of £2.03 per tonne. However, I remain unconvinced that we should slavishly track the UK on this matter. With landfill tax, we have always feared waste tourism if the UK and Scottish tax rates were to diverge. However, it seems that aggregate is used much more locally and would not be moved huge distances, even if the rates varied.

Local authorities suggested that they should not pay the tax at all, but such an approach would remove the incentive to recycle. That said, there might be an argument for a lower rate on the islands and other locations further from the central belt, which already have higher costs and do not have the option of using recycled materials.

In some ways, it seems odd that the SAT should be based on the place of commercial exploitation rather than the point of production. However, that is what the Scotland Act 2016 requires. Theoretically, we could export much more aggregate than we import, and we would gain no extra tax on that whatsoever. That seems like a miniature replica of the situation with our whisky exports, which add so little to the public purse, because there is no production tax. That does not seem entirely satisfactory to me, but we have to play the hand that we have been dealt.

One of the costs of the legislation—I hope that it will not be a significant one—is that, as well as paying for Revenue Scotland and the new tax, Scotland will have to pay for HMRC and the UK Government switching off their tax. Therefore, although the devolution of aggregate taxation has been jointly agreed by the UK and Scotland, we in Scotland will have to pay both sides’ costs. I hope that relatively small amounts of money will be involved, but it strikes me as being incredibly unfair and as constituting exploitation on the part of Westminster.

Part 2 of the bill has next to nothing to do with the aggregates tax but, rather, it updates the administration of Scottish taxes more generally. Witnesses highlighted the lack of public consultation, and I think that the committee shared those concerns.

I should also say that the need for part 2 of the bill has again highlighted the lack of opportunities for tidying up existing financial legislation. I am supportive of the idea of an annual or biannual finance bill for that purpose, and I am glad to see that the Government is not entirely opposed to that.

There was also some concern about increased automation, given that many people are still digitally excluded and really struggle if they cannot speak to or interact with real people. Revenue Scotland gave us some reassurance on this point, but it is something that we all need to keep an eye on.

The Law Society of Scotland suggested further desirable amendments, including to LBTT group relief and Scottish share pledges. The suggestions relate to changes from 2018 that could not be made retrospective at the time, but which I understand the Government has agreed should be made retrospective, and I guess the question now is whether the Government will accept amendments at stage 2 to deal with the anomaly.

Overall, I am happy to support the bill.

Photo of Brian Whittle Brian Whittle Conservative 4:26, 16 May 2024

Aggregates are a relatively specialist sector, but the details of legislation that affects the sector matter. Different aggregates are extracted, sorted and processed in different ways, and it is important that that is reflected in how they are taxed. An example that was given to me for consideration was that of a farmer who extracted aggregates from his own land for use on his own land being taxed similarly. There are matters to be considered here.

The Scottish Conservatives are supportive of the bill’s general principles, but it is clear that there are opportunities for improvements to avoid creating bigger issues in the future. We have already heard the discussion about data collection and the use of technology. More and more often, we find that gaps in our knowledge are a barrier to effective legislation and administration, and we see that here again. Although I welcome the commitment to addressing those gaps, there remains a lack of detail on how and when that will be achieved.

Gathering that data, whether at a desk or in the field, will increasingly rely on the application of technology, be it artificial intelligence analysis of taxpayer-submitted reports or the use of drones, GPS and other technologies to locate and monitor the activities of those working in the sector. Although there is a recognition of that reality in the bill, it is not immediately obvious how that recognition will be taken forward and applied effectively in a way that retains public confidence.

With regard to stakeholder engagement and multi-agency working, it appears that the approach to consultation with stakeholders thus far has been patchier than perhaps it should have been. Given the importance of ensuring that the levy’s implementation is not overburdensome on taxpayers and that it aligns with wider objectives, it would make sense to have the widest possible consultation and engagement from the earliest possible stage. Similarly, given the desire to use the bill to facilitate greater enforcement, there is a clear need for a commitment to ensuring that agencies across Government and the industry work collaboratively.

I appreciate the Scottish Government’s argument that requiring a recurring finance bill to carry out general updates to legislation on the administration of tax could place an additional burden on the Parliament’s limited time and resource. However, when set against the concerns raised by consultees and stakeholders in respect of the changes in the bill, I believe that something that offers a clearer and simpler approach to such legislation is well worth considering. Similarly, I am firmly of the view that the easier it is for taxpayers to understand the system, to avoid overburdening them with excessive administration, the more effective our tax system will be in the longer term.

The intent over the longer term to use the tax as a means of reducing the use of extraction of virgin aggregates in favour of encouraging growth in the use of recycled aggregates is laudable and, for many reasons, highly desirable. However, I am concerned about the Scottish Government’s preference for driving change through increased costs and other prohibitive measures, often without sufficient recognition of the need to balance that with support for facilitating change and encouraging innovation.

I finish my contribution to the debate by encouraging the Scottish Government to offer more detail on how it plans to achieve the shift towards recycled aggregates and, in doing so, to recognise the limitations of relying too heavily on the stick at the expense of the carrot.

Photo of Fergus Ewing Fergus Ewing Scottish National Party 4:29, 16 May 2024

Quarrying is an important industry in my part of Scotland, as it is in Willie Rennie’s. Companies such as Breedon Aggregates perform a vital role in our economy, albeit one that is largely out of sight.

As the minister kindly alluded to, I worked with Alan Mackenzie of Breedon Aggregates, formerly of BEAR Scotland, who has lifelong experience in the area, and I believe that he and others in the industry have engaged with the minister and have had a very productive and positive experience. As Willie Rennie did, therefore, I extend my congratulations on the approach that the minister has taken. In addition, although I have not made a detailed study of it, the committee’s work seems very thorough and reasonable. I also welcome the undertaking that—in the words of the minister, which I have written down—stability and continuity will be important considerations. That is very important for the industry.

I spent the best part of 10 years—almost precisely 10 years, in fact—in charge of ministerial portfolios for energy, business and tourism, then for the rural economy, which simply involves different types of businesses. Over that whole period, I found that the key to success—indeed, the sine qua non of success—is having the closest possible relationship between business and Government. By that, I mean their being able to come together not just in some ad hoc way but regularly and formally—for example, every three or six months, depending on the nature of the topic—with business feeling that not only is it being listened to but its reasonable asks, many of which do not involve expenditure, are being acted on. Only then, when that partnership works in an effective way and businesses feel that they are not simply being fobbed off, can progress be made. Indeed, I would argue that, without that relationship, it is simply not possible to understand the complex realities that, frankly, we do not know, because we are not living the business.

My main point, therefore, in this short speech is to suggest something that I think should be set out in statute, because then it has to be the case. I am not really one for prescription, by and large, but another Government might again decide to enter into some of the policies that we have seen over the past three years—of which, members might have noticed, I have not been an unqualified fan and devotee.

My suggestion is to insert at stage 2 of the bill what I think would be a guiding and useful tool: a provision that puts in place some sort of arrangement for a Scottish minerals forum. Such a commitment by the Scottish Government would be seen as serious by the business, because it would allow the issues that we have discussed today—the level of tax, the rate of increase and whether we want to give a long-term guarantee—to be addressed. It is always good to give business the assurance that things will not change for a long period, given that most capital projects take five, 10 or 15 years. They are not short term.

Lastly, it is thought that capital projects in the Highlands will amount to between £40 billion and £50 billion over the next 10 or 20 years. We must not forget that aggregates are not the master but the servant; they exist to enable us to do things. We must not forget that when we see that the explanatory notes say that the aim is to

“reduce the extraction of primary ... aggregate.”

That must not happen at the expense of vital projects, whether they be the A9, pump storage schemes, new housing or hospitals such as the Belford hospital. We cannot sacrifice those things simply because we want to use less aggregate—that would be absurd. I state that because it would be useful if the Scottish Government made that point clearly, too.

Photo of Daniel Johnson Daniel Johnson Labour 4:34, 16 May 2024

Frankly, there have been far too many apologies about this topic being dry and dull. Simply being able to join my former colleagues from the Finance and Public Administration Committee is a huge pleasure, and I thank them for their diligent work.

Although some might think that this is simply a dry debate about levying tax against gravel, sand and rock, it is more important than that in two critical ways. First, a Scottish tax on aggregates was a recommendation of the Smith commission in 2016—and we do need to think about why it has taken so long. Secondly, and more importantly, we are talking about aggregates, which are the primary ingredients of the products that go into construction. Although I do not wish to be too glib, we are talking about the literal foundations of the economy, because economic growth needs to be built. Looking at how this tax will operate is therefore very important for the wider economy, and I will come on to that in a moment.

I will briefly touch on a point that other members have made. The act became law in 2016, and I, as a committed devolutionist, want devolution to be a dynamic relationship—one in which powers can be explored and taken on in this place on a much more dynamic basis. We need to gently ask ourselves why this move has taken eight years. Is the aggregate tax going to change the nature of the Scottish Government’s finances overnight? No, but we need to look at how we can improve the speed at which we can adopt and implement new powers.

The points that Fergus Ewing just made are very important. As I said at the beginning of my speech, I believe that economic growth is important, and, if we are to have economic growth, we need to build things. I like to remark on the fact that we can do anything in Scotland, from making concrete in Dunbar to building satellites in Clydebank. The point that that makes is twofold. One is about the breadth of the Scottish economy; the other is that, critically, economies work only if we link them up. Our economy can work only if we can get goods from point A to point B, whether those goods are primary inputs or finished products going to customers.

We need to build and construct roads. That is why the controversies around the A9 are so important and why we need to look at them carefully. We do not want to increase the cost of building those vital connections within our economy. Whether they are to be used for roads or buildings, we need aggregates for the future of the Scottish economy. We need to remember that things such as floating foundations for offshore installations might well be constructed from concrete, which uses aggregates as a primary ingredient. Let us look at these things very carefully.

Fergus Ewing makes an excellent suggestion about a mineral products forum. That sort of partnership between Government and business is at the heart of good industrial policy. Business needs not just to be consulted and to have the occasional conversation, but to feel that it is in the room when critical decisions are being made and to understand how those decisions will feed through into Government policy—not just within the economy portfolio, but right across public policy.

We need to make sure that the aggregates tax works. I am mindful of what the minister has said about the rate coming later, but we do not want it to deviate too much. We need stability, and we also need to be mindful that much of Scotland is very close to the border. We do not want to see a situation in which our aggregates are being shipped north of the border because that is cheaper and, essentially, there is a form of arbitrage. Most importantly, we need to be joined up.

I thank Ross Greer for alluding to my comment about non-fiscal measures. I agree that we need to see improvement in the recycled content. We have already seen some improvement—the Mineral Products Association points out that there has been an increase in the use of recycled products over the past 10 years—but we could go further. When I visited Tarmac recently, it pointed out that road standards could be improved so that it could use newer technologies with increased levels of recycled material. That is a non-fiscal measure that we need to look at to improve the use of recycled content.

Photo of Michelle Thomson Michelle Thomson Scottish National Party 4:38, 16 May 2024

It falls to me to shed the last beam of light from the Scottish National Party back benches, so I will try my best. First, I extend my thanks for the thorough way in which the minister has carried out his duties. I always have confidence that he is across his brief and well prepared as he appears in front of the FPA Committee. Secondly, I thank Revenue Scotland, which always exudes a certain joy about its role of robust tax collection.

I will comment briefly on some of the themes that have already been covered. First, the potential take for this tax is very low, assuming that the rate remains the same. Even if it reaches the top estimate of £61 million, we must bear in mind that that will be treated as part of the block grant adjustment via the fiscal framework. I suspect that the cost of set-up will far outweigh any benefit, and, in common with my colleague John Mason, I have to comment on how costs have been allocated. The Scottish Government having to reimburse the UK Government for switching off UKAL and bearing the costs of set-up is another example of heads Westminster wins, tails Scotland loses.

I fear that the levy is a bit of a tinkering tax that will have only a limited ability to make a difference, be it in driving forward a circular economy, in tax take or in changing consumer behaviour. I can sense that that view is shared by Opposition parties, yet we are all going along with it—so, it is all good so far.

My second comment is about data, which has already been referenced by others. We do not know how many quarries we have, a certain percentage of them appear not to be paying UK tax at all, we have no Scottish disaggregated data from HMRC, and the mechanisms for collecting the data are very uncertain. The committee’s stage 1 report notes:

“While we understand the current limitations with regards to the availability of disaggregated data for the UKAL in Scotland, the Committee is strongly of the view that such data is needed in order to establish the tax elasticity and enable future governments to set an appropriate rate of tax that will achieve the above stated aims while effectively managing the challenges and risks of behavioural change.”

That is an important comment, albeit a slightly technical one, and I certainly agree. Data is something that we lack in Scotland. Just recently, I wrote to the Office for National Statistics to inquire how we can access Scotland-specific data for the likes of inflation according to the consumer prices index or even those areas that are provided as inputs to CPI inflation. I fear that our Scottish Government is having to make financial decisions based on guesswork, and that cannot be acceptable.

My second theme concerns unregistered quarries, or so-called pop-up quarries, with materials taken from fields. The stage 1 report notes that “this could be significant.” Section 8(5) of the bill seeks to deal with that position, and it states that, where there is a supply chain arising from an agreement to supply aggregate, every person in that chain

“is liable to pay the total amount of tax chargeable on the quantity of aggregate as a result of the agreement, unless”

they have acquired the aggregate from a supplier who is registered for tax. That can only involve significant effort, including visits to sites. Revenue Scotland appeared confident that it could make a difference in that regard, but that remains to be seen.

My final observation concerns the opportunity to encourage the use of secondary aggregates. MPA Scotland stated that the UK has

“seen continued growth in the use of recycled materials and secondary aggregates”

and noted the indication that

“89 per cent of secondary and recycled aggregates are being used within the market.”—[Official Report, Finance and Public Administration Committee, 5 March 2024; c 34.]

There is still much that is unknown in this matter, however, and we are clearly some way from utilising the legislation to help improve a circular economy.

Photo of Alison Johnstone Alison Johnstone Green

We move to winding-up speeches.

Photo of Maggie Chapman Maggie Chapman Green 4:42, 16 May 2024

I am pleased to close on behalf of the Scottish Greens this afternoon, and I will begin by thanking the Finance and Public Administration Committee for the detailed scrutiny of the bill and for its stage 1 report. As others have already done, I also thank those who gave evidence during the stage 1 process and those who have provided advice and commentary on the proposed legislation.

I think that I am the only member in the chamber at the moment who was involved in the Smith commission discussions that led to the Scotland Act 2016, which others have highlighted. Then, we were quite clear that further powers for Scotland to design the fiscal levers to suit our own needs were an important outcome of the Smith commission process. Michael Marra said that he did not think that the devolution of the aggregates levy would have been a leading light in those discussions. As much as I love a good gravel tax conversation, I have to admit that he is not wrong.

We believe in the importance of taxation for sustaining our economy—

Photo of Willie Rennie Willie Rennie Liberal Democrat

[ Made a request to intervene .]

Photo of Willie Rennie Willie Rennie Liberal Democrat

I did not intend to do that. My apologies.

Photo of Maggie Chapman Maggie Chapman Green

We believe in the importance of taxation for sustaining our economy and our communities, and for funding our public services. However, taxation is not just a revenue-raising measure; it is a tool for behaviour change. On that subject, we share the minister’s ambitions to create an economy that is green, fair and, importantly, circular. However, we have clearly heard this afternoon that the aim of maximising the use of secondary materials such as processed construction waste is undermined by the already high and increasing rate of recycling in the sector. The rate of recycling is already at about 89 per cent, but there is clearly room for improvement. Perhaps we need to be a little more creative and ambitious in how we use the tax.

As John Mason has said, the UK rates of taxation have remained unchanged for many years. Although we understand the initial intention to align the tax level with that of the UK aggregates levy, we might be able to achieve more—increased recycling and reuse, of course, but more besides. There is a lack of solid research and data describing what exactly the potential is, considering the underdeveloped market for construction and demolition wastes. Increasing rates of tax might provide the incentive and funding for such research to be done.

Local authorities are clearly a key stakeholder in all this, because they will be affected in two major ways. First, they will be liable for tax themselves, being the proprietors of first-point commercial exploitation of taxable aggregates. Secondly, there is a safety element to the use of recycled materials, which local authorities are bound to observe and enforce. Reliefs and, possibly, exemptions might be needed to offset the costs of that disproportionate burden and the ultimate purpose of public infrastructure and service delivery. However, that might be a discussion for another day.

With the bill, we need to consider the resources that Revenue Scotland will require to ensure that all liable taxpayers are identified and monitored over time.

I have already touched on the importance of data and of really understanding what we have, so I look forward to the publication of some of that data next year by the Scottish and UK Governments.

I will make a brief comment on part 2 of the bill. We welcome the minister’s assurances that there will be engagement and consultation with the public and relevant stakeholders before the introduction of any regulations that are relevant to the measures that are contained in part 2. We look forward to the parliamentary scrutiny of those regulations, particularly the provisions on automation, and we welcome the minister’s commitment to make sure that all the regulations fit with our broader tax objectives.

The Scottish Greens welcome the establishment of the Scottish aggregates tax and we will be pleased to support the bill at decision time.

Photo of Michael Marra Michael Marra Labour 4:47, 16 May 2024

Scottish Labour welcomes the introduction of the Aggregates Tax and Devolved Taxes Administration (Scotland) Bill, and I thank members for their contributions in the debate.

In the week that we have marked the 25th anniversary of the Parliament, it seems somewhat fitting that we are getting on with the work of further devolution, with decisions being taken closer to home. Crucially, those decisions are being taken in a way that recognises the context in which we are working and seeks to build a constructive relationship with UK counterparts on how we interact in that regard. Fergus Ewing and Daniel Johnson both touched on how crucial those relationships are, as is the relationship with business for the Parliament and the Scottish Government. I echo those thoughts. Nothing could be more important when we consider our tax regimes and how they turn towards productivity, rather than the opposite—the suppression of economic activity in Scotland.

Given the comments of members across the chamber, it would be fitting if the minister would provide further clarity in reiterating how the Scottish Government intends to balance continuity and stability for business with its plans for the circular economy. I realise that the full extent of that commitment will be set out in the budget process when the tax rates are set, but it would be good to have assurances on the record from the minister in his closing remarks.

There has been quite a lot of discussion about data today and, principally, about the lack of it. Michelle Thomson and Jamie Halcro Johnston talked about the disaggregation of data, including, crucially, across the UK. If it was disaggregated appropriately for Scotland, data that is held in Whitehall would be better to use, as much for policy development as for scrutiny by the Parliament.

Another data issue that has been discussed is in relation to the secret quarries around Scotland. The Finance and Public Administration Committee has been slightly sceptical about how one might hide a quarry, but the evidence that we have heard from the industry is that such forms of activity go on and that the industry is concerned about a lack of compliance with the current taxation regime. Revenue Scotland has said that it is aware of the issue but that the level of non-compliance is not yet fully understood due to the lack of data.

Anecdotal evidence suggests that a significant amount of revenue may have been lost to the public purse in that regard. The provisions in the bill that seek to improve compliance are certainly welcome, but more data would help with that. I also draw the Government’s attention to the Finance and Public Administration Committee’s recommendation that Revenue Scotland work closely with local authorities to identify unregistered activity in local areas. I know that Revenue Scotland would always be happy to hear from people who have complaints and suspicions in that regard.

In my opening speech, I touched on some of the concerns about part 2 of the bill. Some of my finance committee colleagues have raised the possibility of a finance bill, and I know that the minister has answered questions from the committee about that. The Scottish Government should at least commit to considering such a bill, given that the Parliament has far more fiscal powers than it did in 1999. A mechanism should perhaps be developed for updating the regulations annually to ensure that the taxation is put towards the most productive ends.

Some of the concerns that have been expressed about part 2 could have been addressed at an earlier stage if the Government had consulted on the provisions. A range of stakeholders, including the Chartered Institute of Taxation, the Institute of Chartered Accountants of Scotland and the Law Society, expressed their disappointment about the failure to consult on them. As the committee's stage 1 report states,

“By not consulting on these provisions before the Bill was laid, a valuable opportunity for the Scottish Government to discuss stakeholders’ concerns was lost.”

I am yet to hear a convincing argument as to why that consultation was not undertaken.

I will close by reiterating the comments of some of the other speakers in the debate. Daniel Johnson put it well when he said that we are literally talking about the foundations of the economy, and another colleague highlighted the housing emergency, on which we agreed in the chamber yesterday. If we are to see the vast increase in house building that we require in this country, we will not just need a better planning system, better Government regulation and a more proactive approach to funding. We will also need sand, so we have to make sure that we get the bill right.

Photo of Jamie Halcro Johnston Jamie Halcro Johnston Conservative 4:51, 16 May 2024

As I said in my opening speech, we support the general principles of the bill, but not without sharing some of the concerns that are held by the Finance and Public Administration Committee. Like other colleagues, we believe that it is right to create incentives for investing in recycling, encouraging the use of recycled materials where possible and diverting natural material away from landfill. That is in line with the Parliament’s environmental objectives.

Although it may have taken us eight years to get to this point, the devolution of certain taxes is in line with the 2016 changes to the Scotland Act 1998. One of the main challenges that we face, which was highlighted by a number of members across the chamber, is the uncertainty about potential behavioural change and how that may impact on elasticities of demand for the various aggregates. That important issue speaks to the challenges that will be key in determining how we vote at stage 3. If it became clear that the new tax might have to increase above the existing rate of the UK aggregates levy in order to create a stronger push towards recycling—as we made clear earlier, witnesses argued against that and the minister hinted, at least, that the matter will be an important consideration in relation to how changes are made—we would also have to weigh up whether any higher tax could deter activity. In other words, as is the case for other devolved taxes, we have to weigh up what will happen in practice.

I reiterate the point that I made earlier, which was also made by many other contributors: the problem is compounded by the fact that we are struggling to harness sufficient data one way or another. We do not know what UKAL data is relevant to Scotland, nor do we have sufficient data to model the likely changes. That is a real challenge, and it highlights an issue that my colleague Liz Smith and the finance committee more generally have been extremely vocal about for a long time, which is that there is a need for more transparency about taxation. The committee has made it clear that much more research needs to be undertaken before any informed decisions can be made, both to get a better handle on the different elasticities and to ensure that the rates of the new tax can be set appropriately. Again, that matter will be important in determining how we vote at stage 3 and the outcome of the bill.

I turn briefly to some of the other contributions to the debate. Tom Arthur talked about the engagement with stakeholders, which is extraordinarily important. One of the committee’s concerns is that there has not been in-depth engagement on part 2. However, as Fergus Ewing highlighted, the Scottish Government will consider the calls for a Scottish minerals forum, and I welcome that. Such a forum has to meet and it has to be an important partner.

Daniel Johnson made the point, and the minister commented on it, that the tax will be only part of a suite of options that will go forward.

Liz Smith highlighted an issue that I raised about the quality of the product and how that impacts on the use of recycled materials. The low costs associated with landfill may also hold down the use of recycled materials.

The lack of data is also a real issue. I agree with Michelle Thomson’s point that that is an issue for HMRC but that there is also an opportunity for future improvement.

Michael Marra spoke about the limits on the use of recycled material and warned about any potential move away from alignment with the UK, which I think is absolutely right.

Like Ross Greer, I was not able to attend the quarry visit and also did not get any stone or rock. I am not sure whether it might have been seen as commercial exploitation had we received such a gift, but it was certainly disappointing.

I was shocked by Willie Rennie’s contribution, as I think other members were. He described this as a dull subject, which shows him to be a politician who cannot find the passion in anything. I was very disappointed. He also, somewhat shamelessly, moved his affections and praise from Jamie Hepburn to Tom Arthur in the blink of an eye. Poor Jamie Hepburn must be struggling somewhere. Then Mr Rennie involved himself in a disruptive approach to poor Maggie Chapman’s speech when he called for an intervention. It was a shameful episode from Willie Rennie.

Brian Whittle rightly highlighted some of the impacts on farmers if aggregates are extracted from their land, so I remind members of my entry in the register of interests as a partner in a farming business. He also highlighted the potential to use technology. There is not a lot of detail about that, but there may be options to use artificial intelligence or drones, which has to be done in a manner that does not lead to a loss of public trust.

I reiterate Fergus Ewing’s point, which was a point that I also made, about housing and about vital construction projects such as the A9. We do not want to see those situations being made any more difficult by the new taxes.

The data issue will not go away any time soon and the committee has heard of situations in which data is either incomplete or non-existent. We also continue to have concerns about non-compliance, about the tensions between keeping the tax simple for business and meeting the objective to maximise recycling, about the lack of consultation with stakeholders regarding part 2 of the bill and about how disputes will be resolved. We are also concerned about whether revenue that is raised by the new tax will be aligned with the block grant adjustment agreed between the two Governments.

Conservative members will support the bill at this stage and we look forward to reassurances and possible amendments as it progresses.

Photo of Tom Arthur Tom Arthur Scottish National Party 4:57, 16 May 2024

I thank members from across the chamber for their constructive contributions. I also thank members who have engaged constructively with me and with the sector as the bill has been developed. I thank all who gave evidence to the committee and I thank the committee for its report, which makes a positive and constructive contribution.

Two main themes have emerged that are specific to the aggregates tax component of the bill. There is the issue of data and the issue of the balance between the circular economy and the need for continuity.

If the bill is passed by Parliament and proceeds as anticipated, the aggregates tax will go live in spring 2026, so I am tempted to say that I expect it to be the central issue of contention in the Scottish Parliament elections and that we should let the people decide what the levy should be. The points that have been made get to the heart of why it is so important that we take a balanced and measured approach to the issue of data.

The reasons for the lack of data have been well rehearsed, and it is not entirely within our gift to resolve that. However, when the tax comes online, the operational experience that Revenue Scotland gains will begin to provide the data, which will allow more informed decisions to be made.

As I said, I cannot pre-empt decisions that will be taken for the 2026-27 budget but, when we consider the tax rate at that point, I think that we will have an opportunity not only to weigh up the arguments that we have had today about the theoretical balance between continuity and the circular economy but to take into account the prevailing economic circumstances and the decisions that the UK Government makes at that point.

Those considerations will be vital, but the key to this must be something that recognises the significant importance of the aggregates industry, as members across the chamber have done during the debate. Although we want to continue the work that the existing UK aggregates levy has sought to promote—incentivising the use of secondary and recycled aggregates—we have to recognise the point that Fergus Ewing made powerfully, which is that primary aggregates are still of significant importance to our economy and will continue to be so.

Fergus Ewing made an excellent point about looking at a deliberative forum in which we can ensure that there is continued engagement with the industry that builds on the constructive engagement that we have had to date. Ahead of stage 2, we should clarify whether we could use any existing bodies or forums or whether we require something that is bespoke. However, that is a point of process; it is simply to ensure that there is efficiency and to avoid any duplication. The forum’s objective would be to ensure that there is on-going engagement so that regulation is proportionate and can be a driver for innovation, investment and entrepreneurship, rather than something that suffocates or closes off those things. That will be important.

That is why it is vital that we continue to engage with business. Fundamentally, people who have been working in a sector for decades will grasp things just like that, whereas it would take others who are new to the sector months of work to do the same. When developing legislation and regulation, we must harness and bring to bear the collective expertise of all our people in business and across every sector. That engagement has played a big role in getting the bill to the place that it is in now, and continued engagement will be vital as we take the legislation forward to stages 2 and 3 and as we implement it.

I will pick up on a number of points that have been addressed. Michael Marra raised a question about the proportionality of offset measures. I reassure him that Revenue Scotland will provide detailed guidance on that, but I understand the existing concerns. Ahead of the latter stages of the bill, ministers will seriously consider whether that should be made explicit in the legislation.

Similarly, with the provisions on communication and automation, I reiterate the commitments that I made to the committee on the vital importance of strong parliamentary engagement and public consultation. We all recognise that there are tremendous opportunities to reform public services and make them more efficient through the application of AI, but we must do so in a way that commands confidence. Full public engagement and parliamentary scrutiny will be key to commanding confidence.

In our discussions this afternoon, inter alia, a finance bill has been suggested. I reiterate the point that I made to the committee that ministers are open to having that discussion, but I note that it is also a matter for the Parliament, although the Government has a key role to play. Given the spirit of the budget process review group during the previous parliamentary session and given that this is about how the Parliament, which is ultimately responsible for supply, determines budget processes, we must have that level of engagement. However, it would be a fruitful project that could inform how we take forward our processes in the next parliamentary session. It speaks to the fact that we have taken on significantly more fiscal powers than we have had previously. A finance bill could provide more certainty and continuity, with a clear rhythm of opportunities for care and maintenance. I think that that would be welcomed by stakeholders and would afford the Parliament the opportunity for greater scrutiny. Of course, those things will require detailed consideration.

I thank Willie Rennie for his kind remarks. He highlighted some amendments that the Law Society of Scotland has suggested. Of course, we will give serious consideration to any amendments that are lodged, but we have to bear in mind the scope of the bill and the fact that part 2 is about broad administrative matters. We also have to consider whether there are opportunities, through secondary legislation, to remedy any of the issues. I will take the points that Willie Rennie has raised very seriously. I reiterate the points that I made, and which Willie Rennie highlighted, about the need to take a balanced and measured approach so that the decisions that we take on the tax are fully evidenced.

Both Daniel Johnson and Ross Greer touched on key points about not seeing the fiscal lever in isolation. That is of utmost importance and has been evidenced by the approach that we have taken to date, in the recognition that we have to build up our knowledge and understanding of the data that underpins the fiscal implications of tax in relation to the aggregates industry, while also recognising that that will depend on wider economic factors, such as the decisions that the UK Government takes about the UK aggregates levy that operates in the rest of the UK and the broader regulatory environment. Those things are of utmost importance.

I extend my thanks to all the other members who contributed. There was a question about why there has been a delay of eight years. For clarity, I point out that existing UK and European challenges around the UK aggregates levy were not resolved until around 2019. We could take the matter forward only in this parliamentary session, and the bill has been taken forward in a way that has sought to ensure the greatest opportunity for the engagement of industry.

Again, I thank members for their contributions and engagement this afternoon. The Government looks forward to continued engagement as we take the legislation forward.

Photo of Alison Johnstone Alison Johnstone Green

That concludes the debate on the Aggregates Tax and Devolved Taxes Administration (Scotland) Bill at stage 1.