Scottish Government

GUIDANCE ON LOCAL AUTHORITY DISCRETION TO REDUCE COUNCIL TAX DISCOUNT ON SECOND HOMES AND LONG-TERM EMPTY PROPERTIES

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Dear Sir/Madam

GUIDANCE ON LOCAL AUTHORITY DISCRETION TO REDUCE COUNCIL TAX DISCOUNT ON SECOND HOMES AND LONG-TERM EMPTY PROPERTIES

Introduction

1. Andy Kerr, Minister for Finance and Public Services, announced on 5 August that Ministers have decided to give local authorities discretion to reduce or retain the council tax discount on second homes and long-term empty properties to between 10% and 50%. Local authorities will be able to reduce or retain the discount within their entire area, or only those areas where second homes are a particular problem. They also have discretion to differentiate between second homes and long-term empty properties. The 10% level has been retained to allow the additional income generated from reducing the discount to be identified.
2. The additional income will be retained locally and routed through Registered Social Landlords (RSLs) for the provision of new-build affordable social housing to meet locally-determined priorities.
3. When determining policy in relation to the discount Local authorities may refer to their Local Housing Strategy (LHS) to determine the effect of second home ownership and long-term empty properties in their areas. This will allow them to decide whether a reduced discount would help to address any problems arising from these type of properties.
4. As a result of a local authority deciding to use its powers to reduce discounts Scottish Water's revenue will also increase, due to the link between council tax and water discounts. As Scottish Water has a revenue cap which they cannot go above the money will be retained by Scottish Water and used to reduce charges.
5. Local authorities, Communities Scotland and Scottish Water should engage at an early stage of the planning process to ensure that funding is in place to supply the required water and sewerage infrastructure for the new homes. Ministers have agreed that the additional revenue from councils reducing the discounts can be used to fund specified elements of this additional infrastructure.
6. This note provides guidance to local authorities regarding the arrangements to be put in place to give effect to, and monitor the impact, of these decisions.

Regulations

7. The regulations which will implement the new regime were laid in Parliament on 22 November and will come into force on 1 April 2005.

Additional income

8. The level of central government grant will not be reduced as a result of local authorities reducing the level of discount. Second homes and long-term empty properties will continue to be counted as half a dwelling in the calculation of the council tax base, regardless of what a council does with the discount. The council tax based is used in calculating a local authorities grant from the Scottish Executive. The report which is laid along with the Local Government Finance (Scotland) Order will be amended for 2005-2006 to reflect this.
9. The additional income to be transferred is that which is collected within the financial year, any arrears can be carried over to the next financial year. This will ensure that local authorities transfer to RSLs only those monies that are collected.
10. As a result of the above it will be difficult for local authorities to be certain of the amounts to be transferred at the beginning of the financial year. However, Communities Scotland and RSLs need a firm commitment regarding funding levels due to the fact that once project costs are legally committed, they cannot be changed. This being the case, local authorities can wait until the following financial year, when actual funding levels are known, before transferring this funding, via their housing colleagues, to Communities Scotland projects or directly to RSLs. In 2005/06, the deadline for finalising the levels of funding each local authority will provide from the previous year is no later than 30 June 2006 - these timescales being subject to annual review. However, these dates do not preclude local authorities from transferring funding to relevant projects at any point during the course of the year within which it is being collected. In addition, local authorities will be required to provide details of the funding levels collected to date on a quarterly basis to the Scottish Executive (using the amended CTRR quarterly return). The Scottish Executive will then transmit this information to Communities Scotland. This will allow the lengthy project planning and housing approval processes to be agreed as early as possible between Local Authorities, Communities Scotland and other strategic partners..
11. Regarding the council tax payments themselves it is acceptable for local authorities to retain for their council tax revenue account payments made in relation to discounted homes until 50% of the bill has been paid. Thereafter all payments made should be transferred to the " affordable housing revenue account". This will ensure that local authorities are not punished if individuals decide to withhold payment of the remaining outstanding debt as only those additional monies collected as a result of a local authority reducing the discount will be used for the funding of affordable housing projects.

Strategic Planning

12. Local Authorities should ensure, in partnership with Communities Scotland area offices, that the number, type and location of new houses funded or supported via the additional income are consistent with their Local Housing Strategy (LHS). Local Authorities should consult relevant local partners including, in all cases, Communities Scotland Area Offices before determining their priorities for funding/supporting new provision.

Housing Projects to be Funded or Supported

13. Projects funded or supported will be developed, owned and managed by Registered Social Landlords. All funding provided will be for new build and will be primarily for social rent, although housing association shared ownership can be considered.
14. Local Authorities may use the additional income to:-

- Fund or support discrete RSL projects - specifically this can be used for the funding of actual affordable housing projects with eligible RSLs; to secure the purchase of land for future RSL affordable housing developments; or to fund specific water and wastewater infrastructure costs as part of an agreed RSL affordable housing programme developed in consultation with Communities Scotland;
- Top up existing Communities Scotland funding for specific RSL projects, which the local authority and Communities Scotland will have previously worked together to develop;
- Make contributions via Communities Scotland Area Offices to provide additional funding for new eligible RSL projects within the Local Authority's area, which the local authority and Communities Scotland will have previously worked together to develop

Grant Procedures

15. In order to ensure consistency for RSLs involved, Local Authorities using their additional income for discrete RSL projects will, in conjunction with Communities Scotland, use the Housing Association Grant (HAG) procedures, including physical quality minimum standards and standard HAG financial appraisal assumptions.

Monitoring and enforcement:

16. The CTAXBASE return will remain in its present format, with some minor tweaking to reflect the new policy. As stated above homes in receipt of a reduced discount will still be counted as half a dwelling for Revenue Support Grant calculation purposes. Each Local authority will be required to submit a report, no later than the end of March for each year (beginning March 2005), to the Scottish Executive Local Government Constitution & Funding Division. This report should include details of the local authorities policy in relation to the discount, and should be sent to:

Local Taxation team
Scottish Executive
Local Government Constitution & Funding Division
Area 3J Victoria Quay
Edinburgh EH6 6QQ.

A draft pro-forma for reporting these details is attached at the Appendix.

17. Each authority will also be required to provide details, via an amended CTRR return, of the additional revenue generated by reducing the discount. Figures both for the amount billed, amount received and amount designated for RSLs will be required.

18. In addition the Scottish Executive has agreed that Communities Scotland Area Offices will monitor the provision of new housing, via the additional income from local authorities, as follows:-

• Where Local Authorities top up existing Communities Scotland funding for specific projects or transfer resources to provide additional funding for new eligible RSL projects, Communities Scotland Area Offices will be responsible for recording and reporting all information at tender approval and project completion stage.
• Where Local Authorities are responsible for managing development funding, any additional funding and funded projects will be identified on RESOURCE, and monitoring provided in this way.
• Where Local Authorities fund discrete RSL projects, details of each project funded will be supplied by the Local Authority to Communities Scotland Area Offices at each stage between tender approval and completion stage for all provision funded or supported via the additional income.
• Where Local Authorities use funding to secure the purchase of land for future RSL affordable housing developments; or to fund specific water and wastewater infrastructure costs as part of an agreed RSL affordable housing programme, this should be reported in writing to Communities Scotland Area Offices on an annual basis to allow a funding reconciliation process to be undertaken.

Enforcement

19. By the end of July 2006, and each financial year thereafter, Communities Scotland will provide details to the Scottish Executive of local authorities agreed funding levels on affordable housing, broken down into local authority areas. This will be compared against the reported additional income which local authorities expect to generate from reducing the discount, which will have been reported by the Scottish Executive Council Tax team to Communities Scotland's Head of Investment/Area Offices. If the two amounts do not match, an explanation will be sought from the local authority concerned. If, following this explanation, the Scottish Executive considers the money has not been directed, or will not be in the future, towards the provision of new-build affordable housing then this will be reflected within that local authorities grant via a redetermination within the following financial year's Local Government Finance Order, which sets out grant levels for local authorities. The money taken from the grant will then be provided to Communities Scotland for housing projects within the area of the local authority concerned.

Publicity

20. Local authorities should consider how they will publicise their policy in relation to the discounts, prior to the financial year to which the policy relates. One way of doing this would be to announce the policy alongside the announcement regarding council tax levels, however this is left to the discretion of each local authority.

Enquiries

21. If you have any questions regarding this guidance please contact me on 0131-244-7051.

Yours faithfully

BILLY MCKENZIE

APPENDIX

LOCAL AUTHORITY POLICY IN RELATION TO COUNCIL TAX DISCOUNT FOR SECOND HOMES AND LONG-TERM EMPTY DWELLINGS

Contact name and telephone number:
If policy is modified for particular areas within a local authority please provide details:
Long-term empty dwellings policy:
Second Homes policy:
Local Authority: