Committee
Finance and Constitution Committee 05 October 2016
05 Oct 2016 · S5 · Finance and Constitution Committee
Item of business
Land and Buildings Transaction Tax
Before I start, I draw members’ attention to my entry in the register of interests with respect to property investments. There is obviously quite a lot in this, so I will try not to chew up too much of the time. Basically, you have compared the outturn to the forecast, which is fine as far as it goes, but the problem with that is that it might mean only that the forecast was wrong. I know that the forecast was changed through the year, so if the forecast is wrong, that is all the comparison tells you. I am more interested in the comparison with previous years and in whether the total tax take has gone down compared with the take in previous years as a consequence of the move to LBTT. It might be interesting to hear your comment and we can drill into it in a bit more detail. I understand what you are saying about the modelling of the forecasting but, again, there is clearly no historical data to base it on because of the change. My statistics is a bit rusty, but I think that the log-normal distribution will depend on the value that you have for the standard deviation. If that changes, the profile will be different. All the data is telling you is that that is what has happened. The forecast aspect of the log-normal distribution has not fitted to what has happened because you have not forecast it correctly and picked the right values there. The average and the median have taken a downward shift, and you are right that there is a tilt away from the upper end of the house spectrum because the difference between those two is bigger than it was before. They are both down and that says that there is a clearly an impact from the forecast being wrong, because house prices in general—not just the distribution—were expected to be higher than they were. You could comment on the forecasting. As I say, the biggest thing that I want to talk about is how the impact compared with the impact in previous years. In the data that I have seen, the number of transactions in the key £375,000 to £750,000 range looks to be at least as high as it was previously. I do not think that there is any issue with the number of transactions in the top range apart from forestalling; the number has held up very well, as far as I can see. You might want to comment on that.
In the same item of business
The Convener
SNP
Item 2 is to continue to take evidence in our inquiry into the first year of operation of land and buildings transaction tax. We will have two separate sessi...
Lady Susan Rice (Scottish Fiscal Commission)
I will just say a few words. I thank the committee very much for having us at the meeting. Most of you met us during your business planning day, but we thou...
The Convener
SNP
That means that you get to answer all the hard questions, Charles.
Lady Rice
Charles Nolan is our interim appointee, approved by members, until 1 April next year. He came on board at the beginning of the summer and has jumped in with ...
The Convener
SNP
Thank you, Lady Rice. We have asked questions about the compatibility of different sets of figures in previous meetings, so your explanation of how different...
Professor Campbell Leith (Scottish Fiscal Commission)
I will take this one. As you said, three economic determinants go into the residential LBTT forecast: the average house price, the median house price and the...
The Convener
SNP
Okay. It is complicated. The forecasts were not quite where the outturn turned out to be, so where in the forecasting process did that disparity, if that is ...
Professor Leith
Table 1 in our outturn report shows exactly what we tried to do. The first column in table 1 gives details of what was forecast for the relevant economic det...
Ivan McKee (Glasgow Provan) (SNP)
SNP
Before I start, I draw members’ attention to my entry in the register of interests with respect to property investments. There is obviously quite a lot in t...
Professor Leith
There are a lot of points there; I will try to remember each of them. Table 1 does not just compare the forecast with the outturn; it tries to decompose the...
Ivan McKee
SNP
Basically, the data that I have—which I have not had time to compare to your log-normal distribution—says that the number of transactions in the £325,000 to ...
Professor Leith
The average numbers pre and post-financial crisis were a bit higher and lower. If we looked at those two relative averages, I would expect that the share wou...
Ivan McKee
SNP
Okay. Are you saying that you cannot answer the question, “Has the change to LBTT hurt the tax take to the Scottish Government?”—which I think is the key que...
Professor Leith
Yes. It is a different tax regime, so we were not expecting it to generate the same amount of tax.
Murdo Fraser (Mid Scotland and Fife) (Con)
Con
I will pursue some of the questions that Ivan McKee raised. Table 3 in your paper shows the outturn revenues compared with the forecast revenues. It is clear...
Professor Leith
Yes, that is possible. We have Revenue Scotland data only for the entire band; we do not have data on sub-bands within the band. If we had such information, ...
Murdo Fraser
Con
In a previous session, the committee picked up that having the ability to interrogate the data further to understand what is happening within such a broad ba...
Professor Leith
Yes. Transactions appear to have been brought forward into March, which was a particularly buoyant month. As the situation was not obviously as buoyant in th...
Murdo Fraser
Con
So, in the absence of that forestalling effect in this financial year and subsequently, we might expect that to disappear and a more normal pattern to appear.
Professor Leith
Yes. In the report, we look at March and then we look at April to identify whether the buoyant returns in March were sustained into April. Our tentative conc...
Murdo Fraser
Con
My final question, which goes to the heart of the matter, is about your comments in paragraph 3.24 about what has been happening in the market, particularly ...
Professor Leith
We cannot draw that definitive conclusion based on the limited data that we have at the moment. The report notes that that is the band in which revenue seeme...
Murdo Fraser
Con
At what point will we have sufficient data to be able to draw conclusions?
Professor Leith
We would need to rule out all other options. We would need to rule out the possibility that damage to the property market in the Aberdeen area is causing the...
Professor Charles Nolan (Scottish Fiscal Commission)
In principle, that could take quite a long time. Even with the additional dwelling supplement, it will be 18 months down the line before we have the final da...
Murdo Fraser
Con
You are keeping a close eye on the issue and monitoring it.
Professor Nolan
Yes. Most of the tax take comes from the top two bands so, clearly, in forecasting the tax take, you want to get those two right.
The Convener
SNP
You have just had a discussion with Murdo Fraser about the breakdown of the figures in the £325,000 to £750,000 band. We have discussed that with other witne...
Professor Leith
We requested data broken down as much as possible. The data that was received was broken down by price band. I do not know whether further breakdown would be...
The Convener
SNP
We have witnesses from Revenue Scotland next, so we can follow that up with them.