New construction tax for Scotland | ICLG

Holyrood is to impose a levy on new construction projects, to the dismay of the industry and relief of en…

Holyrood is to impose a levy on new construction projects, to the dismay of the industry and relief of environmentalists.

On Wednesday the Scottish government unveiled plans to introduce a new building levy aimed at raising additional funds for infrastructure development and environmental projects. This proposal, which is yet to be debated, forms part of the government’s broader strategy to meet its ambitious climate targets and address growing concerns around housing and public services. The levy, which would apply to certain new construction projects and which has been rumoured to be in the pipeline for some time, has ignited heated discussion among stakeholders, including the construction industry, local authorities and environmental groups.

The government has said that revenue from the new tax will go towards funding public transport, schools, health care facilities and public utilities, while a substantial portion of the proceeds would be directed towards environmental initiatives, such as enhancing biodiversity, improving air quality and supporting the transition to renewable energy sources, the latter being a matter of some urgency, with Scotland having already committed itself to legally binding net-zero targets for 2045. With that in mind, the proposed new legislation empowers local authorities to use the funds raised through the levy to finance specific green projects in their regions, including electric vehicle charging points, tree planting and flood prevention schemes.

HOW THE LEVY WILL WORK

Under the proposed legislation, the levy would apply to residential, commercial and industrial developments over a certain size. The exact rates and criteria are still under consultation, but it is expected that larger projects will face higher charges to reflect their increased impact on local infrastructure and the environment. Exemptions may be considered for certain types of affordable housing projects and community-led initiatives, ensuring that the levy does not unduly burden developments aimed at addressing Scotland’s housing crisis.

The government has stressed that the levy will be designed to balance the need for investment in public services with the desire to avoid discouraging new construction. It is hoped that by linking the levy directly to specific infrastructure and environmental improvements, developers and local communities will see tangible benefits from the new charge.

STAKEHOLDER REACTIONS

The levy has elicited a range of reactions from various sectors. The construction industry has said that imposition of the levy will increase costs and slow down the rate of building in a country already facing a housing shortage, with representatives from the Scottish Property Federation (SPF) warning that developers could be forced to pass on the additional costs to buyers and renters. An SPF spokesperson wrote in a statement: “While we understand the need to fund infrastructure and environmental projects, it is vital that any new charges do not stifle investment or worsen the affordability crisis in Scotland’s housing market. We look forward to engaging with the government to ensure that the levy is fair and proportionate.”

On the other hand, environmental groups have largely welcomed the proposal, viewing it as a necessary step towards more sustainable development practices. Friends of the Earth Scotland issued a statement praising the levy’s potential benefits: “This is an important opportunity to make sure that new developments contribute positively to Scotland’s environment, both by improving local infrastructure and by funding projects that will help us tackle climate change.”

Local authorities, who would be responsible for administering the levy and allocating the funds, are more cautious, especially those that our not governed by the SNP, the ruling party in Holyrood. It is nonetheless a matter of public record that many councils have been grappling with funding shortfalls for infrastructure projects and the levy could provide a new revenue stream.

If approved, the new levy will represent a clear change in how Scotland funds its infrastructure and environmental projects. As the country continues to navigate the twin challenges of climate change and a growing population, the government will doubtless be hoping that what is effectively a new tax on building and infrastructure companies will ensure sustainable development for future generations. However, striking the right balance between generating revenue and encouraging new construction will be crucial to its success. Moreover, with the UK government currently facing desperate calls for funding – not least for education, health care and defence – Chancellor of the Exchequer Rachel Reeves is likely to be casting her eye north of the border with some interest as she grapples with the challenge of finding new revenue streams while sticking to her manifesto commitment of not raising personal taxation.