Cladding levy poses ‘significant risk’ to housing market, MSPs warn

A proposed cladding levy carries “significant risk” for Scotland’s housing market, Holyrood’s Finance Committee has said.

The Scottish Government plans to introduce the Scottish building safety levy in April 2028, funding the cladding remediation programme to tackle unsafe cladding on buildings.

This would be a new national devolved tax paid by developers of newbuild residential properties, equivalent to the UK Government’s building safety levy in England.

The Finance and Public Administration Committee said it is “unconvinced” the Scottish Government has fully considered the implications of the Scottish Building Safety Levy Bill on its self-declared housing emergency.

The Government declared a national housing emergency in May 2024 during a Labour-led debate at Holyrood calling for the move.

Committee convener Kenneth Gibson said: “Our committee understands the Scottish Government’s intent behind this Bill, but we believe the introduction of the levy carries significant risk.

“We have concerns regarding its potential impact on the housing market, and on the delivery of houses in areas where the viability of building sites is already challenging.

“We are unconvinced that the Government has fully considered the implications for its self-declared housing emergency when designing the policy approach for this levy.

“We also believe the policy design has been focused on the arbitrary figure that the levy could raise, and not sufficiently focused on developing a good, well-structured levy that is sustainable.

“On the basis of the evidence received, our committee makes no recommendation on the general principles of the Bill.

“We trust that the Scottish Government will respond positively to our recommendations to inform further discussion of the general principles during the stage one debate in the chamber in January 2026.”

The committee is also calling on the Government to carry out market “sensitivity analysis” prior to deciding levy rates and reliefs, and to monitor the effect of the new tax on the housing sector.

Mr Gibson continued: “Our committee recommends that the reporting requirements in the Bill be strengthened, so that the Government is required to report every three years on how the levy is working. That report should include an assessment of how the levy is impacting the Scottish housing market in practice.

“Our committee does not consider the levy to be fully reflective of the sensitivities of the housing market in Scotland. We therefore recommend the Government undertakes a sensitivity analysis to assess in more detail the impact of the levy on the housing market – in particular on rural sites and on SME developers.

“The analysis should be published in time to inform the Government’s decisions in setting levy rates and, where applicable, any reliefs, through secondary legislation.”

The Bill was due to be rolled out in April 2027, however in November public finance minister Ivan McKee said the levy will be pushed back until April 2028 to give more “clarity” to developers.

A Scottish Government spokesperson said: “The Scottish Government is committed to doing what is right and necessary to address the challenge of fixing buildings affected by unsafe cladding.

“The development of a levy helps ensure developers make a fair contribution to these costs, just as they are being asked to do under equivalent legislation in England.

“The design of the levy seeks to minimise any negative impacts on housebuilding, such as including protections for small developers and the affordable housing pipeline, while also facilitating funding to support Scotland’s cladding remediation programme, which will make buildings safer.”