Scottish Council Tax reform: the latest developments

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The current Council Tax system in Scotland dates from 1993.

Among the criticisms of the system is that – although it is based on property values – there has not been a revaluation for over 20 years. It is also argued that the Scottish Council Tax freeze, which has been running for eight years and is funded from the Scottish block grant, benefits disproportionately those who live in high value properties. There is also concern that, contrary to the general public’s perception, Council Tax only contributes 12% of Scottish local government funding – with most council expenditure being funded by national taxation.

The Commission on Local Tax Reform was therefore established jointly by the Scottish Government and COSLA (the Convention of Scottish Local Authorities). It was tasked with finding possible replacements for the current system.

The Commission issued its report on 14 December 2015.

The report says the current Council Tax system “must end”; markedly, that is item number one of the Commission’s list of conclusions and recommendations. It sets out a variety of alternatives and explains whether – in the Commission’s view – these would be fairer, more efficient and stable than the existing system, and how they might be implemented.

So what alternatives does the report set out?

The report sees three main options.

  1. A replacement property tax. This would be based on the value of land and buildings.
  2. A land value tax. This would only take into account the value of land only – and not the buildings on it. However the Commission acknowledges that it faced difficulties in fully separating out the value of the land tax base from the property tax base – so, while it describes a system of land tax as “promising”, it says gaining a full understanding of its impact would need further analysis.
  3. A local income tax.

The Commission is at pains to point out that it is unconvinced that just one of those options alone can be “all things to all men” by being fairer, giving Councils more autonomy, being efficient and being easily implementable. So it says the Council Tax replacement “would benefit from including multiple forms of tax which would allow local taxation as a whole to be fairer”.

The Commission’s predominant view is that the replacement system should feature a recurrent tax on residential property (but on a more progressive basis than Council Tax). It also has a predominant view that a local income tax should play a part too – but, as just one of example of the political context surrounding any proposed reform of local tax, Commission member and Labour MSP Jackie Baillie specifically dissents from that view within the report.

What else does the report say?

The Commission say the new system should offer Councils the ability to set the tax rates locally “wherever possible”. It also asks for simplicity, so that complex relief schemes are avoided. It also thinks it is “vital” to have a transitional framework to avoid a sudden consequence of some individual taxpayers paying much less and some paying much more than under the current system. Lastly, it also recommends that the new system gives Councils flexibility to manage inevitable fluctuations in revenues over the years due to economic downturns and the like.

What next?

The Commission has now handed the baton on Council Tax reform to the political parties in Scotland, with the expectation that the parties will use the report to “inform” their individual proposed policies for next May’s Scottish Parliamentary election.