Comment

Solving the Council Tax Conundrum

By Lesley Brennan / @LesleyEastend

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The old adage goes that death and taxes are the only inevitability in life.  For many years this has included grasping the nettle on reform of local government taxation.  In Scotland, the Council Tax has been stuck in a virtual time-warp since it was introduced to replace the Poll Tax in 1991.  With no revaluation since, the bandings explained on the back of your bill seem from a different era.

The SNP were elected in 2007 on a promise to “scrap the unfair Council Tax and replace it with a Local Income Tax”, the first part at least, emblazoned on billboards across the country.  As with so many of their promises, this turned out to be much more complicated that they first realised.  Initially blaming their lack of overall majority, they then hid behind economic crisis to introduce a populist but regressive council tax freeze.  In 2011, they stood on a platform of continuing the freeze for the full five year parliamentary term but faced with the fact that this was ultimately unsustainable, the Scottish Government put together a cross-party Commission on Local Tax Reform to examine alternatives.  With that five year term up and after nine years of freeze and consequent pressure of local government budgets, predictably Nicola Sturgeon has bottled it and ignored the findings almost completely.

A prisoner to its own populism, the SNP’s plan is to adjust some of the Council Tax bandings, with no revaluation.  The previous promise to scrap it and replace it with a local income tax is of course, brushed over.

The trap the SNP, and indeed the Lib Dems before them, fell into in the beginning was to buy the seductively simple argument that Local Income Tax is a progressive and workable alternative.  This was a popular view in the mid-2000s but failed to take account of the complications of adjusting income tax for local scenarios, where people often live and work in different local authorities, not to mention that fair taxation requires striking the right balance between taxes on income and wealth.  Property, whether owned, under-mortgage or rented can often be a better proxy for wealth than income alone, and importantly for funding local services, is relatively stable.

Kezia Dugdale and Scottish Labour have taken the initiative and put forward its own plan to scrap the Council Tax and replace it with a fair Property Tax.

 

How the fair Property Tax works

  • For properties of £180,000 or less the tax would be levied at a rate of £450 + 0.35% of the property value.
  • For properties above £180,000 the portion above £180,000 would attract a rate of 0.9% of property value.
  • The maximum charge under this scheme would be capped at £3,000 in year one, with a 3 percent cap year on year.

 

Over 2 million households (2,076,064), 85% of all households would be better off under Scottish Labour’s fairer plan as the table with a selection of properties demonstrates:

House Value Notional Council Tax Band[1] Average Council Tax charge under SNP proposals Fair Property Tax Difference

Between Labour’s plans and the SNP plans

 £60,000 A £766.00 £660.00 -£106.00
 £100,000 B £894.00 £800.00 -£94.00
 £140,000 C £1,021.00 £940.00 -£81.00
 £180,000 D £1,149.00 £1,080.00 -£69.00
 £220,000 E £1,510.00 £1,440.00 -£70.00
 £260,000 F £1,868.00 £1,800.00 -£68.00
 £300,000 F £1,868.00 £2,160.00 £292.00
 £360,000 G £2,250.00 £2,700.00 £450.00
 £660,000 H £2,815.00 £3,000.00 £185.00

 

Revaluation at last

Analysis from the Commission on Local Tax Reform with Heriot-Watt University found that the SNP failure to address the current system leaves 57% of properties in the wrong band: 28% households should pay less, and 29% should pay more.

As previously mentioned, current bands and valuations are 25 years out of date.  The SNP have chosen to keep this system, maintaining a regressive system, and breaking their promise to abolish the hated Council Tax.

Scottish Labour’s system will reflect our changed housing market by realigning the average taxation paid towards local services with average house prices, give a tax cut to millions, and will ensure that the richest pay their fair share for local services.

 

What happens each year?

Annual increases linked to local house prices would be capped at a maximum of 3%, the same cap placed on the continuing council tax as the SNP, with Local authorities would be responsible for setting the increases.  House prices vary between regions of Scotland and annual updating of value would be done on a regional basis to maintain fairness.

Adjustments could be made to the percentage of property value rate to ensure this 3% cap is not exceeded.  That means that if local house prices increase by more than 3% the cap won’t.

 

Discounts, rebates and exemptions

All discounts rebates and exemptions would continue to apply, protecting those households who benefit from them.

Recognising that there are some circumstances where householders, particularly elderly householders, are asset rich and income poor we will establish a new system of protections to apply in those cases, we will consider options including registering agreed charges against the property.

Liabilities will reduce for the cheapest homes, meaning we spend less correcting the flaws of an unfair system.  For householders who are asset rich and cash poor who may find more proportionate rates burdensome,

 

New Powers for local government

Under Scottish Labour’s plans more than two million households, 85% of people, would be better, but unlike the SNP, Scottish Labour believes Devolution shouldn’t stop at the Scottish Parliament.   That is why we will empower local government with new tax powers to raise additional revenue for local services and pursue economic development. This means the burden of local taxation will be more fairly spread

Local government will gain the ability to raise additional revenue for local services by being given the power to introduce a tourist tax of up to £2 per visitor per night and levy a land value tax on undeveloped  brownfield land.   The revenues from the Crown Estate will also be devolved to local government.

The effect of the SNP’s decision to freeze the Council Tax for nearly a decade, has not just been to starve local services, including those depended on by our most vulnerable citizens, but to increasingly centralise decisions.  Taken together, these new tax powers are worth over £150 million to local government in Scotland, but crucially, can also herald the long over-due rebalancing of power between central and local government and a much healthier relationship between both.

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