Future Scottish council tax may be based on property prices
Respected Scottish think tank pushes plan which would see householders pay a percentage of their home’s worth every year
COUNCIL tax should be scrapped to be replaced by a fairer and more radical way of raising revenue, based on the value of property, according to new research.
The Institute for Public Policy Research Scotland, the respected think tank which advises Government says that the council tax used by local authorities to run local services, from running schools to maintaining roads, is outdated and unfair on the poorest in Scotland.
It believes a new, annual fairer property tax, similar to that developed in Northern Ireland, which would see Scots householders pay a percentage of their home value every year, with area variations, is the way forward as the nation pays for the huge public debts incurred by the Covid-19 lockdown.
But Age Scotland, the national charity for older people, has warned that any replacement for the council tax had to be “fair and affordable” and not penalise the elderly who have lived in their homes for many years but whose income is fixed, low or modest.
“The next Scottish Government should take a hard look at council tax to ensure that local services are funded to the degree they need and it is fairer for people on low incomes,” said Age Scotland chief executive Brian Sloan.
To raise the same amount of money as the council tax this year, a 0.75 per cent levy would be imposed, the research revealed.The plan would also involve cutting bills for those on the lowest incomes.
Revaluation of property
THE move would require a full-scale revaluation of property in Scotland – and would need to run alongside radical tax-raising powers – while protecting those in poverty.
The plan has come at a time when all of Scotland’s 32 local authorities have frozen council tax rates at last year’s levels. The Scottish Government offered councils incentives in return for not raising the cost of the bills. To do that, local authorities were to receive £90 million, the cash equivalent of a 3% council tax increase from the Scottish Government in return for not putting up levels.
IPPR Scotland says the public spending plan has been drawn up at a time when council tax in Scotland currently does not raise enough money.
And with more income required in future years to pay for services and balance books to avoid service cuts, it is only likely to get worse.
Russell Gunson, director of IPPR Scotland and joint author of the study, said: “We must see radical reform of local tax in Scotland, with primary legislation introduced in the first year of the parliament. Implementation would take a number of years which is why we must move quickly, and also why we must improve council tax in the meantime.
“Securing a recovery from Covid will not be easy. It will be harder still to deliver a recovery that does justice to the sacrifices of the last year. But if we are bold and ambitious, and make the hard choices needed to match our high level of ambitions with action, we can secure the recovery we need to build a Scotland better than before.”
The new percentage of property value tax would include additional support to ensure no-one in poverty had to pay the tax, and there would be assistance to help low to middle-income households with increases.
It would be set up to ensure that only higher-income households in higher-value properties pay more than now.
It could be phased in and run alongside the current council tax system initially, and include the possiblity of introducing it only for those who moved home – protecting pensioners who may have lived in their house all their lives.
Northern Irish example
A WHOLESALE move to the new system would have transitional arrangements to cushion any tax increases. In Northern Ireland, the tax on property consists of a regional rate set by the Northern Ireland Assembly and a district rate set by local councils.
The suggestion comes as Covid-19 has made the UK and Scotland significantly poorer.
GDP (gross domestic product) is one of the most important ways of showing how well, or badly, an economy is doing.
And, in December 2020, it was almost 10% lower than it was at the start of the year before the Covid-19 pandemic hit.
In January, UK Government borrowing hit £8.8 billion, the highest January figure since records began in 1993, reflecting the cost of pandemic support measures.
It was the first time in 10 years that more has been borrowed in January than collected through tax and other income.
Government borrowing for this financial year as of January had reached £270.6bn, which is £222bn more than a year ago, according to the Office for National Statistics. The deficit will need to come down at some point once recovery has been secured.
The new analysis says that while
We must see radical reform of local tax in Scotland, with primary legislation introduced in the first year of the Parliament. We must move quickly
The Covid crisis has affected us all, but it has not done so equally. We must remember that when it comes to paying for the recovery
undertaking radical tax-raising reform, the next Scottish Government should commit to “closing the tax gap” in council tax revenues between Scotland and the rest of the UK, worth an estimated £600m and £900m per year.
It said if Scotland’s council tax bills were on average the same level as Wales, we have around £600m more to spend each year.
And if bills were the same on average as in England, the nation would have around £900m more to spend each year.
‘Rebuild Scotland’
SO, while local authorities agreed on a council tax freeze this year, IPPR Scotland says there is “significant headroom” to raise council tax in Scotland and help “rebuild Scotland” post-Covid.
They suggest that before scrapping council tax, and throughout the next Parliament, council tax bills should go up more quickly for higher-value properties than for lower-value ones.
One proposal would see higher increases for higher-value properties in each year of the next Parliament which could raise an additional £380m a year by 2025/26.
Mr Gunson said the replacement of the council tax was needed as it is “out of date” with property value having changed hugely over the last 30 years and while the system has “not kept up to date”. This has left properties in the wrong bands with some paying too much and others paying too little.
But the think tank said the replacement of the council tax system should run alongside developing other levies to ensure the system “is as broad and as fair as possible”.
This would include testing of local carbon, land and inheritance taxes.
Mr Gunson said: “The Covid crisis has affected us all, but it has not done so equally.
“We must remember that when it comes to paying for the recovery.”
The revolutionary council tax plan has come against a background where, as the pandemic hit the country’s finances, those on higher incomes and those with wealth and property have, on average, seen their finances improve, IPPR Scotland said.
Those on higher incomes were more likely to be able to work from home, and seen incomes and health protected at the same time as seeing spending fall – through “forced saving” as luxuries such as dining out and holidays became impossible.
Those who own their own home have seen house prices in Scotland jump by over 8% throughout 2020.
IPPR Scotland says that when it comes to paying for the pandemic, “we must do so fairly” and adds that those who lost the least through the crisis should contribute the most through the recovery.
Reform needed
THE Chartered Institute of Public Finance and Accountancy, the professional institute for accountants working in the public services, recognises that new ideas and reform were needed to cover the cost of council services.
Richard Lloyd-Bithell, senior technical manager at CIPFA said: “Covid-19 has further emphasised that the primary streams of income for local authorities, which include council tax, are no longer sufficient to cover the cost of public services. The financial resilience of local authorities has never been so fragile and local taxation as a whole is in desperate need of reform.
“CIPFA continues to advocate for greater devolution of powers to local authorities, including greater fiscal powers, to give councils greater access to a plurality of income streams.”
Public Finance Minister Ivan McKee said that reforming council tax and local government is one of the issues they will look at in the annual Citizens’ Assemblies the SNP will establish if re-elected.
“If re-elected, the SNP has pledged to scrap the council tax charge for everyone under the age of 22 – expanding the current exemption for students to all young people, including those in work and apprenticeships – and resume the discussions we were having on a replacement for council tax, which had to be paused during the pandemic,” he said.
The Convention of Scottish Local Authorities declined to comment.