A replacement for Council Tax: The latest developments

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.

The Commission on Local Tax Reform has therefore been established jointly by the Scottish Government and COSLA. It has been tasked with finding a replacement for the current system.

Marco Biagi MSP, Co-Chair of the Commission and Minister for Local Government and Community Empowerment in the Scottish Government, has stated that the Commission will “consider progressive, workable and fair systems, taking into account domestic and international evidence on tax powers and wealth distribution, the autonomy and accountability of local government, and the impact on individuals who pay the tax.”

The Policy Scotland evidence review

As part of the Commission’s evidence-gathering, Policy Scotland at the University of Glasgow have completed an evidence review. It draws on international evidence and experience about local taxation, different models of local taxes and, in particular, experience with local tax reform in recent years.

The review’s main findings include:

• Local taxation systems differ around the world – but reform is always difficult to deliver. The aged nature of the current Council Tax system will make reform in Scotland particularly tricky.
• Property taxes are common. Reasons include that they are hard to evade, local government services are delivered to occupiers and owners, public services can lead to uplifts in land values, they are stable, and they are distinct and therefore accountable.
• But that does not mean local property taxes are always popular. They are visible. There can be public confusion as to whether they are a tax on housing, a tax on wealth or a charge for services. That can lead to a lack of consensus on the fairness of different models, and therefore a politically dictated complex system of rebates, deferral systems, payment limits, progressive rate structures, caps, delayed reassessments and so on.
• Although a property tax can have desirable impacts on housing markets and land use, the design of the tax is crucial – there is lots of international evidence suggesting that inappropriate application of a property tax in practice can be harmful.
• The interaction of local tax with other government taxes needs careful consideration.
• Internationally, and unlike in the UK, cities and local governments typically have more than one local tax at their disposal. This gives flexibility, but can be difficult and expensive for local authorities to manage – and for taxpayers to accept.

What next?

The Commission is conducting a series of “listening events” across Scotland during August and September to gather views from the public.

Marco Biagi has commented that the review shows that the Commission are “not alone in facing these challenges and there is no perfect ready-made solution out there”. This tends to suggest that the recommended replacement (or indeed replacements) for Council Tax in Scotland will be quite bespoke.

The Commission’s final report is due to be published in the autumn.

For more information, please contact Roland Smyth (0131 200 7546).