Common Weal Policy’s second analysis piece of the Commission on Local Tax Reform’s final report comes from Dr David Comerford, Research Fellow in Economics at the University of Stirling and author of a submission to the Commission. Dr Comerford argues that the fear of the inevitable winners and losers that will come from establishing a new local tax policy appears to have pushed the Commission towards shying away from “strong proposals”.
WHEN the Scottish Government and Cosla set up the Commission on Local Tax Reform, it was hoped that a cross party group could come up with a single recommendation that all the parties had some buy-in to. The political incentive then would be to implement the proposal because all the parties would be tied in to some extent and could be seen to be acting in bad faith if they turned round and disowned the proposals at the last minute. The first sign that such a productive outcome would not be achieved came when the Tories refused to join the Commission, thereby ensuring that there was always going to be one party who could argue against any conclusion reached by the Commission without loss of face.
Now the Commission has reported, and while its report hints at positive recommendations and it details many of the issues that must be considered, it does not make strong proposals in a form that will in any way bind the SNP, Labour, Lib Dems and Greens to act in concert to ensure reform. Maybe this is because of disagreements between the parties within the Commission, or maybe the evidence they received was conflicted or unconvincing (and I say this as one of the contributors to the evidence base that the Commission used in drawing up its report).
The issue is that any proposal which generates the same revenues as the current Council Tax, but that represents some real change, necessarily produces winners and losers. Unfortunately, both in individual psychology and in politics, losers from some imposed change tend to notice that they are losing out and be very unhappy about it, while the winners quickly forget that they’ve benefited. If party X proposes some change, then party Y can identify the losers from X’s proposal, and produce a counter proposal that these losers can rally around. But if this counter proposal makes the losers from X’s proposal happier, then it likely doesn’t appeal to the winners from X’s proposal. The issue of which change to implement quickly degenerates into anecdotal examples of some poor soul made worse off the other lot’s proposal. The only way to have no one worse off, is to make no changes.
“Unfortunately, both in individual psychology and in politics, losers from some imposed change tend to notice that they are losing out and be very unhappy about it, while the winners quickly forget that they’ve benefited.”
This is unfortunate because there are many reasons, well outlined in the report, for wanting to change the Council Tax. I would like to see a system of land and property tax in Scotland that was much better designed than the current system of Council Tax. A progressive land or property tax would remove the incentives to under-supply and under occupy land and property, and would encourage people to move, more efficiently using the housing stock. Exemptions on empty properties encourage owners to keep their properties empty, and single person discounts encourage single occupancy, both inefficient uses of housing. The other side of this coin is that there are families crammed into housing that is too small, and workers living too far from their workplaces, contributing to congestion and pollution. These are not problems that can be solved by building more: the desirable locations already have someone living there. Tax policy should be used to promote the efficient sorting of people across locations. Using the housing stock more efficiently would also reduce homelessness.
As well as providing these perverse incentives, the Council Tax is also fairly regressive, top bands pay only three times the bottom bands (despite house price differentials of around fifteen times), and Council Tax bills make up a larger share of household income for poor households than they do for wealthy households (even allowing for Council Tax Reduction). There therefore should be many in favour of change, but even if everyone agrees that there should be reform, the scope for conflict between different proposals is large (which can lead to the fall-back of doing nothing). The main fault-lines will likely be between those who favour land and property taxes on one hand, and those who favour a local income tax on the other. As someone in the land and property tax camp, I was pleased that the guarded recommendations of the report, as far as they went, were ” The predominant view of the Commission is that any reform of local tax has to include recurrent tax on domestic property, but that any such system needs to be more progressive than the current Council Tax system. “
“There is much that is good in the report, but its cautious language and its extensive coverage of the arguments for a Local Income Tax, especially on the grounds of perceived “fairness”, reveal some of the battle-lines ahead.”
But the report goes on to make much of the certainty that there will be some low income households who will lose out from a progressive property tax and who would prefer a Local Income Tax. For example ” if somebody … loses their job, they need to know that their tax bill will reflect their changed circumstance. A local income tax would, by definition, adjust to reflect a reduction in pay “. Of course there should be income support for those with low incomes, and additional temporary funding for newly unemployed to help with the transitional to new circumstances. But this shouldn’t extend to subsidising people who once could afford large expensive houses to stay in large expensive houses. It is having a low income that should attract benefits – not having a low income AND choosing to live in a high value house. There are many people who would like to live in a larger, better quality house, in a high amenity area, so subsidies to just one group are unreasonable – especially since the eligibility requirement for membership of this group seems to be ‘previously had a high income’.
There is much that is good in the report, but its cautious language and its extensive coverage of the arguments for a Local Income Tax, especially on the grounds of perceived “fairness”, reveal some of the battle-lines ahead. What will the manifestos for Holyrood 2016 look like in light of this report, and will the lack of clear conclusions lead the parties to take the easy way out and opt for no change?