Report: New local taxes could reduce emissions and raises hundreds of millions for Scotland


New report from IPPR Scotland argues that reforming Scotland’s tax system and introducing wealth and green taxes are possible with Scotland’s current powers

  • ‘Thinking Bigger on Tax in Scotland’ report proposes a local inheritance tax, a low carbon tax, a local payroll tax and a fair work supplement, which would aid in the redistribution of wealth, fund public services and Scotland reach net-zero emissions
  • IPPR Scotland director Russell Gunson: “Scotland has led the way in using its powers to create a more progressive income tax system. But if we want to go further, using our older powers over local tax could be crucial.”
  • Report welcomed by Scottish Greens, who reiterate calls for the replacement of the “regressive” council tax

THE Scottish Parliament could introduce wealth taxes and green taxes capable of raising hundreds of millions of pounds per year under its existing powers, a new report from IPPR Scotland has argued.

In ‘Thinking Bigger on Tax in Scotland: Using Scotland’s local tax powers to their full potential’, the think tank argues that a progressive new local inheritance tax could raise up to £200 million per year, while a local Carbon Tax could reduce emissions and help fund efforts to combat environmental breakdown.

The newly published report found that the powers necessary to shape a more progressive tax system are already devolved to Scotland, and proposes five key ways that Scottish politicians can use these levers to “think bigger” in reforming local taxation. These are:

  • A local inheritance tax, which would be set at 10 per cent rate for estates worth over £36,000, which it is estimated would raise £200 million per annum – funds which could be used to support Scotland’s public services.
  • A local carbon tax based on a similar levy recently introduced in Canada, which would apply to business which import and deliver certain fuels. IPPR suggests such a tax could help Scotland meet its targets for net-zero emissions, with proceeds flowing to local government to fund further carbon reduction measures.
  • A local payroll tax – or a low pay levy – would be paid by employers which provide low wages, encouraging pay rises for the lowest earning workers in Scotland. This would, IPPR argues, raise a further £600 million per year.
  • A fair work supplement would also be introduced to the existing business rates system for employers who do not meet fair work standards, in the hopes of improving working conditions across Scotland.
  • IPPR also proposes that income tax revenue from devolved taxes could be assigned directly to local government in order to allow for three or five-year council budgets, thus lessening political uncertainty around local government budget decisions.

Commenting on the new report, IPPR Scotland director Russell Gunson said: “Scotland has led the way in using its powers to create a more progressive income tax system. But if we want to go further, using our older powers over local tax could be crucial. The Scottish Parliament is beginning to wake up to this, including through proposals for a tourist tax, but so far these ideas are small in scale.

“New taxes could see us put our money where our mouth is on the huge priorities facing Scotland. Our politicians should be far more ambitious on tax, thinking bigger to build a stronger, more progressive tax system that better narrows wealth inequalities, tackles environmental breakdown and delivers a fairer economy.

“The potential for our local tax powers has in many ways been overlooked in recent years, but in Scotland we can do more – and we should.”

“The potential for our local tax powers has in many ways been overlooked in recent years, but in Scotland we can do more – and we should.” IPPR Scotland director Russell Gunson

STUC General Secretary Grahame Smith also commented: “We were pleased to provide resources and input to this report which reveals the enormous potential for revenue raising within the devolution settlement.  The report can help move us on from a sterile debate which has been focussed mainly on income tax and on the limitations of the current devolution arrangements.  Instead we can consider international examples of how revenues can be raised and the how the role of democratically accountable local authorities enhanced.

“Fundamental to tackling poverty and inequality are well resourced public services and decent work.  The report identifies how new local taxes could provide much needed funding for services whilst incentivising employers to deliver good jobs.  We are particularly attracted by the idea of a local payroll tax and a fair work supplement to drive better employment practice in local economies.

“Of course each of the five measures in the report will require further consultation and analysis. This is particularly true of  the  carbon tax which would need to be designed to remove the burden of the cost of climate change from workers and lower income households.  However, taken together these five proposals provide real potential for using our tax powers to promote inclusive growth and tackle economic inequalities.”

READ MORE: Council Tax ‘still almost as regressive as the Poll Tax it replaced’, report finds

The Scottish Greens welcomed the new report, with the party’s local government spokesperson Andy Wightman responding: “Powers to give councils new forms of taxation have been devolved to Scotland since 1999, but successive governments have been too timid to take them on.

“Despite various parties promising to replace the regressive council tax, we are still lumbered with it. The Scottish Greens secured a commitment from the Scottish Government on the reform of council tax, and we are in talks to ensure they deliver on that.

“But councils need more powers to raise vital funds for schools, social care and community facilities in a progressive way. This report recognises that broadening the mix of taxation in Scotland could be more politically palatable, but Green proposals to empower local authorities have been rejected and frustrated by vested interests.

“If we are to improve services and empower communities, we need the other parties to be braver on local government.”

Picture courtesy of Howard Lake