Common Weal Policy will be publishing analysis of the Commission on Local Tax Reform’s final report. We start with a critical take from Mike Danson, Professor of Enterprise Policy at Heriot-Watt University, who asks whether “the alternatives reviewed and the conclusions drawn” are much different from previous reports on local taxation in Scotland
IT’S half time in a rugby match, the whistle has gone but the ball is still in play, do you go for a possible try or boot it into touch and regroup? The Tax Commission have put the ball into the long grass, to let the respective coaches decide what to do next after a period of reflection. Not a brave decision by those on the pitch.
Our analysis which informed the publication of the Council Tax Abolition and Service Tax Introduction (Scotland) Bill concluded that the Council Tax should be abolished, replaced with a progressive tax based on income (the Scottish Service Tax) – and so based on ability to pay – with a complementary land or property tax to capture high wealth owners, whether resident in Scotland or not. In 2006, the Burt inquiry, or the Report By The Local Government Finance Review Committee , considered, over 217 pages, that Council Tax could not be reformed but should be abolished in favour of a progressive property tax.
Seem familiar? Well a decade on the Local Tax Commission proposes that their analysis “indicates that a more proportionate property tax, implemented alongside a more progressive system of income and need based reliefs, would be much fairer than the present council tax and connect better to both the income and the wealth interpretations of ‘ability to pay’.” Despite the claim of this most recent commission, the alternatives reviewed and the conclusions drawn do not differ greatly from these previous reports.
“There is a reluctance to address the implications of Scotland’s high density population across the Central Belt where commuting and mobility is relatively easy – and so avoidance of a high property tax area is a comparative threat to local autonomy.”
Much will have been written overnight about the plans, so let’s focus on three areas where we might question their reasoning. There is a reluctance to address the implications of Scotland’s high density population across the Central Belt where commuting and mobility is relatively easy – and so avoidance of a high property tax area is a comparative threat to local autonomy. This puts pressure on Councils not to step out of line with neighbouring areas. Even before the Council Tax freeze was introduced, outwith the Island Authority areas there was little variation across the country in tax rates – indeed, the charge for Band D houses was within PS2-3 per month everywhere.
Burt was not against Land Value Tax but raised concerns over how long it would take to introduce a new system and whether the population would support such change. These now seem somewhat redundant as better IT, the need for revaluations anyway and a greater appreciation through the land reform debate of the concentration of wealth in land suggest this is an idea whose time has come. We covered this in the Scottish Service Tax proposals as a complement to the progressive income tax.
The other concern running through the different reports is the problem that higher income and wealth groups would face if there was a sudden increase in their local taxes. Relatively, the threatened increases would be well below the impacts on the poor of current and forthcoming austerity cuts but the Tax Commission, like others before, did not want to “impose sudden and extreme increases in people’s tax liabilities”. Equity as always appears to run in one direction only?
“The consensus position reached in this latest Local Tax Commission offers the opportunity for party manifestos next May to present alternatives around a core of a more proportionate property tax with some promise of land value tax.”
Although a number of pieces of evidence submitted to the Commission noted the unfairness of both the Council Tax and of the impacts of the freeze, especially in the effects on the poor, women and the disabled, there appears to be no analysis of how potential changes might benefit or disadvantage these groups. Indeed, where these are covered is in beliefs and worries expressed in the focus groups and surveys, rather than in the technical appendixes and papers. This seems a missed opportunity to embed principles into all stages and developments of fairer taxation and expenditure.
The consensus position reached in this latest Local Tax Commission offers the opportunity for party manifestos next May to present alternatives around a core of a more proportionate property tax with some promise of land value tax. This scenario will see horse trading and compromise over an extended period where the rich and wealthy threaten to leave, warn of dire consequences in property and land markets, lobby and campaign against any moves for radical reform. All this will be taking place during the introduction of new taxes and systems, Westminster and Holyrood changes to social security and welfare, and other uncertainties. An opportunity is there for fundamental changes which could promise to complement and reinforce radical land reform and economic structural developments with significant transfer of assets to communities and the disadvantaged. The fear, though, is that the powers of the establishment will dominate and a new commission will be reporting in a few years time.