Council Tax: The beginning of the end?

The much-anticipated report of the Commission on Local Tax Reform may take Scotland one small step closer to the end of Council Tax but, says David Eiser, agreement on a replacement is just as far off as ever.

Council Tax should be abolished and replaced with an alternative form of local tax that is fairer and that strengthens local democracy. That is the key recommendation of the Commission on Local Tax Reform, which delivered its report on Monday 14th December.

Council tax is seen as unfair because it is neither well related to property value nor to income. This is undoubtedly true, but it is not exactly a new finding. So what does the Commission think that Council Tax should be replaced with?

The Commission is clear that Council Tax should be replaced with some other form of tax (rather than charges for specific services). And the ‘predominant view’ of the Commission is that any reform of local tax has to include a fairer tax on domestic property, combined with a more progressive system of reliefs for those with low income. The Commission is also of the view that local authorities should have greater autonomy and flexibility to vary local taxation rates in order to support a reinvigoration of local democratic participation.

So far so good, but that is about as specific as the Commission’s recommendations get. Rather than recommending specific alternatives to Council Tax, the report considers the advantages and disadvantages of different forms of local taxation, including taxes on property, land and income. It describes the likely implications of these different types of tax – including their impact on different types of household, the extent to which they will provide a stable source of local government revenue over time, the likely administrative costs, and the extent to which they might influence behaviour in both desirable and undesirable ways.

By avoiding the trap of recommending a specific scheme that could then be dismissed out of hand, the Commission hopes that its report will stimulate wider debate that can eventually pave the way for cross-party consensus on a way forward.

But can a report act as a catalyst for change in this way without having made specific recommendations? Many would have hoped that a cross-party group would have been able to make some stronger recommendations about what should or should not replace Council Tax. The fact that it hasn’t shows how contentious the issues are (the Commission includes representatives of four of Scotland’s five main political parties, but the Conservatives chose not to take part).

These political barriers to reform are not new of course. In 2006, the Burt Review of local taxation in Scotland “A Fairer Way” recommended the replacement of Council Tax with a tax of 1% of property value, but was swiftly rejected by then First Minister Jack McConnell. And in 2009, the SNP minority government had to drop its manifesto commitment to replace Council Tax with a 3% local income tax when the Budget was defeated.

And of course agreeing what to replace Council Tax with is only part of what needs to happen if we are to move to a new system of local government financing. Important questions about how to allocate grant to local authorities in order that areas with a smaller tax base do not lose out from tax reform will be equally as difficult to resolve.

How much the Commission’s report moves us forward is a moot point. The limitations of Council Tax have been understood for some time, but politicians have been reluctant to pursue reform for fear of the political consequences. By widening the debate around alternatives and their implications, the Commission’s report moves us one small step closer to the end of Council Tax. But the destination seems just as far away.

This blog is an edited extract from a longer briefing on LGiU Scotland.

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David Eiser's picture
post by David Eiser
Fraser of Allander Institute
16th December 2015
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