Constitutional ‘paralysis’ blamed for ‘depressing’ lack of Council Tax reform

As the Scottish Government tries to breathe new life into the debate on council tax reform, MSPs on Holyrood’s Local Government, Housing and Planning committee took evidence from the Chartered Institute of Taxation and Low Incomes Tax Reform Group last week in a session that included contributions from leading academics and think tanks.

In the first of two sessions, the committee heard from Professors David Heald and Ken Gibb of the University of Glasgow, Sara Cowan of the Scottish Women’s Budget Group and LITRG technical officer Joanne Walker.

Political indecision has hindered reform

Each of the witnesses agreed that political indecision had been the driving force behind the inability to build consensus on council tax reform, with Professor Heald citing the ‘paralysis’ of Scotland’s constitutional debate as the main reason why MSPs struggle to work across party lines. Heald suggested Scotland look to the ‘highly impressive work’ in Wales, where Labour and Plaid Cymru have worked across party and constitutional divides to deliver a programme of reform, while Gibb suggested MSPs also consider the reforms undertaken in Northern Ireland, where ‘even more radical’ changes than those adopted in Wales had taken place in the early 2000s.

Reforming the current system

Witnesses were in broad agreement that property was a good base to tax, but Walker told the committee that any changes to the existing system of council tax would first require a revaluation to ensure the tax base is credible and fair.

In response to questions from Willie Coffey (SNP) and Fulton McGregor (SNP) she outlined some of the ways that council tax could be reformed. They included the addition of bands (like Wales), a move from bands to rates of tax and the decoupling of water and sewerage charges from council tax bills.

Heald defended the use of bands, arguing that a switch to tax rates may lead to higher number of appeals, while Gibb said the current ‘arbitrary and incoherent’ bands required reform. Witnesses argued that reform would require a review of the current system of council tax benefit and transitional measures to support those with high value homes and low levels of income, a group Walker said the Commission on Local Tax Reform had found to not be as significant in size as imagined.

New taxes

Gibb said a Land Value Tax, a policy favoured by the Scottish Greens, was the ‘furthest of any of the credible alternatives to council tax’ because of the political challenges associated with managing winners and losers. Gibb argued it should include a consumption charge as well as an element of wealth taxation to ensure a link between the use of local services and political accountability. Heald also spoke about political accountability, voicing concern that the lack of a link between the tax and service use could undermine local government.

Public education

There was consensus too on the need for better public education, both for the current system of council tax and any future replacement.

As Walker explained, council tax receipts account for just under a fifth of all local government spending, but taxpayers see it as making a much bigger contribution to the standard of public services. Heald suggested the link between council tax and water bills should be broken so that taxpayers better understand their bills. Walker urged MSPs to control the narrative when the time comes to publicise proposed reforms. Ken Gibb urged MSPs to look at the value of Citizens’ Assemblies as forums for debate and discussion.

In a later session, David Phillips of the Institute for Fiscal Studies (IFS) said that a failure to tackle the issue of reform amounted to a “tyranny of the status quo”. The Finance Secretary, Shona Robison, said previous attempts at reform had “fallen…because of a lack of consensus”. She added: “I am realistic enough to sense that (consensus) is unlikely, but there might be elements of reform we could agree on…if we could build enough consensus around those elements of reform that we agree on then we can almost say post election there is a consensus and an enablement to get on with those areas we agree on.”