SNP conference 2023: Back to the future as party plans Council Tax freeze in the face of reform calls

After sixteen years in power in the Scottish Parliament, the party finds itself in unfamiliar territory. Humza Yousaf, who succeeded Nicola Sturgeon as party leader and First Minister this spring, leads a party swimming against the tide of Scottish public and political opinion.

The SNP’s defeat at the hands of Labour at the recent Rutherglen and Hamilton West by-election for the UK Parliament provides the latest evidence that voters may be ready to put the constitutional question to one side to focus on domestic priorities at a Scottish and UK level.

Council tax frozen with a promise to ‘re-energise’ reform

Scottish tax policy may be emerging as one such fault line, as the SNP’s ‘progressive’ approach to taxation comes under increasing scrutiny. One notable change to Scottish tax policy, announced by Yousaf in his leader’s speech this Tuesday, is illustrative of the challenges the party faces.

The decision to freeze council tax rates for the coming year came as something of a shock. Council tax freezes had been a central plank of the party’s fiscal policy in its opening two terms of office (2007-2011 & 2011-16) but the policy had subsequently been eschewed in favour of giving local authorities greater flexibility to increase local taxes.

Yousaf announced the measure as one that will help households struggling with bills during the ongoing cost of living crisis, but politically, it marks something of a u-turn.

The decision means the party has effectively abandoned – for the short term at least – efforts to make the tax appear fairer by asking owners of the most expensive properties to pay more. Officials had been consulting over the summer on proposals to increase the proportion of tax paid by homes in council tax bands E-H alongside plans to double the charge paid by owners of second and empty homes (the latter of which will continue to be progressed). These plans were being progressed alongside the assumption that councils would increase council tax rates across all bands in an effort to address funding shortfalls when they set their budgets early in the new year.

The reaction to Tuesday’s announcement suggests that local government was caught by surprise.

Cosla, the umbrella group representing Scotland’s 32 local authorities, said the announcement had been made with ‘absolutely no agreement’ between the government and local authorities and warned that a freeze would be regressive, erode the tax base and compound ‘councils’ ongoing underfunding’.

Comments by Finance Secretary Shona Robison that the policy was not signed off by the full Cabinet suggests the SNP’s partners in government, the Scottish Greens, were also left unaware.

The Herald reported Robison as telling BBC Radio Scotland that “this wasn’t signed off by Cabinet. This was a discussion that happened at political Cabinet and there were decisions made after that.”

In an administration where more than one political party is represented, a ‘political’ cabinet will typically be one where just one party is represented.

Robison also acknowledged in a radio interview that, “because the decision to go ahead was made late on, there was not the opportunity to do the normal consultation and communications that we would have around decisions like this”.

The Greens’ finance spokesperson Ross Greer warned the plans risked investment in public services and that a better solution would have been ‘to completely replace the deeply unfair Council Tax with a more progressive system’.

While decisions on fiscal policy are not part of the agreement that saw the Greens enter government in 2021, a commitment to consult on alternatives to council tax is, suggesting that in order to retain the confidence of the Greens, SNP ministers will need to keep alive the prospect of deeper council tax reform.

Yousaf alluded to this in his speech, telling delegates the government was “committed to fundamentally reforming [and would]…re-energise” its reform agenda.

The Scottish Conservatives had spent the summer campaigning against government proposals to increase council tax on the most expensive homes. Their finance spokesperson, Liz Smith, Tweeted that the freeze was the result of ‘a huge backlash of public opinion against the proposed SNP/Green council tax rises’.

The First Minister has insisted that the freeze will be ‘fully funded’, with the details of what this will mean likely to be clearer when the Scottish Government sets out its budget on 19 December.

Poverty advisers urge better use of devolved tax powers

A little over 24 hours before Yousaf’s announcement of a council tax freeze, the group set up to provide advice to Scottish Ministers on its anti-poverty agenda recommended that Ministers make better use of their devolved tax powers, including council tax.

The Poverty and Inequality Commission was set up in 2019 to advise the Scottish Government on actions to reduce poverty and inequality. As part of this work, it had established a Tax Working Group to consider how the devolved tax system could be used to help meet these objectives.

The working group’s report, How better tax policy can reduce poverty and inequality, has recommended ministers:

• Undertake a council tax revaluation ahead of more fundamental reform.
• Press for the devolution of powers to set income tax on savings and dividends.
• Improve public understanding and compliance with the Scottish tax system.
• Broaden the Scottish tax base, with specific recommendations to look at the taxation of wealth and the profits of large multinational companies.

In their report, the commission acknowledges the steps that have been taken by the Scottish Government to use its tax powers to create a more progressive system but says that, ‘to properly address the longer-term public finance challenges…and make meaningful progress on Scottish Government ambitions to reduce poverty and inequality, it will be necessary to broaden the tax base beyond a reliance on taxing earned income’.

The commission’s recommendations on council tax echo those made by organisations including the Fraser of Allander Institute, Institute for Fiscal Studies and the CIOT’s Low Incomes Tax Reform Group, who in recent weeks have recommended that the Scottish Government revalue properties, instead of using the 1991 values that the tax is currently based on.

Scottish ministers had been expected to press for greater control over income tax, National Insurance and VAT as part of their discussions with the UK Government on the review of the fiscal framework (the mechanism that decides how the Scottish budget is funded) but these were not mentioned when the review’s findings were published in August. With the current Conservative government in Westminster not showing any appetite for further tax devolution – and a potential incoming Labour government of a similar view – these are issues unlikely to be progressed in the short to medium term.

The First Minister has expressed support for a wealth tax, telling journalists last month that while the government ‘haven’t made a decision’ on whether to introduce one, ‘we (government) shouldn’t rule wealth taxes off the table’.

Yousaf has expressed support for a proposal from the Scottish Trades Union Congress (STUC) for a one per cent tax levied on assets including pensions, property, paintings and possessions.

However, as the Chartered Institute of Taxation pointed out following the First Minister’s comments, such a levy would need to be set by councils because the Scottish Parliament does not have the power to introduce new Scotland-wide taxes on its own.

Are voters wearying of income tax divergence?

A poll conducted by the Sunday Times and released on the eve of the conference appeared to suggest that SNP voters were less than enthusiastic about the party’s use of its income tax raising powers.

Since 2017, Scottish income tax has diverged from the rest of the UK, initially with the freezing of the higher rate threshold in 2017-18 and, since 2018, with the creation of new rates and bands of income tax that have created a tax regime more generous to those on lower incomes than the regime for the rest of the UK, but less generous for those with incomes higher than £27,850.

Last year, the Scottish Government increased the higher (to 42p and 47p respectively) rates of tax, widening Scottish-UK income tax divergence further. However, with Humza Yousaf expressing support for a new income tax band between these two rates, the prospect of further tax increases at the December budget cannot be definitively ruled out yet.

The survey, conducted by the polling company Panelbase, found that 10 per cent of Scots believes workers earning more than £27,850 should pay more tax than those in the rest of the UK. 65 per cent said they should pay the same amount of tax and 16 per cent said they should be paying less than their UK counterparts.

When broken down by political party, 54 per cent of SNP voters thought income tax rates should be the same across the UK, compared with 85 per cent of Conservative voters, 72 per cent of Labour voters and 83 per cent of Liberal Democrat supporters. Support for Scots paying more income tax above £27,850 was highest among SNP supporters (17 per cent), followed by Labour (9 per cent), Liberal Democrat (4 per cent) and Conservative (2 per cent).

Liz Smith (Conservative) said the findings were ‘a devastating verdict from Humza Yousaf’s own supporters on any plans he is considering to hit Scots with more tax rises’. Scottish Labour’s finance spokesperson Michael Marra said Scottish taxpayers were ‘paying more and getting less’, adding: “Every business I speak to says this (higher taxes) is one of their biggest problems’.