On Commencing the Scottish Local Tax Review

Yesterday, the membership and remit of the Scottish Commission on Local Tax Reform was announced. And at the same time a group of interested observers set up an independent network promoting the case for a property tax (Scottish Property Tax Reform). I am a member of the latter body.

Drawing from the Scottish Government’s press release, the Commission’s Remit is: “To identify and examine alternative systems of local taxation that would deliver a fairer system of local taxation to support the funding of services delivered by local government”. They go on to say that in doing so, the Commission will also consider:
• The impacts on individuals, households and inequalities in income and wealth;
• The wider macro-economic, demographic and fiscal impacts, including housing market and land use;
• The administrative and collection arrangements that apply, including the costs of transition and subsequent operation;
• Potential timetables for transition, with due regard to the 2017 Local Government elections.
• The impacts on supporting local democracy, including on the financial accountability and autonomy of Local Government;
• The revenue raising capacity of the alternatives at both local authority and national levels.

The Commission is co-chaired by the local government minister Marco Biagi and by Dave O’Neill, the President of COSLA.. The Commission also includes a number of councilors form different parties, urban and rural, the shadow spokesman for local government (Alex Rowley), Andy Wightman, representing the Greens, plus specialists representing taxation & law, public finance & accountancy, Citizens Advice and also Jim McCormick (Joseph Rowntree Foundation) and Angela O’Hagan (Institute for Society and Social Justice Research). The Scottish Tories declined to participate because they are separately working on a low tax commission.

In conducting its work, the Commission will engage with communities across Scotland to assess public perceptions of the emerging findings and to reflect this evidence in its final analysis and recommendations. The Commission will be supported by an independent secretariat comprising staff seconded from COSLA and the Scottish Government. The Commission aims to report to the Scottish Government and COSLA in the autumn.

And what about our network, chaired by Mark Stephens and set up in response to the Commission? Paraphrasing from its press release, as the Scottish Government establishes its Commission to seek an alternative to the Council Tax, this independent network seeks to make the case for a fair system of property taxation. Scottish Property Tax Reform (SPTR) is a network of interested individuals and organisations who believe that a well-designed system of property taxation can and should play an important role in public finance, the economy and a fair society. SPTR aims to inform and influence the work of the commission established by the Scottish Government to examine possible replacements for the Council Tax.

The Network, while looking for more to join, is presently composed of academics like Mark Stephens, Richard Kerley, Glen Bramley, Mike Danson, myself and also Jim Gallagher and Andy Wightman.

What are our underlying arguments? Drawing from the press release we believe that a fair system of property tax should form the basis of local government taxation because:

• Property is fixed and space, is immobile, and so is easy to tax. This means that, unlike many other taxes, property taxes cannot be so easily dodged by wealthy people by moving themselves or their companies abroad. They have to pay their share along with everyone else.

• Property taxes can help to make housing more affordable – reversing the trend that has priced more and more people being out of housing. Property taxes reduce boom-and-bust cycles in the housing market.

• Property taxes help society to recoup some of the benefits that some people receive because they are lucky enough to live close to new infrastructure or other amenities. They do this because the value of property rises when the area they’re located in benefits from public investment.

• Property taxes encourage people to invest in the productive economy, ensuring a prosperous future for us all. We all know that ever more inflated house prices doesn’t make us any better off in the long run.

A well-designed property tax (i.e. definitely not the current council tax or a reformed one based on additional bands) should incorporate the following principles.

1. Property taxes should be revalued automatically and frequently. One of the reasons the Council Tax is unfair is that it is based on property values that are nearly a quarter of a century out of date. You wouldn’t expect to pay income tax based on what you earned in 1991!

2. Property taxes can be designed better to deal with anomalies that have been found with previous forms of local taxes:
– Direct help toward low-income households
– Deferring tax payments for asset rich/ cash poor households
– Regular statutory revaluations
– Combining property and other taxes, common elsewhere, can raise the same yield.

If you’re still not convinced, think of it the other way round – not taxing property will simply encourage more wealth holding and speculative activity in property simply because it is untaxed.

Interesting times ahead. While we in the network share a common interest in supporting the place and value of property taxes, we will inevitable differ in the details and will probably in our different ways contribute to the debate as individuals and in other ways too. For my part I fully expect that Policy Scotland will submit evidence to the Commission. I also hope that as an individual I will write for the SPTR.

Note: SPTR has just formed but there will be a website containing information and briefings in place shortly. Google it.

Sanctioned

More than 50 braved a damp midweek evening in Glasgow tonight to participate in the first meeting of the Policy Scotland Welfare Reform Network. The network seeks to provide a setting where research, practice and policy can exchange information, ideas, evidence and argue about welfare policy. The subject of the evening was benefit sanctioning.

There were three brief papers. David Webster (Urban Studies, Glasgow University) presented rare evidence on sanctions trends, focused on JSA and ESA. Sharon Wright (also Urban Studies) drew on her ESRC Conditionality research to set sanctions in a wide policy, practice and labour market perspective. Carla McCormick of the Poverty Alliance provided an assessment of the impact of sanctions on real people, specific categories of people, organisations and on the wider economy and society. There was a lively and wide-ranging discussion after the three presentations. A good start which bodes well for future network sessions on Universal Credit (coming to Glasgow in June), welfare reform and migrants and a discussion of welfare reform and disability benefits.

What were the main points raised in the papers presented and what did I think were the major themes that emerged?

David Webster provided a lot of information, all from government sources, some of it from FoIs. Much of this would not get into the light of day were it not for David’s consistent and tenacious efforts.The scale of JSA sanctions is alarming with 6.5% of claimants a month sanctioned on JSA in the year up to September 2014. For young people JSA sanctions occur at twice the level than for other claimants Overall, since the Coalition was formed in 2010, the rate of sanctions has gone up 2 and 3/4 times. Overall, more than one in five of all JSA claimants in the five years to 2014 were sanctioned. Of all JSA individuals sanctioned in the last year, a third were sanctioned more than once. Since 2000 40% of those sanctioned received 2 or more sanctions.

How much money is lost to claimants (i.e. what are the direct savings to DWP)? Webster estimates that in 2005 benefits withdrawn because of sanctions saved £37million in JSA. By 2012 this was £140 million and in 2013-14 it had reached £328 million. Webster argues that there will be as much lost again by non-claimants (that is of the order of £350 million) because people are driven off claiming benefit. These figures are disputed and may be 50% or 60% of that level but Webster believes 100,000 claimants and a figure of £350 million is in fact reasonable.

Sharon Wright contrasted the expansion of the sanctions regime with the corresponding change to the support regimes that are designed to help people back into work, such as the work programme. Sanctions in the recent period have increased in frequency, duration and severity. Sanctions are now triggered more easily, accelerate rapidly and apply to wider groups than before. Sanctions can also run together across different benefits and when it is introduced the Universal Credit will draw another 1.2 million more people into the sanctioning regime (such as partners of claimants and those in work).

On the other hand, Wright argued that support for employment services provision in the UK is comparatively low in European terms, there is no direct job creation and only minimal spend on training. Furthermore, the UK system is more of a self help system, acting to residualise job centre plus. The evidence on the Work Programme is also not encouraging, summarised as over promised and under delivered.

Carla McCormick addressed the impacts of sanctions on people drawing both on evidence from research and policy sources but also case study testimonies of those affected. Carla noted that more than 132,000 sanctions were imposed in Scotland between October 2012 and June 2014. Sanctions take many people further away from the labour market because it significant increases the cost of labour market search. Sanctions also drive people to miss meals, often to depend on food banks and suffer mental health, family and stigma problems. Not only do sanctions also increase costs and change workloads for service organisations, the Poverty Alliance also demonstrated the wider costs of sanctions on homelessness, family and health services that follow on from the direct and indirect consequences of being sanctioned.

Listening to the presentations and subsequent discussion, the key themes that struck me overall were as follows. First, the remarkable lack of an evidence base on sanctions impacts and the sense of a lack of interest in such knowledge by the policy’s proponents. This is despite the clearly highly punitive nature of these punishments. Second, Webster identifies the scale and the reach of sanctions in the JSA sector. While we have less robust representative data on impacts, the depth of the problem and increasing reliance on food banks speaks volumes.

Third, the long term antecedents of the policy go back at least to New Labour but have been intensified under the Coalition. At the same time, fourth, the absolute incidence of sanctions is in part a function of wider labour market conditions but even with falling unemployment, the proportion of claimants being sanctioned remains steady and comparatively high.

Fifth, several people remarked on the curious silence during the Smith Commission about sanctions given the devolution of the work programme. Universal credit is still coming to Scotland and will significantly extend exposure to the sanctions regime. Finally, I was struck by a point my colleague Nick Watson made to me at the end of the meeting. We need to build a case against sanctions by developing a prevention approach; otherwise, we are increasing future demand for services as a result of sanctions. If we want to reduce future demand for services like homelessness, mental health and family services – we should roll back the sanctions regime.

It was an interesting though often a sobering and challenging evening. A great start for the network. A final thought I had is that we should also use the network, its social media and activities to raise awareness in this election year about these issues and seek to correct the media and political misunderstandings and down right inaccuracies that bedevil the public reporting and understanding of benefits and welfare reform.

Don’t you know there is an election on? [Part One]

In less than three months the UK general election will come round. It may or may not produce a definitive outcome. Like 1974, we may have to do it all again within just a few months.

And it is odd constitutionally, too. In a devolved political system, not only is there a bit of distance and insulation from the election viewed from a Scottish perspective – much of the manifestos are about domestic policies in only parts of the nation. On the other hand, if the post 2010 period has told us anything about contemporary Britain it has been the centrality of economic policy, macroeconomics and the public finance dependence on the UK fiscal framework. Austerity, welfare reform and their manifestations such as food banks have become touchstones for both the independence debate and the grounds for highlighting inequality as a live issue. And, of course, there is the possibility that nationalist parties may have a role to play in the post-election negotiations over government forming.

I read Nate Silver’s excellent book (The Signal and the Noise) a year or two ago and I am now exploring a book on the history of Bayes’ Theorem (as you do). Of all the countless pieces written on the referendum and its voting outcomes, the most compelling material (and essentially right in the end) was the analysis of political betting by the bookies (i.e. those with money or skin in the game) as investigated in a series of papers and blogs by David Bell at the University of Stirling (see the Centre on Constitutional Change and The Future of the UK and Scotland websites). I imagine that, whilst I will likely remain a non-gambler, I will nonetheless be returning regularly to the bookies sites to see how the political betting is shaping up between now and early May.

The Scottish dimension remains of interest also because the polls, really since the referendum, anticipate a huge vote for the SNP and if so the defenestration of the Scottish labour party at Westminster. And, apart from the implications for the UK balance of seats in Westminster, this will also impact hugely on the parties’ planning for the 2016 Scottish elections. As someone said today in a meeting I was at, the next Scottish Parliament will be especially challenging. It will have an agenda that includes coping with the (transitional) impact of the 2012 Act (partial income tax powers, Land Building Transactions Tax, some borrowing powers, etc.) and then negotiating the Smith proposals through legislation with Westminster. Meanwhile, there will be the further unwindng, to different degree depending on May’s UK result, of further waves of austerity and welfare reform.

Devolution does not stop with the four nations. City Deals and the Core Cities now stretch well beyond England. I was at the DevoSummit on Monday in Glasgow that featured the launch of the ResPublica report: Restoring Britain’s City States. I must admit that, while welcoming the overdue focus on city-regions and also the opportunity to share knowledge and collaborate across urban Britain, I do still hanker for something a bit less ad hoc than the city deals. I also think there is a bit of statistical flummery that goes on with city boosters that is not challenged enough – we are heavily urbanized in Britain; it should really not be surprising that most GVA comes from our core cities – demonstrating the underlying causality and how it operates over the economic development process are much more difficult but interesting questions. I also worry about the marginalized in all this – 2^nd tier standalone cities or towns and larger settlements that do not benefit sufficiently if at all from these initiatives. About a third of people in Scotland live in these smaller settlements and there is an obvious danger that resource and initiative bypass them compounding inequality and disadvantage.

While the UK General Election is underway, Scotland will also have a Council Tax Review scheduled to report in the Autumn, with the outcomes expected to feature in the Scottish election. This will seek to consider alternatives to the council tax based on the usual reasonable criteria: feasibility, fairness (in terms of ability to pay), accountability to local people and mindful of wider consequences such as the housing market’s performance and overall tax burdens. The SNP have a history of supporting an income tax solution (maybe local, maybe not); while as you will have guessed, I would want to see a more efficient form of property tax. The Review also will apparently consider (as logically it should) the continuation of the so-called freeze that through the concordat fiscal arrangements with local government has operated for eight years. As I have argued before, as did the recent Strengthening Local Democracy report, this has to end and the genuinely local element of local government finances has to increase. How will the rest of the UK look to the work of this commission, underway during a UK General Election, perhaps sending signals about possible local tax reform elsewhere in rUK?

So, the UK general election has implications that stretch across the different parts of our devolved nation including our city-regions and beyond. The Scottish question directly or indirectly is going to play an important part in the outcome and the post-election party negotiations. In the paragraphs above I have stuck to questions of multi-level governance and politics. In part 2, somewhere in the near future, I will turn to housing and the election.

This is my 100^th post on Brick by Brick. It has been an interesting and educational experience. It has been almost completely positive. Thanks to readers and those who have provided feedback in various different ways. I find my working life changed by blogging and continue to enjoy it immensely. I hope the next 100 will continue to be fun but remain a good discipline. I would also hope to get to 200 a little quicker.