Politics and the Local Tax commission Report

by Ken Gibb

This morning the Commission for Local Tax Reform published its final report. They said that it is time to change the council tax system, to seek ways to end the council tax freeze, but they did not offer an alternative solution. Instead, as was widely expected, the Commission presented a menu of choices and evidence on the principles of three different systems – a property tax-based system, a land value tax approach, and a local income tax basis. The conclusion seemed to be that the predominant view among the Commission was that such an alternative should be property-tax based but should, if feasible, be broadened to include local income tax (sections 13.12 and 13.14 of the report). Indeed, at one point they make a case for a multiple local tax system around these two components. They argue that no tax alone meets all the important criteria: fairness, economic efficiency and local democratic accountability. There must be trade-offs and compromises. And, there must be a period of transition.

While this is not exactly a definitive statement, it is a reasoned and well-evidenced report. The plan is that this will now inform debates within political parties who are preparing their Scottish Parliament election manifestos and will come up with their own ideas for domestic local taxation. All major parties were signed up (apart from the Tories) and the shared diagnosis of the problem, to an extent, supported by the Scottish government who established the Commission, probably means a couple of important consequences.

First, in a finite time period, the council tax and the freeze are going to change in Scotland. Second, it seems unlikely now that the SNP will stick with the local income tax as the sole or principal means of funding the domestic local tax. The next few months will be the time for all the parties to build and then make a case for specific reforms. As one Commissioner said to me this morning – the real work (of persuasion) begins now.

There are many complexities. First, Labour do not appear to be keen on local income tax element particularly in the context of the introduction of the Scottish Rate of Income Tax (SRIT), though it is not clear whether this concern would extend to a comparatively small supplementary local income tax augmenting a property tax. Second, the pragmatic way out, the line of least resistance, is to reform the existing council tax and this might be minor tinkering or something more thorough-going.  This seems to be what the First Minster was hinting at in an interview a couple of weeks ago when she talked about a more progressive treatment of the bands (but without a general revaluation).

The third issue is how will the parties and the public respond? Infamously, Jack McConnell in 2006 rejected the Burt Inquiry’s call for a percentage tax on capital values before it was even published. The belief this time round has thought that the wider buy-in from across the political spectrum, makes the dismissal of the report and indeed putting the brakes on reform that much harder. Nothing I heard this morning or read in the report or associated media thus far suggests that the Commission’s work is heading for either the long grass or a high shelf where dust awaits.

A key test will be the Scottish budget statement on Wednesday from John Swinney which will also announce the first SRIT for 2016-17. Will we hear anything constructive about the end of the council tax freeze? Will the Government  be broadly supportive concerning the Commission’s conclusions? It will also be interesting to see whether he follows Osborne’s lead by increasing LBTT for second home and buy to let purchases. He has already indicated that he will in part be following the non domestic rate changes announced by the Chancellor. More significant, however, will be the translation of the Autumn Statement Spending review into spending changes across Scotland and for local government specifically.

Let’s hope that the report is the start of a feasible process of progressive local government finance reform, starting with the domestic local tax, and not the end of the story.