Labour’s New Property Tax Proposal

by Ken Gibb


Today, Scottish Labour announced their contribution to the reform of the council tax following the recent Local Tax Commission. To recap, while the Commission proposed replacing the council tax and ending the council tax freeze, it left to the Scottish parties to announce their way of doing this in the election campaign now upon us. The Commission called for a property tax alternative, perhaps with an income tax-related component but they kept it at a high level of generality.

The Scottish National Party announced modest reform proposals to increase the weighting on the top bands, protect low-income households in higher value properties, to end the freeze (subsequently capped) but remarkably did not propose to undertake a general revaluation. This was a minor tinkering of the present council tax and difficult to square with the bottom line of the Commission’s recommendations.

Interestingly, these proposals were strikingly similar to those of the Scottish Conservatives, who did not take part in the local tax commission. However, it has been suggested that this is maybe a short run solution for the SNP leadership with further reforms somewhere in the future. Similarly, the SNP, if re-elected, will use some of the Scottish income tax revenues to supplement local resources. This has been linked (rhetorically at least) to more use of incomes within local revenue sources, though it is not clear at this stage of the consultation process how this will actually work.

It is in this context that Scottish Labour announced their plans today. They propose:

  • A new property tax based on a general capital value revaluation (they seem to have taken seriously the worries displayed about not revaluing and the commission’s evidence that around 3 in 5 properties are now in the wrong band).
  • The idea would be similar to the 2006 Burt model (a fixed % tax on capital value) but attenuated in a number of important ways: properties worth less than £180,000 would pay £450 plus 0.35% of value and those above £180,000 pay 0.9% with a maximum tax bill of £3,000. Thereafter, increases will be capped at 3% a year.
  • Rebates would remain to help low income households.
  • Local government would have options to take up a new tourist tax and apply a new land value tax locally but only on vacant or economically inactive land.
  • According to their calculations, 80% of households will pay less than currently, as a result of the switch to the proposed new property tax..

A couple of cheers for this policy proposal – the return to Burt-like principles of this property tax proposal is welcome, as is the recognition of the necessity for a general revaluation. Second, the proposals to increase the local fiscal levers available to local government are also helpful. We do need more detail on the policy, its implementation and transition arrangements but this is a more radical and genuinely property taxation based alternative.

However, there are critical points. First, the percentage tax rates appear to be nationally set and invariant at local levels with local tax bills variation depending rather on how the overall tax bill increases each year and of course the local distribution of property values. In principle, this tax-setting by the centre is more top-down than either the council tax or domestic rates. However, on the other hand, the new additional taxes do provide greater local discretion.

Second, Andy Wightman has commented today that the £3000 cap is arbitrary and favours those with the highest value properties (and hence is not particularly progressive at the top end). Clearly the tax rates have been calculated to do two things – deliver a large majority of winners from the tax change but also cap the size of losses for those with the most expensive properties. That is a political calculation and one has to take a view about how acceptable it is.

Third, Andy also criticized the partial and limited use of land value taxation as a proposal just for vacant inactive land. This is not surprising given his position on land value taxation more generally. I also am a supporter of LVT as a possible way forward – at least in principle. Perhaps we should be more charitable and welcome the threshold that is crossed by proposing the tax in the first place?

Fourth, I think the tax proposal, as it stands, probably would not overcome the concerns expressed during the commission about the lack of progressivity with respect to current incomes – this remains a real barrier to the credibility of proposed tax reform in this area and why I for one advocated a property tax with a supplementary income tax element.

For those of us engaged with in the local tax commission’s work in different ways, it has been a rather disappointing few weeks since the launch of the Commission’s report. However, the proposals announced today do constitute real blue water between the parties and genuinely different approaches to local taxation. The debate continues.