Understanding the value of public money could be key to council tax reform in Scotland

This week saw the publication of a report by a cross party commission on the state of local government funding, specifically examining the council tax in Scotland. For many years the council tax has been declared as unfit for purpose by politicians in Holyrood. However little has actually been done in the way of reform. As things stand, following John Swinney’s budget announcement, council tax bills remain frozen for the 9th successive year.

The need for reform

The system has been  called regressive, ineffective, and anti-poor (among other things). But while most agree that the council tax in Scotland cannot continue in its current form, there is much disagreement about the new direction for the council tax, and about local government funding more widely.

The council tax freeze in Scotland has meant that in addition to budget cuts, councils have also been under pressure from reduced income. This is not to the advantage of the worst off, as some might assume. Instead, the uneven banding system means that while middle band payers spend 4% of their wages on council tax, those in the highest two bands only spend 2%

Houses-on-coins-by-Images-MoneyThe impact of the freeze

Despite the council tax only making up 2% of council income, it is estimated that the freeze has cost local government in Scotland more than £500m in the last year, and over £2bn since the freeze was introduced. That’s £2bn, commentators argue, which has not been spent on hospitals, schools, policing or community investment at a local level.

However a visible rise in tax bills while services are being cut back would be a difficult one to spin. As observed during a seminar I recently attended,  people feel council tax increases more acutely than other tax increases because they receive the bills through their door. Other taxes are less visible, or happen before the point of cost. VAT rises or stamp duty rises, for example, are not regarded with quite as much hostility by the general public as council tax rises.

At the same time, people don’t seem to realise what they are getting for their council tax, or how much public expenditure actually costs. This needs to change if politicians are going to be truly allowed to reform council tax and to replace it with any number of the other options outlined in the commission’s report.

Alternative options include:

  • a more equal income-based system, only partly based on house value
  • a more localised option, where local authorities are afforded the freedom of selecting numerous smaller local taxes, which would increase accountability and transparency of where the money is going
  • a re-investment model where income taxes are increased, but the value is redistributed to services within a person’s local area, so people know the money they are being taxed on is going directly local services.
  • cutting costs and reallocating tax fund distribution by relocating services, to reassess which services fall under the remit of local government and which should be taken back under national control and adjusting the money given to local government accordingly

Participative budgeting models have also been mooted, but how this would work in practice is not clear at the moment.

Discussion today, or dysfunction tomorrow

One thing is for sure: council tax needs to be reformed, and the report appears to suggest there are two choices:

  • discuss it openly and robustly now to come to a sensible conclusion with appropriate implementation frameworks and a timetable to transition; or
  • wait until local government is not financially functional and the choices are made out of necessity, as a quick fix, with short term goals and outcomes which potentially make the situation worse rather than better.

Value, cost, framing and how people view taxation will be key to these strategies.


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