Scottish First Minister Nicola Sturgeon during First Minister's Questions at the Scottish Parliament in Edinburgh. ©Danny Lawson/PA Wire/Press Association Images
Read more: How Nicola Sturgeon sold out
Council Tax—can’t live with it, can’t live without it. Property taxation to raise finance for local authorities is one of the most unpopular taxes, because it is the most visible. Every year you get a bill and every month you make a payment. Most households pay more in income tax, National Insurance and VAT, but those are concealed charges. Tax and NI go before you get your pay. VAT is embedded in the price you pay for goods. But because it annoys people—especially the middle classes—most politicians have become fixated with fixing local taxation.
Margaret Thatcher ended the old rates system replacing them with the poll tax. That proved to be the end of her, and they were rapidly brought back in the form of the Council Tax. Which to make it more palatable was accompanied by a hike in VAT so that grants to local government could be substantially raised. This lowered the amount councils needed to raise locally so helped make council tax bills lower than the rates would otherwise have been. Likewise the SNP came to government in Scotland committed to abolishing council tax and replacing it with a local income tax. Their rhetoric was fierce—Nicola Sturgeon condemned the Tories as “anti-Scottish” because they were pledged to keeping council tax. The SNP’s commitment was absolute—council tax would be scrapped.
The problem was that introducing a local income tax produced far too many losers—even after fiddling the figures. As Louis XIV's Finance Minister Jean Baptiste Colbert famously said, the art of taxation “consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing.”
Local income tax failed this basic test—and along with other grandiloquent SNP promises, like wiping out student debt, it was dropped. Instead of LIT the SNP adopted the Tory policy of a council tax freeze. This has had a minor impact on households—saving an average household 10 or 20 pounds a year—but a major one on councils whose services are straining under cumulative cuts. So, suddenly, nine years after the council tax freeze was announced, the SNP have proposed a major reform. They want to replace the Council Tax with... the Council Tax. And the freeze with a cap on increases.
The eye-catching proposal is that the 25 per cent of households in the higher council tax bands (E-H) will pay more. With a scheme to exclude pensioners from the impact of the increases and another to compensate poorer households with children, this is being touted as a “progressive” reform. We have no idea whether that is true, yet. In local government finance, the devil is always in the detail. And, as with most political promises, voters should be sceptical.
One thing that can be said is that these proposed changes are not fair. Despite massive house price inflation since the early 1990s, when council tax bands were first assigned, there will be no revaluation. So the changes in property value both within and between local authorities will be fixed at an arbitrary and increasingly outdated point. The reason is straightforward—an academic analysis conducted on behalf of Scottish local government concluded that nearly half of all properties are probably in the wrong band. Half should go up and half should go down. A lot of change. A lot of winners and losers. A lot, as Colbert would say, of hissing.
But will it at least bring in new revenue for councils? Possibly. We don’t really know without detailed modelling and the accompanying document on the Scottish Government website wasn't a spreadsheet with tabs loaded with data, it was just a leaflet with a jazzy design. So, it is impossible to see real figures. On some estimates council tax raises about 12 per cent of council revenue. Almost all of the other 88 per cent comes from central government. Faced with a series of tight budgets, no Finance Minister is likely to overlook the chance to modify funding formulae, retaining more to reflect councils’ higher income. Also, what clawback mechanism will be in operation to support the Council Tax capping and the enforcement of the delivery of the Scottish Government’s policy targets? And what equalisation will be necessary, if any?
Finally, will the cash-poor, asset-rich really be protected? Not all the people in this category are low-paid with children, or pensioners. If you are losing hundreds of pounds a year and you cannot readily increase your income you will not be mollified by the fact that pensioners and those poorer than you aren’t paying the increase. The hissing of these geese has not yet been taken into account.
The SNP Scottish Government strategy assumes that announcing now and implementing in 2017 means that their proposal will escape sustained scrutiny. And it may never be examined if they keep moving their position—they have tabled a further proposal to assign a proportion of income tax to councils. An idea which would require radical equalisation to ensure that Dundee was disadvantaged in comparison to, say, Edinburgh, which has a far higher average income.
The reform of local government taxation is an area where half-measures are the worst—the pain is as bad as for full reform, but without the benefits. You soon get caught in firefighting—and that is all you focus on. As the saying goes: “when you're up to your neck in alligators, it's easy to forget that the initial objective was to drain the swamp.”
Now read: The SNP has failed Scotland
