SCOTLAND’s council tax is unfit for purpose and, despite attempts to address its flaws, it remains outdated, inefficient and regressive, according to a think tank.
And, in a study of possible alternatives, a Common Weal (CW) policy report has concluded the levy should be replaced by a property tax, under which the land owned by the occupier of the property would be taxed, as well as any buildings.
The group looked at three alternatives – local income tax, land value tax and the property tax – to replace the existing charge, which was introduced in 1993 to replace the detested poll tax or community charge, which triggered mass demonstrations when Margaret Thatcher trialled it in Scotland in 1989 as a replacement for replace domestic rates.
Council tax is how we pay for local authority services with a household’s liability being decided through a system of bands from the lowest rate A, to H, the highest. Councils choose the Band D rate autonomously and the others are a fixed proportion of that, set in law.
However, the band a property falls into is determined according to its market value – in April 1991.
CW said there were several ways a local income tax – previously an option preferred by the SNP – could be implemented, although its principle would remain the same as national income tax, with the key difference being that it would be used to fund local services.
While it would be more obviously linked to people’s ability to pay, the think tank said it would do very little to address existing wealth inequalities.
“Cash-poor, asset-rich households would pay very little local tax despite often being wealthier overall than those with higher income but few assets,” it said.
Collection would create an added layer of administration which would face resistance, and its “ease of avoidance” were other disadvantages of the local income tax, said CW.
Its analysis of a land value tax (LVT), said it was levied on ground itself and took no account of any developments on it. CW said while its principle may be attractive, it was difficult to see how it “could be applied in a way that feels fair and could be easily understood by taxpayers”.
Difficulties would arise when calculating the tax due on multi-storey dwellings or tenements, and public support was unlikely “when a small cottage and a mansion sitting on plots of land of equal value would incur equal tax bills”.
“After evaluating all three options it is clear that council tax should be replaced by a property tax,” said CW.
“A property tax will be easier to understand, calculate and collect.
“It will be similarly hard to avoid but will allow better control of house price fluctuations.
“Moreover, since it provides a closer link to total wealth it will be fairer than an LVT or a local income tax.”
The think tank said the property tax was simply a levy on the on the property value as determined by the combined market value of the property and any surrounding land also owned by the property owner.
It would continue to be levied and collected by local authorities, who would retain “a degree of autonomy over setting the tax rate”.
Central government would keep its power to rebalance funds across councils though adjustments to the block grant, where there are significant disparities in the value of the housing stock.
“A property tax, as outlined here, will remedy the regressive nature of council tax whilst being comparatively easy to understand and implement,” they said.
“It will provide the most effective constraint on house price fluctuations, relative to other proposed replacements to council tax.
“The framework outlined in this paper also means that potentially unwanted incentives concerning property maintenance will be mitigated.
“The property tax therefore represents the best available replacement for council tax and a huge step forward to achieving a socially just tax on property wealth.
“The time for replacing council tax is long overdue.
“The Scottish Government should not delay in implementing these recommendations and begin the transition to a fair and equitable tax for all homeowners in Scotland.”
Dr Craig Dalzell, Common Weal’s head of policy and research, said: “Council tax was known to be unfit for purpose even at the time of its introduction but few political parties have made serious efforts to overhaul it – least of all those parties who are or have been in a position to actually do so.
“Too many houses are in the ‘wrong’ council tax band and too many large houses and estates pay far, far less than is proportional to their value.
“No-one would consider it sensible to pay their income tax based on their notional 1992 salary, so why should we accept this for council tax?
“Our property tax proposal would be fair, proportional to property value and would lead to many people struggling with low incomes better off whilst expanding vital council revenue.”
ANDREW MacNish Porter, the report author, added: “Policymakers have long shied away from reforming council tax despite knowing that it is outdated, inefficient and unjust.
“This report argues that there should be no more delay and proposes a new property tax to take the place of council tax.
“Adopting the property tax as set out in this paper would lead to a greatly improved and system of wealth taxation in Scotland to the betterment of the majority of households across the country.”
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