After condemning the Council Tax (CT) for many years, promising at the last two Holyrood elections that it would be replaced and setting up a Commission which sat for most of last year “to identify and examine alternatives that would deliver a fairer system of local taxation,” the SNP has finally announced its radical plans for the reform of the Council Tax.
I am kidding of course. It would be difficult to devise a less radical reform of the tax than that which Nicola Sturgeon has outlined.
The only ‘reform’ that will be made to the CT’s structure if, as expected, the SNP win the May election will be to change the multiplier between the level of tax paid by householders with properties in the lowest band (A) and those with properties in the highest band (H). The Commission on Tax Reform suggested that the multiplier should be around 15 to reflect the spread of property values, but the proposed change is not from the present multiplier of 3 to 15 but – wait for it – from 3 to 3.66. The CT will consequently remain a very regressive tax.
I suppose that the reform would have been even less radical if, in line with the SNP’s plans to increase only the highest rate of income tax, the change in the multiplier were applied only to band H. But, as fewer than 1 per cent of the total number of properties are in that band, the extra tax raised from that change alone would have been derisory. So the multiplier change has been extended to bands E, F and G. Even then, fewer than 25 percent of all properties will be affected by the change.
But the other major CT shortcomings are being ignored completely. When introducing the Land and Buildings Transaction Tax (LBTT), John Swinney claimed credit for removing the slab or cliff-edge feature of Stamp Duty. But it is not proposed to do anything to remove the same unsatisfactory feature of the Council Tax. As a result, a difference of as little as £1 in the value of a property at the top of one band and the value of one at the bottom of the next band can result in a large difference in annual tax liabilities. In fact, the change in the multiplier for bands E, F, G and H will actually make this problem worse.
No rebanding, no fairness
Even worse, it is not proposed to do anything to deal with the increasingly ludicrous situation whereby CT liabilities are based on property values in 1991. Tax liabilities ought to be based on the current circumstances of each taxpayer. But that situation has not applied to the Council Tax for very many years. If up to date values were used to band properties, it is likely that well over half of all properties would be in a different band than they are at present. This is because over the past 25 years, house prices have not increased uniformly across the country. Research undertaken for the Commission on Local Tax Reform suggested that, if up to date house values were used, around 30 per cent of properties would move down anything up to 3 bands and that a roughly equal number of properties would move up a similar number of bands. This means that, in the absence of re-banding using up to date house values, householders in the former category are paying too much CT each year and will continue to do so and those in the latter category are paying too little.
Both situations are unsatisfactory and impossible to square with the First Minister’s claim that this reform is “fair”. The most fundamental criterion of fairness for a property tax is that the burden is shared in line with how property is actually distributed. The government prefers instead a system in which those paying a smaller share than they should are left in peace, while those paying more than their fair share are left to carry on doing so, unaware of that fact and thus, presumably, politically untroubling.
Nicola Sturgeon also floated the possibility of assigning a proportion of Scottish income tax to local government in exchange for a matching cut in the grant which councils presently receive. Plus the possibility of permitting councils to levy a tax on vacant and derelict land. It remains to be seen whether or not those ideas will be pursued.
But Council Tax “reform” has been put to bed with the clear aim of doing the absolute minimum and ruffling as few feathers as possible. As a result, a bad, unfair and very regressive local taxation system will continue for the foreseeable future.
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