LAST week the Scottish Government’s Local Tax Commission finally published its report on axing the widely hated council tax. But we’re still in for a long wait before we finally see council tax bills consigned to the rubbish bin where they belong.
It was rushed in by John Major years ago as a hasty replacement for the uncollectable poll tax. Every political party bar the Tories saw it as no more than a short-term fix. Yet 22 years on, three Prime Ministers and five First Ministers later, we’re still lumbered with this blunt instrument of a local tax system that is blatantly skewed in favour of the wealthy.
Under the system, Scotland’s highest earner, David Nish – the outgoing boss of Standard Life – paid just £3,230 last year for his million-pound mansion in Kilmacolm. That worked out at just 0.05 per cent of his £5.5 million earnings.
Meanwhile, in the same local authority area, thousands of people earning the minimum wage are paying up to ten per cent of their annual salary on council tax – proportionately 200 times more than David Nish.
The council tax is grotesquely unfair for two reasons. First because the highest band H properties are pegged at a maximum of three times the level of the lowest Band A properties. And second, because the tax does not take account of Scotland’s vast income differentials, which can be to up 300 or 400 to 1.
When John Swinney set his budget last week, he was faced with an impossible conundrum. He could have thawed the freeze on council tax, but that would have meant extracting an even higher proportion of the income of the lowest earners compared to the affluent. It would have compounded inequality.
Instead he chose to continue the freeze – and that means local authorities have nowhere to go to plug the funding gap caused by the strangulation of public spending by Westminster.
Swinney was damned if he did and damned if he didn’t. But his dilemma does underline the urgency of scrapping the council tax – we cannot take this decision every year to choose between the devil and deep blue sea.
It is an indictment of all non-Tory politicians that we have been landed with this tax for near on a quarter of a century, despite the fact for most of that time we have had a Scottish Parliament with the power to do something different. Despite cross-party hatred, politicians of all hues have failed to get their act together and replace a system that rewards the rich and penalises the poor. Reading the commission’s report, there is no doubt they’ve conducted an in-depth analysis of options. But there’s no clear winner – and each party will go into the Scottish elections cheering on their own alternative.
When I was an MSP, I strongly advocated the re-distributive, income-based Scottish Service Tax. It certainly addresses the gross inequalities of the council tax and bumps up the differential between the amounts paid by the poorest and the richest pay by a factor of hundreds. But it also has its deficiencies. It could erode local democracy and accountability. And it doesn’t grapple with the vast banks of wealth currently stored in land and property.
What strikes me from the Scottish Government Local Tax Commission report is that in order to replace the council tax as quickly as possible, we need to use existing collection systems and administration to do it.
Anything more complicated will take too long, which is why there is a case for a hybrid system which combines a property-based tax with a more progressive income-based tax. As long as the differential between what the richest and poorest pay multiplies substantially, that would at least break the stalemate and allow us to move forward.
There is no need for polarisation between the ideas of income-based local taxation and a system that focuses on land and property. We could collect a local tax based on several assessment criteria – including property and income – and call it a local wealth tax.
What concerns me is the prospect of getting stuck with the council tax because we can’t agree on the alternative: that RISE dig in for the Scottish Service Tax, the Greens insist on a Land Value Tax and the big parties baulk at anything too radical.
What we really need is cross-party agreement from all progressive parties on a short-term replacement for the council tax that might not be perfect, or satisfy everyone, but is capable of evolving.
Council tax payers and local government workers want politicians to bang their heads together to break this annual cycle of inertia. Any party prepared to strive for that will gain electoral kudos.
In the long term, with the gross unfairness of the council tax consigned to history, we can look at being more ambitious.
When modelling alternatives, the Local Tax Commission confined itself to systems that would continue to raise the same proportion of local authority funding as the council tax does at present – which is only 12 per cent of its total.
Yet under the old rates system that preceded the poll tax, local authorities raised half of their funding themselves – which meant they were much more powerful centres of local democracy.
Across Europe, local municipal authorities raise, on average, a third of their funding. In Sweden, where according to public surveys the tax system is the most popular in the world with its citizens, only those earning above £32000 pay into the central government tax pot. The rest is kept and spent at local level, within municipalities which have far more extensive powers than in the UK. I quite fancy a system where nuclear weapons and wars are paid for only by the well-to-do. Maybe then there would be fewer wars and no nuclear weapons.
But seriously, there is a world of possibilities out there. Unfortunately, the long overdue abolition of the council tax doesn’t give us the luxury of contemplating them all for much longer.
A hybrid system based on property and income, and ability to pay, using the existing infrastructure, would afford us the chance of developing each of those elements in an ever-more progressive direction in the future.
And it could leave the door open to the possibility of increasing the proportion of funding raised by councils themselves. This could enable the ever louder demands for greater local democracy and participation to be met. And there’s nothing to stop us still having a top-up system to redress geographical inequalities.
So can we just get on with it?
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