The Only Way To Fix Council Tax
The Scottish Government has dropped its promise for a Citizens’ Assembly on Council Tax reform in favour of much weaker “public engagements”.
We have the only real option for change: A Property Tax based on the current value of a house.
Image credit: Unsplash
In the run up to the 2021 Scottish Parliamentary Election, the SNP – like most other political parties, published their manifesto. They’ve since deleted it from their website but it has been archived here. In that, as a promise to voters who put them back into office as a result of that election, they stated that they would run annual Citizens’ Assemblies during this Parliamentary term “to help find consensus on issues where people have sharply divided opinions...such as such as reform of Council Tax.” Making that issue in particular more than a mere suggestion, a few pages later they stated clearly that “We are committed to reforming the Council Tax to make it fairer…We will ask a Citizens’ Assembly to consider the way forward alongside the question of wider powers for local government.”
“We are committed to reforming the Council TAx to make it fairer”
After the election and their return to Government, they held one Citizens’ Assembly on Climate Change (the process of which showed an outstanding example of the future of democratic governance but the outcome of which was a single new policy promise, later broken) but didn’t hold any others. The Citizens’ Assembly on Council Tax Reform was never formally cancelled, but no effort or resource was ever put in to organising it. There is now no time to hold such an assembly before the end of the Parliamentary Term and no ability to even throw one together at the last minute given that neither the Programme for Government nor the final budget covering a full year of the remaining term mentioned such an Assembly.
This week, the Government published their proposal for a replacement to this manifesto promise. A series of “public engagements” this Autumn consisting of three key elements:
A formal public consultation process.
A number of public events or ‘town hall’ meetings held over the autumn months, ensuring a reasonable geographical spread and diversity.
A set of focused discussions with key stakeholders and experts.
This strikes me as remarkably similar to their “engagement” series on land reform in 2022 where the “town hall meetings” included gathering a dozen or so members of the public into a hall named for one of Scotland’s largest landowners to tell them that they were going to try to limit the scope of the land reform bill to only cover the management of the very largest estates in Scotland so that they could keep the costs of the reform to a minimum. They’ve since reduced the threshold of that management in the proposals for the current Bill but they are still far too high, far too limited and far too easy to evade.
This is a column about that Council Tax reform though – I’ll happily come back to Land Reform in a future column.
To say I have little faith in the SNP (or any other political party in Scotland right now) actually making meaningful steps towards reforming this badly outdated tax would be an understatement but we are an impartial think-tank and we are very much one of the “key stakeholders and experts” who should be at the table later this year (I’ll let you know if we get an invite) so fine – I’ll once again lay out the options for reform and explain why the only possible rational option is to adopt our policy paper on replacing Council Tax with a Property Tax based on the present value of a home.
Option 1: Retain the present system
The most likely outcome – based on the experience of previous attempts at reform – is to do nothing. Council Tax was never supposed to be a long term solution. It was never supposed to be a solution at all. It was a means of getting the peasants to put the pitchforks down in the wake of the Poll Tax protests by making as small a change to that badly broken system as the Powers That Be could get away with. No rational person can claim that a tax that bases itself on what the value of something was more than a third of a century ago is one that is still fit for purpose. Under it, a house worth ten or a hundred times as much as yours will only owe AT MOST about 3.5 times as much in Council Tax. Worse, it’s likely that your house is in the wrong band entirely as are more than half of homes in Scotland. It’s quite possible that your house and that house is so badly misbanded – a result of changes in house prices over that third of a century – that you could end up paying the SAME Council Tax as a house worth ten times as much as yours (I’ve seen houses worth £30k and worth £300k both in Council Tax Band D). Even when correctly banded, the poor will still end up paying far more as a percentage of their income in Council Tax than the rich and we’ll see large and increasing amounts of Local Council budgets get eaten up by discounts and exemptions to the tax out of the very real fear of making that poverty worse. It’s very possible that none of this could change. Even the Scottish Government states that they support reform of the present system. But as Mythbusters’ Adam Savage said, “Failure is always an option”.
Option 2: Tweak the Bands
In a manner that would be a clear breach of a national constitution if it was done in any normal European democracy, the Scottish Government exercises extreme control over how Local Authorities can use their own devolved taxes. I’m not just talking about the threats and bribes used to implement off-the-cuff freezes to tax rises, but also that Councils don’t have the unilateral power to tax the rich. All they are allowed to do each year is set the level of Band D council tax and all of the other bands are calculated based on ratios set by national government. In 2023, then First Minister Humza Yousaf proposed tweaking the upper two bands to slightly increase the tax on the richest houses (as well as proposing an increase to the surcharge on owning multiple properties that aren’t being rented out). As we stated in our response to that consultation, this is not something that we would oppose per se but it’s clear that this move, too, is that absolute minimum that could be done to get the peasants to put down the pitchforks. It also still hasn’t happened (though the extra homes surcharge will come in). It’s possible to do this more or better (more bands, increased ratios at upper rates, more surcharges, devolving power to Local Authorities to let them do any of this) but it doesn’t fix the fundamental flaws at the heart of this tax and still leaves us in the position of taxing houses based on their value a third of a century ago.
Option 3: Revalue Council Tax
In 2003, Wales revalued all of their homes and reshuffled them into their correct Council Tax bands. They pledged to do it again in 2025 but have recently announced that that revaluation will be delayed until 2028 – so at least their house values will only be a quarter of a century out of date by then.
This is an option for Scotland too but it isn’t as trivial as it looks as it does require a national revaluation of all houses. To be clear, this kind of revaluation happens all the time in other European countries (often in the context of their land tax), it’s just that Scotland doesn’t really have a mechanism in place just now to do this and we’d need to create it. Our preference is to essentially copy Zoopla – use an algorithmic valuation based on recent and nearby sales or transfers of similar houses and/or by home insurance estimates, include a valuation as a condition of approval for upgrades or repairs significant enough to require a building warrant or planning permission, and require a bespoke valuation for homes that aren’t upgraded or transferred within the last five or ten years.
The thing about doing all of this within the context of revaluing Council Tax is that you’ve just gone to the exact same effort as you’d need to go through to replace Council Tax except with almost none of the upsides – we’d still be left with a deeply unfair and regressive tax; just one that we’ve modernised slightly to bring the inequalities up to date.
Option 4: A Local Income Tax
In 2008, during the last and only serious attempt to reform Council Tax in Scotland, the SNP’s favoured replacement was for a Local Income Tax set nationally at 3p in the pound. They did not have a majority in Parliament at the time and couldn’t just whip the proposal through.
None of the other parties supported that proposal (The Lib Dems and Scottish Socialists supported the idea in principle but voted against the specific levels of taxation applied) and nor was there a majority for any of the others, so the whole discussion eventually collapsed. This is probably the reason that the SNP are focussed now on “gaining consensus” for reform – they failed to gain that consensus last time and have been afraid of doing so again ever since.
Additionally, there was an objection from the Westminster Labour Government at the time who threatened to reduce Scotland’s Block Grant by around £400 million (£724mn in 2024 money) if Council Tax was replaced with anything other than the Scottish Labour proposal. The short version is that at the time the Fiscal Framework that calculated the Block Grant applied the Barnett Formula to the Council Tax discounts and exemptions given out in England and increased Scotland’s Block Grant so that we could “afford” to offer similar exemptions. The argument was that with no Council Tax, there was no need to fund Council Tax discounts and there was no mechanism to calculate how much might be needed to fund a local income tax discount instead.
A Local Income Tax is not, in and of itself, a Bad Thing. Many countries have some element of sub-national taxation of income – sometimes right down to municipal level. We have advocated for Scotland to do similar and to allow at least Local Authorities to introduce some kind of local income-based levies. However devolution does make this tricky and it would be a very bad idea to replace Council Tax with an income tax. The problem is that while an income-based tax has a very direct link to “ability to pay” that a wealth tax might not have, it’s very possible to become extremely wealthy by allowing an appreciating asset like a house to increase in value while doing nothing to that house. There is always the fear of the “wee lonely granny” who still stubbornly lives in the big family mansion despite everyone else moving on, who has seen their neighbourhood gentrify, but is now reliant on their pension so couldn’t afford an increase in tax. The truth is that this example is likely wildly overstated (there simply won’t be many people in that situation) and there are far better solutions to dealing with that than keeping everyone else in an unfair tax situation – namely to offer an income-based discount to that person until they leave that house and to offer the ability TO leave that house by building smaller social houses in the area that the person can move into without losing the community around them (this is how the houses in my street were designed in the 1950s– with one bed bungalows attached to each end of the larger family terraces and flats to allow for downsizing and mixed communities).
As I say, bringing in a local income tax might be a good idea, but not at the expense of getting rid of one of the few effective wealth taxes that Scotland currently controls.
Option 5: A Property Tax
This is our proposal and the one that we believe is the only credible option for Council Tax reform. If we accept the need for reform (we all do), we accept the need for proper and modern housing valuation (which I hope by now we all also do), and we accept the responsibility to bring in that kind of valuation (as per Option 3) then it’s only a very small step from there to bring in a system that is updated constantly instead of, as in Wales, merely every several decades depending on delays. From there, it’s relatively trivial to get rid of the ridiculous banding system and to tax houses based on a percentage of their actual value. In 2020, using 2019 data, we calculated that if Scotland brought in such a Property Tax at a flat national rate of 0.63% then it would bring in roughly the same amount of revenue as the Council Tax did. This includes an assumption that roughly the same amount would be given out in Council Tax discounts to eligible people though as we’ll see, the actual people involved and the amounts that individuals might receive could move around a bit. Under this system, a house worth £50,000 in Band A would see its Council Tax bill drop by about half. In fact, around 80% of households would get a Council Tax discount. The exact “break even” point is difficult to measure, particularly as so many houses are misbanded and the present value of a house bears so little relation to its Banded value in 1991, but we estimate that for a house that would remain in the “correct” Band under Option 3, that point would be at around £400,000 for a Band G house. That is, if your house is worth less than about £400,000 then you could expect a tax cut under our scheme. If your house is worth more than this, you could expect a tax rise. This should be both expected and fair – a house worth £500,000 should pay at least ten times as much wealth tax as a house worth £50,000 and a house worth £5,000,000 should pay at least a hundred times as much.
There are some possible modifications we could make. House prices have risen substantially since 2019. We estimate that what was the “revenue neutral” rate in 2019, would bring in around £650 million more than Council Tax now. Or alternatively, if we had brought in the Property Tax back then, housing prices might not have risen so much as a result of the tax. Either way, this give us scope to either reduce that “neutral” rate or to accept the increased revenues to support public services.
Additionally, we don’t accept a flat rate income tax, so why should we accept a flat rate wealth tax? In Scotland, the non-domestic rate (essentially the equivalent of Council Tax on business properties) is adjusted by a “poundage” rate that increases the tax on higher valued buildings. Applying this to the Property Tax would almost look like bringing the Band system back (except it increases the percentage of the tax applied, not the total tax amount) and would add some complexity but would allow a wealth tax to be applied more effectively to the mega-wealthy (or to offer additional discounts to the very poorest) as well as to apply increased taxation to landlords who own multiple properties (as the poundage could be applied to a total portfolio so that one person who owns ten £100,000 houses would pay more than ten people who own one such house each). We also advocate extending the Property Tax to cover not just the house and curtilage (i.e. your garden) but to land owned outwith that (Council Tax currently taxes an estate’s manor house, but not the entire estate). While this could be brought in as a separate Land Tax or Ground Rent, we advocate that both land and buildings are fundamentally the same class of property and so should be taxed together to prevent billionaires lobbying, for example, to increase the tax on your home so that they can get a discount on their estate.
Finally, while our basic paper calculated the Property Tax based on a single national rate for illustrative purposes, we fundamentally disagree with that idea in practice. For one Devolution limits the ability for the Scottish Government to bring in a nationally controlled tax (this is why they resorted to bullying and bribing Councils to support their Council Tax freeze rather than just doing it) and we’ve see with the National Care Service what happens when Ministers try to strip councils of powers to serve their centralisation agenda. For another, local Councils should be free to adjust their rates to suit their own needs and should be able to do so independent of what another government wants to do. It is a fundamental principle of subsidiarity that powers should be held as locally as possible and since plenty of Governments control property taxes at even more local levels than Scotland is currently capable of, there is simply no more reason for Holyrood to control this tax than there would be for Westminster to do it.
Conclusion
The Scottish Government, and – truthfully – the whole of the Parliament, has an appallingly poor track record when it comes to Council Tax reform so I’m more than a bit scunnered by this latest admission of failure to deliver on that 2021 manifesto promise. Given Common Weal’s extensive work in this field, I do expect us to be invited to that experts table but it’s probably much more important for the Government to listen to ordinary people on this. The Scottish Climate Assembly proved that when properly informed, the Scottish public are more than capable of coming to consensus agreements on even extremely radical proposals (we wouldn’t be staring down the barrel of the UK capitulating to a Trumpist Trade War, for example, if we had adopted the Climate Assembly’s proposal for climate and externality-based trade tariffs). However, the Climate Assembly didn’t fail because of the ordinary members of the public involved, nor did it fail because of the organisers or because of the experts who gave it advice. It failed because the Government didn’t like giving away their power and didn’t like being told what to do by those ordinary members of the public.
So this latest “engagement” exercise is a challenge to the Government to show that it has learned that lesson. If the Scottish Government is seeking consensus for reform then it must promise now, ahead of time, that they pledge to be led by that consensus wherever it leads to. If the engagement presents a clear and obvious solution – we believe that the only one is our Property Tax – then it must be implemented at speed and without complaint even if it’s not the SNP’s preferred solution. Frankly, the Parliament as a whole abdicated its right to complaint on this one. For several decades, the party political system has blamed everyone in the room for the failure to reform Council Tax while denying that they were also standing in that room themselves. If party politics can’t provide that consensus solution they say they need, then it’s time for party politics to step out of the way and let the people deliver the democracy that they’ve been holding us back from.
