Brian Wilson: Unfair council tax kept for fear of voters

FEAR of voter rejection ensures that a system which all agree is unfair continues to shackle local government, writes Brian Wilson

Scotlands local government services, from schools to social care, are suffering from the shackles of council tax. Picture: John Devlin

Around Scotland, local councillors are engaged in the thankless task of drawing up budgets which reflect the harsh settlement imposed by the Scottish Government. Some – from Moray to Fife – are saying it cannot be done, risking retribution.

People who came into local politics for the betterment of their communities find themselves in the front line of inflicting cuts, closures and job losses. For good measure, they are subjected to opportunistic sniping by local allies of those who divided the cake in Edinburgh, as if they were authors of the misfortune rather than among its victims.

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Ministers prattle piously about improving standards, closing equality gaps and other virtuous outcomes, knowing that the buck has been well and truly passed to councils. The certainty is that cuts on the current scale do not equate to improving anything for those in most need of services that make a difference – from classroom assistants to care in the community.

The even worse news is that, without radical surgery, things can only get worse. Councils are caught in a vice-like grip. Their biggest source of income is determined in Edinburgh without any local control. Council tax, accounting for just 12 per cent of their budgets, is also fixed and frozen by ministerial decree. Councils merely to play the hand others have dealt them.

Last month, a Commission on Local Tax Reform reported on options for funding Scottish local government. It was a rather odd document since, while agreeing that the present system is unsustainable, it did not actually recommend anything. Instead, it expressed hope that parties would consider the evidence and come forward with their own ideas in May.

That is not much of a call to arms. As seen with the non-use of income tax powers, the imperative is to avoid offending those who might tell canvassers they would willingly pay more if it helps others but are less keen to vote for that lofty principle. So we remain stuck with a system introduced by the Tories in 1993, based on a property valuation a quarter of a century old, with all fiscal levers in the hands of Edinburgh.

Ironically, many who fear change might benefit from it. The Commission found that 57 per cent of domestic properties are now in the wrong council tax band, roughly divided between those who pay too little and too much. The obvious way of fixing that anomaly would be to have a revaluation but the motto seems to be: “Avoid that at all costs in case it frightens the voters.”

The steady erosion of revenue collected locally means that, even if the freeze was broken, there would need to be a large percentage increase in order to raise any significant sum beyond the £2 billion that council tax brings in. Fife, for example, is talking about 7.5 per cent. Put these factors together and we have the perfect formula for the political paralysis which exists.

Some see the Commission exercise as no more than a device for getting the SNP off the hook of local income tax which they promised (along with abolition of student debt) in 2007 for the noble purpose of getting elected but without having done any of the necessary homework. Both commitments were dropped as soon as the votes were counted and are not going to return.

The radical option would be to ditch the current system and go for land value taxation, an old socialistic principle closely tied to the cause of land reform and implemented in several more egalitarian jurisdictions. One advantage would be to broaden the tax base to include businesses – notably agriculture and forestry – which have long been exempted from to local taxation. Some calculations suggest two-thirds of homeowners would be better off under LVT.

It’s an eloquent reflection on Holyrood that after 17 years, it is still operating a system of local government taxation which nobody believes to be fair or adequate and was introduced as a stop-gap by a Conservative government under the cosh of replacing the poll tax. Yet, as the years have rolled by, its regressive characteristics have intensified.

If ever there was an area of policy where there is an unanswerable case for using devolved powers to do things differently and more fairly, this must be it. But that challenge continues to be shirked because there is little interest or imagination devoted to the use of existing powers in the interests of progressive change if it also carries a risk of losing votes.

Land value taxation would place a value on the most basic commodity of all, rather than on the bricks and mortar built upon it or the businesses it is used to create. A corollary is that dereliction and inactivity would not be encouraged, as happens under the present system. How can it make sense for property owners or developers to be rewarded for years of doing nothing, while town centres crumble and housing waiting lists grow?

Another virtue of LVT is that it would create a lot more transparency around the ownership of land, urban and rural. If all land was valued according to the same principles, it would still be open to government to legislate for exemptions – for farmers, estate owners, charities and so on – but at least everyone would know what they cost and could form judgments accordingly.

Something as fundamental as this is not going to happen overnight but commitment to it being introduced within a few years would signal a way out of the current miserable squeeze on local government services. Otherwise, it is very difficult to see one.

In the meantime, Holyrood could introduce secondary legislation whenever it chooses, at least to make the council tax more progressive – at present a property worth 15 times more than another pays three times as much. It consistently opts not to do so and we are stuck with a status quo which nobody claims to support but hardly anyone dares to touch.

And thus the sterile mix of centralised control, cuts and job losses prevails.