Council tax nightmare for middle class Scots

Scotland on Sunday can reveal that Labour wants at least one new charging band to be created at the top end of the market, a move which independent analysis suggests could leave homeowners with an annual council tax bill in the region of 3,000.

The proposals - which could add 1,000 to current bills - have been ordered to ensure that Scots who have benefited most from the house price explosion pay their fair share towards local services.

But the details will not be confirmed until after the general election, leaving Labour open to fresh claims that it is planning to fleece the middle classes.

The government has already revealed that it will revalue all homes to catch up with house price inflation and make sure properties are in the correct band.

But it has now emerged that Labour wants to add one or more bands at the top end of the system and at the bottom.

Most family homes in affluent areas of Scotland are worth more than the current upper limit for the H band of 212,000. Even though many of these properties are worth far more, they pay the same tax, currently up to 2,400.

The introduction of a new I band - and possibly others - would set new and higher rates for many of these properties.

Concerns about rate rises have been sparked by a similar revaluation and rebanding exercise in Wales, where rates in some property hotspot areas have rocketed by 70%. If the steps in Wales were to take place in Glasgow, analysis shows that sums of up to 3,000 would be charged.

Academics at Heriot-Watt University laid down the predicted new band rates at the upper level in a report to the Scottish Parliament.

Band G would be between 148,000 and 219,999, Band H would be between 220,000 and 299,999, and Band I would be anything above 300,000.

An average four-bedroom detached house in Edinburgh’s suburbs now costs 344,000, attracting a maximum council tax rate of just over 2,000. Houses such as these are particularly vulnerable to being placed in the new "supertax" category.

In hotspots in Glasgow and Aberdeen, where house prices have rocketed, the story is similar. A Glasgow West End townhouse valued at 106,000 in 1991, in Band F, may now be worth well over 300,000, potentially falling into Band I.

The Welsh example would indicate that tax here would rise from 1,752 to 2,830. In Aberdeen, the same house with the same history would be rated up from 1,679 to 2,711.

Labour claim that the plan is the only way to make the council tax fairer and move the burden away from families in the lower tax brackets who they believe currently pay too much tax. They claim some in lower bands will pay less money.

Their plans have been given to an independent review of Scotland’s local government finance, being run by ITV chairman Sir Peter Burt.

If approved, they would be piloted through Parliament by finance minister Tom McCabe, although he will face opposition from Labour’s Liberal Democrat coalition partners, who favour a local income tax.

The crucial section on council tax reform declares:

"We believe there is further scope for improvement to the current system of taxation, namely the introduction of additional upper and lower council tax bands to better reflect the changes in property values.

"Labour is committed to the introduction of further bands in the current system, which would incorporate people in properties at the top and bottom end of the housing system."

A Labour spokesman stressed last night that its proposals did not lay out costings. "Any mention of any amount of increase in tax is absolutely speculative."

Brian Monteith, finance spokesman for the Scottish Tories, said: "Having more bands is clearly an attempt to make those with larger properties and many middle-class families pay even more, when such households are already likely to be paying a larger share of income taxes and other taxes. Some people will face serious increases and will have to completely change their spending habits."

Labour’s approach was backed by Professor Arthur Midwinter, Scotland’s leading public finances expert. "The council tax provides a stable yield, at a low administrative cost," he said.

Labour MSP Bristow Muldoon said: "Those at the bottom would pay less and the people at the top would pay a bit more. Potentially, those in hotspots might move up, but even then the total tax take of a council wouldn’t be intended to rise, so the actual rate set by the council might not go up. The effect would be broadly neutral."