New research by IPPR Scotland claims that council tax in Scotland does not raise as much money as it does in England and Wales, that home values are 30 years out of date, and low to middle-income families pay the most as a proportion of income.
According to the think-tank, Scotland would have £600 million more to spend each year if council tax matched bills in Wales and £900m a year if bills matched the average in England.
Russell Gunson, director of IPPR Scotland, said it was time political parties addressed the failing system, particularly as house prices increased by over 8 per cent in 2020 and higher income households have seen their finances improve on average through the pandemic.
Scrapping council tax was an election pledge made by the SNP in 2007, but instead it was frozen for ten years. After three years of councils being able to raise it within limits, the Scottish Government moved to freeze it again last month in return for a pledge of 3 per cent uplift in direct funding to local authorities.
Mr Gunson said radical reforms could include replacing council tax with a percentage of value tax, setting annual bills at 0.75 per cent of a home’s value, which would, over the long term, see higher value properties, and all properties in Bands F-H, pay more than now.
In the shorter term he said the next Scottish Government could pledge to close the council tax income gap between Scotland and the rest of the UK, increase bills for higher value properties more quickly than the rest to raise almost £400m a year by 2025/26 and take all families in poverty out of paying council tax altogether by the end of the Parliament.
Mr Gunson added: “We need to talk about tax in this election. Whoever wins in May, it’s likely that taxes in Scotland will need to increase to help invest in the Covid recovery and build a fairer Scotland than went into the pandemic.
"With house prices increasing, benefiting the wealthiest the most, we think reform of council tax could be a fair and progressive part of the solution.
“Council tax is out of date and unfair. Lower income families currently pay the highest bills as a proportion of their income. It also doesn’t raise enough money, with public services in Scotland losing out on hundreds of millions of pounds a year compared to money raised through council tax in the rest of the UK."
The report comes as new figures from Age Scotland revealed older people in poverty and on low incomes missed out on £88 million in council tax reduction support last year.
The charity estimates 123,000 older households in Scotland are not claiming the Pension Credit they are entitled to which would make them eligible for full council tax reduction.
Chief executive Brian Sloan said the reduction could “be making a real difference to the lives of those older people on low incomes, driving down levels of poverty and boosting their wellbeing". The charity has a helpline on 0800 12 44 222 for free eligibility checks.
An SNP spokesperson said: "The SNP is already leading the way on making council tax fairer in the UK. While households in England have just seen an average hike of 4.3 per cent, all of Scotland's 32 local authorities agreed to freeze council tax rates as a result of the SNP government's fully-funded council tax freeze, which provides local authorities the cash equivalent of a 3 per cent council tax increase in return for not putting up levels.
"The SNP in government ensured every Scottish household benefits from cheaper council tax bills, with households paying on average £500 less than those in England under the Tories. If re-elected, the SNP has pledged to scrap the council tax charge for everyone under the age of 22 – expanding the current exemption for students to all young people, including those in work and apprenticeships – and resume the discussions we were having on a replacement for council tax, which had to be paused during the pandemic.
"Reforming council tax and local government is one of the issues we will look at in the annual Citizens' Assemblies the SNP will establish if re-elected."