The Commission on Local Tax Reform: Volume 1 – Just Change: A New Approach to Local Taxation
02 The Case for Change
2.1 Since its introduction in 1993, the design of the Council Tax has remained almost completely unchanged. The most striking consensus from all of the evidence that we received is that this cannot go on, and we have come to agree that local tax now therefore needs substantial reform.
2.2 The reason for this is simple – some people are paying more than they should. This is not a new realisation, yet previous attempts at reform over the past 25 years have failed. These failures have real consequences for households and communities across Scotland. The opportunity for reform cannot be missed again.
2.3 Even by its own test of charging households amounts based on the value of the property they live in, the present Council Tax system falls short. People in the most expensive homes pay no more than 3 times the tax on the lowest value homes, even though we estimate those homes, on average, are now worth around 15 times as much. That means people in less expensive homes are paying a higher proportion of their property’s value in Council Tax than those in the most expensive homes. And all charges are based on not what the property is worth now, but what it was worth in 1991. For newly built homes, an estimate must be made of what it would have been worth in 1991.
2.4 Council Tax is based on the value of the property occupied by the household, so the connection between how much a household has in income and how much it pays in tax will always be looser than if the tax were to be based directly on income. Many reasons can be advanced for taxing property rather than, or alongside income, but in the case of the present Council Tax, the evidence shows that the amount being charged is simply too disproportionate to income to be justified. Paying Council Tax bills costs middle income households 4% of their income on average, compared to 2% for the average highest income households.
2.5 Households can have their Council Tax bill reduced on grounds of their income and needs through the Council Tax Reduction scheme, but those households have to have very low incomes indeed. Households with modest incomes or with incomes that vary week-to-week need more help.
2.6 The present Council Tax has therefore rightly become discredited in the eyes of the public, and in our participation sessions across Scotland, it was made clear to us that people expect a change.
2.7 For eight consecutive years Council Tax bills have been frozen. But this cannot go on forever. Local tax and the funding of local services should be a central part of local democracy, with voters able to make choices about how much tax they should pay and for what level of public service.
2.8 History, however, shows that replacing or reforming a tax is not easy. People need to understand why the amount they pay might vary. The challenges of moving to a new approach must be understood and overcome.
2.9 In this report, we show that local taxation can be fairer, whilst delivering the scale of revenues needed to maintain the public services that are often the very cornerstones of our society. We show that local tax reform could connect voters better to Local Government. And by showing that the present Council Tax simply fails the test of being proportionate to the ability to pay – however that is measured – we present an unarguable case for change.