The Commission on Local Tax Reform: Volume 1 – Just Change: A New Approach to Local Taxation
04 Our Approach
- We engaged with experts and a range of organisations to understand all aspects of the present Council Tax system, ranging from payment and administration to the impact on the services that it funds.
- We actively sought the views of the public through a programme of listening events across Scotland, a call for detailed written evidence and by an open access survey.
- Working with Heriot-Watt and Stirling Universities, we completed the most comprehensive programme of quantitative analysis ever attempted to understand the relationships between house and land values, the property stock and household incomes.
4.1 We agreed a set of values to underpin and guide our work and meetings, and the conduct of our public engagement and evidence gathering. These prevailed throughout our work, including in the preparation of this report which has the evidence we have collected at its heart.
Figure 4.1 The Principles We Used to Guide our Work
In pursuing the remit, Commissioners will be:
* Ambitious: taking a long-term view and not being restricted by the current practices or pre-existing positions regarding any potential alternatives.
* Open: listening to all views through widespread engagement, accessible public reporting, and by encouraging interaction with their work.
* Independent: fulfilling their role autonomously outwith the formal decision-making structures of any organisation, and distinguishing between their day-to-day roles and responsibilities and their role as independent Commissioners when carrying out Commission activities.
* Inclusive: developing and reflecting a wide range of perspectives and views from across communities, civic Scotland, local and national government, and others.
* Questioning: providing a forum for debate and reflection, but with a common purpose of delivering the Commission’s remit in the allotted timescales.
* Practical: responding positively to challenges and opportunities, working together to share and evaluate ideas, and developing a shared understanding that respects the spectrum of opinions represented by members of the Commission.
* Evidence-based: using relevant evidence from home and abroad to inform our work, and commissioning research and analysis where appropriate.
* Deliberative: providing appropriate space for the Commission to reflect on the evidence that it receives and to debate options either in public or in confidence, with appropriate records of those discussions made public.
4.2 The structure of this report reflects not just our remit, but also certain principles of taxation that the options for reform could be tested against, including equity and fairness, administrative and economic efficiency, and autonomy and accountability.
Gathering Evidence and Commissioning Research
4.3 Our evidence base includes several thousand pages submitted by over 200 respondents, including 79 organisations as diverse as Barnardo’s and the Institute of Chartered Accountants of Scotland. This ensured that we could understand the views and positions of a very wide range of interests from across society as well as draw on an independently prepared analysis of all responses.
4.4 To supplement this call for written evidence, we held 12 oral evidence sessions where we explored specific issues in greater depth. These engaged 58 expert witnesses from bodies as diverse as the Institute for Fiscal Studies and the Coalition of Carers in Scotland.
4.5 We have sought to understand overseas experiences and practices, commissioning a review of international literature from Policy Scotland at the University of Glasgow, and engaging with experts from Denmark, the Basque Country, the Republic of Ireland and learning from the experiences of recent reform within the UK in Wales and Northern Ireland.
4.6 All of the research work we have commissioned is published alongside this report, whilst our commitment to be open and inclusive during our deliberations meant all our oral evidence sessions were webcast. Where consented by the author, responses to our call for written evidence can be downloaded from our website, as can a record of all of our meetings.
FIGURE 4.2: SOURCES OF EVIDENCE
Listening to What People Think
4.7 A distinctive feature of our approach has been to actively engage with the public to both canvass their opinions and help us understand how people react to alternative local taxes. Our remit committed us to do this and we believe it adds a vital dimension to our findings, given the potential challenges associated with change.
4.8 There were two components of this public engagement. Our website featured an online questionnaire which attracted nearly 4,500 responses. This provided us with a sense of the views that prevail amongst the members of the public most motivated to contribute to debate on this issue and some of the anecdotal opinions they hold. We then further developed our understanding of those views and how people think in a series of facilitated public listening events across Scotland. These were open to the public and promoted in the local and national press, as well as some being targeted at specific communities of interest such as housing association tenants and faith groups.
4.9 To supplement this, we also worked with Young Scot, which hosted an event in Glasgow engaging young people aged 15-25 from across Scotland. Additionally, BEMIS, a national umbrella organisation which supports ethnic and cultural minority communities and individuals, hosted a workshop with Commissioners to consult and engage its membership on the alternatives to the present Council Tax.
4.10 Our public engagement sought views from far and wide, but we emphasise that the findings cannot be assumed to be representative of the whole of Scotland. However, these processes helped us hugely to understand the scale of the issues which a new local tax system must address.
Our Quantitative Analysis
4.11 Complementing this substantial body of qualitative evidence, we undertook, in association with Heriot-Watt and Stirling Universities, the most comprehensive analysis ever performed on the Scottish housing stock, including modelling up-to-date property and land values, and examining how property and income taxes relate to household incomes.
4.12 Council Tax currently raises around £2 billion, and a replacement tax needs to be capable of raising the same. Responses to the call for evidence identified three suitable alternatives that could do this and that could be applied locally – taxes on property, taxes on land and taxes on income – although there were an array of suggestions on exactly how these could operate in practice. This result is confirmed by the Policy Scotland at the University of Glasgow research which found that these were the three principal tax bases used by Local Government in other OECD countries. Our quantitative analysis examined each alternative to try and understand how their potential impacts differed and what they might mean in practice for households across Scotland.
FIGURE 4.3: REPLACEMENT OPTIONS
4.13 To help us with this process, and purely for the purposes of illustration, we created examples of alternative taxes and looked at the impact on households if these had been implemented instead of the present Council Tax in the financial year 2013-14. The alternatives are described in Figure 4.4, but none should be taken to represent a recommendation or a blueprint for a future alternative tax. Rather, they were chosen to help inform our understanding of the various impacts of the alternative taxes and where the key trade-offs lie. Furthermore, the detailed results of our analysis (presented in our Volume 2: Technical Annex) must not be interpreted as predicting how much households would pay if these examples were actually implemented – this will depend on not just the local tax rates that will be determined by individual councils, but on many other factors such as what discounts, exemptions and deductions apply. We hope that putting this work in the public domain will allow a richer, more informed debate about local taxation to take place in the run-up to the Scottish Parliamentary election in May 2016.
FIGURE 4.4: EXAMINING THE ALTERNATIVES – the different local tax systems we analysed
Local income tax: We mirrored the UK income tax structure and added an additional flat rate tax to the basic, higher and additional rates of income tax.
A reformed, proportionate Council Tax: We retained the main features of the present Council Tax, including the Council Tax Reduction scheme, but changed the charge for each band to reflect differences in relative property values in each band.
A steeply progressive property tax: We modelled a tax based on each household paying a percentage of the value of their home in tax – the higher the value of the property, the higher the tax rate. We kept the same eligibility for an equivalent to the Council Tax Reduction scheme.
Other themes that were explored include:
Revaluation: For a subset of 700,000 homes across Scotland, we estimated a 2014 property value using information from market sales data, allowing us to assess how relative prices in different areas, and for different types of property, may have changed since 1991.
Land Value Tax: For seven local authorities, we estimated how average land values differed from average property values.
4.14 Whilst emphasising that our analysis cannot be used to indicate how much specific households might be required to pay, our modelling is based on the assumption that any replacement would raise the same amount as Council Tax. This required an implied tax rate for each to be calculated, which then allowed us to calculate individual tax liabilities – and thus the impacts – on a range of different circumstances.
4.15 We looked at different household types in the same income band, and at the same household type across different income bands to give a broad overview of the potential range of impacts. For each household type, we estimated the proportion of income, after tax and transfers, that they would pay in each example. We consider it very important that household circumstances are taken into account when assessing equity and how it relates to ability to pay. A household with children needs a higher income to maintain the same standard of living as an identical household without children. This process of adjusting income is known as “equivalisation”, and has been used throughout our analysis. We have also assessed households where there are people with additional support needs who are more likely to have higher essential living expenses. We consider this in more detail in Chapter 5.
4.16 Early on, we realised that we would not be able to fully separate out the value of the land tax base from the property tax base. Some preliminary analysis on land value tax has been carried out to help us to understand how liabilities would differ from a property tax, but without being able to estimate the total stock of residential land, tax liability modelling has not been possible, and our analysis has been limited to geographical comparisons with property taxes. The results from this are further explored in Chapter 6.
4.17 As well as highlighting property, land and income as possible tax bases, we also heard suggestions that the local tax base could combine some of these approaches in a hybrid system or be expanded to include other tax bases. Whilst the impact of these options could not be analysed as fully, we have considered the implications of these alternatives as part of our quantitative analysis process.
4.18 As we are not making specific recommendations on a particular policy or process, there has been no formal process of subjecting our deliberations and recommendations to a formal equality impact assessment within the terms of the Public Sector Equality Duty. However, our approach throughout reflects the spirit of the public duty and has been consultative and engaged with a wide cross-section of the public and specialist interests. The protected characteristics set out in the Equality Act 2010 have been integrated in our qualitative and quantitative analysis as far as the available data has allowed.
4.19 Our work sought to put considerations of equality, discrimination, and disadvantage into sharper focus than previous studies of local taxation, and we have made these considerations central to our approach to data collection and analysis. We have consulted with women’s groups, disability organisations and organisations led by disabled people, carers’ organisations, and organisations representing low-income groups and welfare advice and anti-poverty advocacy organisations.
4.20 The evidence from these consultations and from the quantitative analysis presented in this report has reinforced both the perception and reality of the unequal impact of the present Council Tax system and demonstrates some of the ways in which reform can address persistent inequalities.