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The Commission on Local Tax Reform: Volume 1 – Just Change: A New Approach to Local Taxation


13 Conclusions and Recommendations

13.1 The present Council Tax system must end.

13.2 We believe history shows that reforms to local taxation are politically challenging, and therefore emphasise that this is one area of public policy that would benefit greatly from a period of cross-party agreement and consensus in order to create an enduring, stable settlement needed for Scotland as a whole, for Local Government and for local democracy.

13.3 We have concluded that any new system of Local Government taxation should continue to be one of general tax contributing to the general funding of local services, rather than a system of charges for specific services.

13.4 The new system should offer greater flexibility to Local Government and thereby strengthen local democracy. Local rate-setting wherever possible should be an explicit feature of reform.

13.5 As far as possible, any new system should be designed to minimise the need for complex relief schemes for individuals or households. Such a system should ensure that any reliefs that are available are straightforward to understand and administer and that take-up is increased.

13.6 Local and central government must make substantial efforts to increase public understanding of local taxation and how Local Government receives funding and spends money. This should be clear and transparent to taxpayers throughout their experience of the system.

13.7 In contrast with previous attempts at reform, we are not persuaded that a single tax instrument can simultaneously deliver greater equity for taxpayers and autonomy for Local Government whilst also being efficient and readily implementable. A replacement system, therefore, would benefit from including multiple forms of tax which would allow local taxation as a whole to be fairer. A well-designed system that draws revenue from multiple sources would provide more options for local democracy, delivering greater financial accountability and autonomy to Local Government. A broadening of the local authority tax base would be advantageous, and would make Scotland more consistent with most OECD countries.

13.8 We emphasise that the total amount of tax raised depends entirely on how any replacement system is designed, including the rates set. There is no intrinsic link between the numbers of taxes operated and how much is collected in total. Council Tax currently raises £2 billion per year but if two replacement taxes were set at rates that meant they each raised £1 billion they would together raise no more than at present. Any political party or organisation putting forward detailed proposals for a new system should make clear the effect that system can be expected to have on the total amount of tax paid in Scotland.

13.9 Any move to a fairer tax system will also inevitably lead to a situation where some individuals will pay less and some will pay more. We therefore believe it is vital to establish a transitional framework to enable taxpayers to adjust to the new system and new tax liabilities. The cost of such assistance should be assessed and considered as part of any projections of how much revenue would be raised by the new system.

13.10 A new system will also mean the distribution of central government funds to local authorities will need to be reviewed and adjusted. We believe that local authorities with lower tax bases should not lose out as a result of any such shift in system, whilst retaining meaningful local flexibility in levels of local taxation. Local authorities will also need to have sufficient means under the new system to mitigate risks by managing fluctuations in revenues across the economic cycle, in-year and during gaps between liability arising and receipt of payment.

13.11 To meet these principles, any move to a fairer system will therefore need time. We believe this means reform should be thought of and put forward as a programme, with the public offered a longer-term vision and actions which can be taken in the short term identified. In delivering a programme of reform, the Scottish Government and Local Government should work in a genuine partnership with each other.

13.12 The predominant view of the Commission is that any reform of local tax has to continue to include recurrent tax on domestic property, and we recognise that, as with all available options, there are difficulties that must be addressed if any system is to be seen as fair and accepted by the public. We have modelled two approaches – a reformed, proportionate Council Tax and a progressive tax on capital values – but we repeat these are both simply illustrations. At the very least, any such system needs to be more progressive than the Council Tax. This should occur through making the initial household liabilities more progressive and by creating an extensive income based relief that also takes account of need, and is better for households on low and precarious incomes than the existing Council Tax Reduction scheme. The substantial political challenge of linking liabilities to up-to-date property values must also be overcome.

13.13 We believe that a system of land value tax is promising, but that, while the work done for the Commission has been of unprecedented scale, gaining a full understanding of its impact would require further analysis. Any system of administering property based taxation should provide sufficient flexibility in time that site values could form a tax base for a system of land value taxation. Further work should be done over the next parliamentary term to assess both general and targeted land value taxes, and their introduction should be given consideration as part of a broadened system of local taxation.

13.14 The predominant view of the Commission is that Local Government’s tax base should, if it could be proved feasible, be broadened to include income. Income is widely perceived to be a fairer basis on which to levy a tax, although a locally variable income tax presents substantial administrative challenges. Progressing such a longer-term programme of reform would require early dialogue with the UK Government to ascertain their willingness to allow the use of HMRC to apply a locally variable rate of income tax and to calculate start up and ongoing collection costs, as well as testing the scope to include income from savings and investments. A system of assigning local authorities a share of receipts from the SRIT could provide an interim option, but this would not allow for local variations.[2]

13.15 We have identified that taxes on property, land and income are the three potential tax mechanisms that have the revenue raising capacity to match the present system. Broadening the local tax base could include environmental, resource, sales or tourist taxes, as appropriate to local circumstances and local authority decisions. We see no reason in principle why such options should not be identified, developed, and, if found to be workable, made available to Local Government. These options would not be anticipated as forming the main basis for local taxation, but could, in addition to the aforementioned options, make a contribution to local revenues.

13.16 We recognise that political parties in Scotland will attach different weights to the considerations we have set out on each of the tax options, and will therefore draw different conclusions about the best way forward. Our expectation is that this report informs the development of those policies which will be put to the electorate in the Scottish Parliamentary election in May 2016 and beyond.

13.17 We believe this is the time to reform local taxation. We have conducted more in-depth analysis of potential forms of tax available than ever before to inform debate and the construction of detailed proposals. We have concluded that there is no one ideal tax but we have shown that there are ways of designing a better tax system. There is now a real prospect of beginning a programme to make local taxation fairer – more progressive, more stable, more efficient and more locally empowering.

13.18 We entrust those charged with taking this work forward to respect the spirit in which the Commission was established and has discharged its obligations. We are confident that with the goodwill established between the parties in the Commission that this can be achieved.

13.19 This is an opportunity that must not be missed.


2 Jackie Baillie MSP was not able to agree this recommendation

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