7 August 2015

An academic review of local government funding around the world will today (Friday 7 August) shed light on the challenges faced by the body tasked with finding an alternative to the current system of Council Tax.

The Commission on Local Tax Reform – established jointly by the Scottish Government and the Convention of Scottish Local Authorities (COSLA) – will take evidence from Professor Kenneth Gibb of the University of Glasgow, who carried out an international literature review on behalf of the Commission.

Professor Gibb’s review, conducted with Linda Christie of the University’s Policy Scotland institute, examined different systems of local taxation from around the world and their potential impact on the remit of the Commission’s work.  The report can be downloaded here.

The work included an analysis of studies carried out for bodies including the Organisation for Economic Cooperation and Development (OECD), International Monetary Fund and the United Nations.

It also considered in greater detail a number of local tax systems across the UK, Europe, North America and Australia.

Among the conclusions in Professor Gibb’s report:

  • There are many different forms of local taxation around the world, but common to all is the difficulty in delivering reform. The present Council Tax has had in-built problems from day one but the unwillingness to revalue and modify the system has stored up even greater problems for today’s policy makers.
  • Property tax is used by almost all OECD countries as a local tax, but many people don’t understand why they are being taxed, or what they are being taxed on. Is it a tax on housing or wealth or is it a charge for services?
  • There is academic consensus that property tax is a good local tax because it is stable, difficult to avoid, and can have desirable impacts on housing markets but it can be unpopular with the public because it is so visible, and because it is not directly linked to current income.
  • Local income tax is also used in many countries around the world, and because it is levied on current income it is often thought to be ‘fairer’, but can create problems for local authorities who struggle to cope with fluctuating income streams and often there is little flexibility to vary rates locally to fund local priorities.
  • The report also highlights that many countries use a range of additional taxes but this can be difficult and expensive for local authorities to manage, and for the taxpayer to accept.
  • It is clear there is no magic bullet, and past experience from the UK and across the world shows that reform is always going to be difficult and will inevitably be bound up with the previous experiences and traumas of past reform. So whilst the current Council Tax has many acknowledged deficiencies, change and reform is a major undertaking.

Speaking ahead of the meeting, Professor Gibb said: ““Over the last few months, we have examined and gathered evidence on how other countries approach the issue of local taxation, as well as evidence about how others have tried to reform local taxes.

“The UK is distinctive in terms of its approach to these matters but there are insights from  abroad that can nonetheless inform the Commission.  We therefore hope that this paper helps shape the debate on the work that the Commission is engaged in.”

Marco Biagi MSP, Minister for Local Government and Community Empowerment and Co-Chair of the Commission, welcomed the report, commenting: “Professor Gibb’s review is an important and welcome contribution to the work of the Commission, shedding light on the challenges faced by many countries across the world in their attempts to find a local tax system that is fair and fit for purpose.

“We can clearly see that we are not alone in facing these challenges and there is no perfect ready-made solution out there. This adds to the importance of our work that will allow everyone to understand what any alternative local taxation systems would mean to the people of Scotland.”

Councillor David O’Neill, President of COSLA and Commission co-chair, added: “This study is a significant addition to the work of the Commission as we embark on the next stage of our evidence gathering.

“By working with communities across Scotland and learning of the experiences of other nations, we have an opportunity to deliver a report that can have a real impact in shaping Scotland’s future local taxation policy.”

The publication of the report comes as the Commission prepares to embark on a series of listening events across Scotland with the aim of reaching out to as many members of the public as possible to find out their views on the future of local taxation.

The events have been published on the Commission’s website – www.localtaxcommission.scot and will take place during August and September, ahead of the publication of the Commission’s final report in the autumn of this year.