This week part of my duties involved attending the CoSLA Resources & Capacity Executive which busies itself with such things as how councils make ends meet. Those there shared concerns how various developments, such as welfare reform and utility tariffs, would hit councils’ shrinking budgets and their ability to look after their residents, especially the more vulnerable.

This came on top of all councils, including mine, digging deep into reserves to try to cushion the effect of such dire developments on staff and residents alike. But, following John 14:2, there is an option to supplement local funding, though it does require legislation. Council tax has been frozen, in part because it is regressive—it hits the poorest hardest. What is needed is something that burdens those with money rather than those without. At this time, a ‘mansion tax’ is being considered in England although, because of devolution, it would not apply here.

But what if we rolled our own?

Over at the LabourHame web site (yes, they do have ideas—some good & worth stealing), John Ruddy has cooked up a more progressive system with the dual virtues of raising tax receipts without touching council tax rates that have been frozen over five years.

Taking my own East Lothian Council as an example, some 55% of its 35,500 taxable properties are rated as Council Tax Bands A-C. Another 24% are in the ‘yardstick’ Band D, while 19% are in bands E-H. These last properties can reasonably be considered the more affluent, while bands A-C are typically occupied by those with modest incomes. Yardstick Band D properties pay 9/9ths of the tax rate set, with lower bands paying proportionately less and those above more. The current situation in East Lothian is shown in Table 1

Table I—Council Tax Bands in East Lothian with Approximate Revenues

This raises around £39m in Council Tax. John’s ploy to increase this is to split each upper band (E-H) in two so as to give bands E-L but to continue the proportionate ratcheting up of the ratio (3rd column) so that band L would be paying 36/9ths or 4 times as much as Band D. This does accrue appreciably more tax, with all of the increase coming from above Band D. But this hits the middle class (houses in the £58,000 to £212,000 valuation range) hard, compared to now. But it still doesn’t nail the many houses valued well over £212k.

A better compromise would be to adapt John’s scheme so that we have the additional bands and increments he suggests, but that we assign houses into upper bands with less steep gradations than his proposals and then add a proper ‘Mansion Tax’ on houses valued over £1/2m. This would give a scheme more like that in Table 2.

Table 2—Tax Bands Proposals with Mansion Tax Band

In the case of Table 2, no-one in Bands A-F pay any more. Those in old Band G would find themselves paying between £0 and £800 more each year, depending on which new band they fell into. Those in the old ‘over £212k’ Band H would pay at least £745 more. The middle upper reaches of house prices would therefore be more fairly segmented; those approaching £1/2m in value would see their tax exactly double from £2,235 to £4,470. There would be no theoretical upper limit if the property was valued over £500,000.

Bottom line of this scheme is that it would boost Council Tax income in the East Lothian example from £39m to almost £45m without any increment for people living in modest houses valued up to £100,000. The Mansion Tax sting would be concentrated on less than 10% of all houses but those are best placed to stomach such increments. Given increases in East Lothian house prices for decades now (average 5% per annum) that alone pays for any council tax five times over in the long term.

Would there be people unfairly hit (e.g. widows with little income still in a large family home)? Yes, it might and some thought needs given to such cases. But ELC encourages such tenants in their houses to downsize; why not in the private sector too?

And, lest you think that this would fall unfairly on certain parts of East Lothian, even the Fa’side ward has 16% of its houses in current Bands F-H. While this would be unpopular with those affected, consider that government money that supports 80% of services in East Lothian will diminish for at least the next two and possibly as many as seven years. This is an affluent area and the envy of many others. How else are we to keep essential services running across the county if we don’t look to doing it ourselves?