This morning on BBC Scotland’s GMS, there was an unedifying interview with James Kelly MSP, Labour’s whip at Holyrood. In five minutes, James managed to display every bad trait for which his party has become notorious: evasiveness, posturing concern for the vulnerable, lack of ideas and a dogged debate style like he was reading off a script consisting of six words at most.
But, to be fair to him, one point he stuck to but which became lost in his partisan posture was that Holyrood will suffer cuts at least until 2016 and we need a debate how we are going to face them. His party’s contribution, trailed by Johan Lamont earlier in the week, is we need to revisit a range of free services currently provided, mostly to the elderly because “why should people with six-figure incomes receive them?”
A curious point as it was Labour who set them all up in the first place—Jackie Baillie, for example, welcomed free prescriptions as it would save money not having to administer the programme. Why Labour are focussing on just this area is a puzzle: if you want to sort Scotland’s finances in these tight fiscal times and genuinely want to trigger debate, why not put options on the table and not just pick one section?
Six months ago, as part of the debate in the run-up to May’s council elections, one of my contributions to that was to highlight the regressive nature of Council Tax in a blog titled “My Faither’s Howff has Many Mansions” and to propose major adjustments to its structure. The ideas how this might work have been updated below.
All councils will be strapped to cushion the dire financial effect of the next few years on staff and residents alike. But, following John 14:2, there is an option to supplement local funding, though it does require legislation. If freezing Council tax because it hits the poor hardest (and Local Income Tax is beyond Holyrood’s competence), why not adjust it so it leaves the poor alone and lays a proportional burden on the rich?
The LabourHame web site has some good ideas 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 1—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.
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 for properties valued over £500,000.
As a final element of this, second homes would be treated differently. Until recently, they actually received a tax break by paying at only a 50% rate. But most second homes are actually holiday homes, run as businesses and property speculation schemes. That, in itself, is not reprehensible but the cumulative effect on our remote and picturesque communities is a glut of empty houses and an abandoned feel off-season, and locals—especially young locals—being driven away by being priced out of the market.
Anyone with a second home cannot be poor. If they were rated at 150%, this would effectively be a tax on holiday homes that leave the locals payment unaffected. The definition of local would be registered voters resident, which would have the added bonus of catching the rich who maintain a home in Scotland yet claim reduced council tax as non-residents. Estimating the number of local second homes (mostly above band D) at 1,000 in East Lothian, such a scheme should add another £1.5m; urban councils would see less benefit.
Bottom line of this scheme is that it would boost Council Tax income in the East Lothian example from £39m to £46m 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. 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, affluent areas like East Lothian must keep essential services running for those vulnerable for whom (additional) free services under discussion were originally designed. Whether any of those services needs to be means tested—as Labour implies—should be part of the debate. But first there is other, low-hanging fruit in the council tax system alone to adjust its unfair burden from the less well to the better off and boost council income by the same as an (unacceptable) 12-13% rise in council tax.