Today’s Herald reports that Nicola is to use a visit to a school in Midlothian to announce major changes to how Council Tax is levied. The paper reports that the SNP had originally wanted to replace it with a progressive Income Tax, but didn’t have the powers to do so and abandoned the idea in 2009—two years after floating it.
Since then, Osbo’s Osterity has bit deep into council’s funding, their hands tied by having control over less than 20% of their income and even that option denied them by the continuation of the Council Tax Freeze for a decade. But, worst of all has been the Scottish Government’s disinterest in creating a better solution until stung into action by being outflanked by Kezia’s “Penny for Education” wheeze to exploit newly devolved tax powers.
It’s a shame it has taken seven years for the SNP to take its supposed local partners in government seriously enough to take action. What gars me greet is that they have taken this long to come back to a property-based tax when some relatively simple options were always available and that even this column was arguing that four years ago in the run-up to the last local elections in 2012. What follows is a reprint of what was published then.
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/or 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, with 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 200%, this would effectively be a tax on holiday homes that leave payment by locals 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 £3m; urban councils would see less benefit.
Bottom line of this scheme is that it would boost Council Tax income in the East Lothian example 23% from £39m to £48m 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) property value accretion 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.
Such a simple conversion of the council tax system would adjust its unfair burden from the less well to the better off and boost council income by the same as a 13% rise in council tax.