A Scottish Approach to Taxation - CIOT LITRG ATT response

6 Jul 2017

Council Tax is a local tax, which is used to provide some of the funding to local authorities. It was introduced in 1993, and there have been no significant changes to the tax since then. The main area of reform proposed by the Scottish Government is to increase the ratios of the upper bands (E-H) relative to Band D. This will mean that bills for Band E will increase by 7.5%, Band F by 12.5%, Band G by 17.5% and Band H by 22.5%. No additional bands will be added and the ratios for Bands A-D will remain unchanged. The Scottish Government has also confirmed that it does not plan to hold a revaluation, so Council Tax will remain based on values of property in 1991.

Both the CIOT and LITRG responded to the Commission on Local Tax Reform‚ s work in 2015, and therefore decided to make a joint submission to the Committee on the draft SSI.

We note that the proposals to reform Council Tax aim to make the system ‚ fairer‚ , but that what is fair is subjective. If fairness can be viewed as chiming to some extent with being proportionate to the ability to pay or progressive, then the proposals can be said to improve fairness slightly, although we would still describe Council Tax as broadly regressive. It should be noted that to a greater or lesser extent Council Tax aligns with the Adam Smith principles of certainty and efficiency. It is equality where there is currently least alignment. In addition, the tax does not align particularly well with the principle of convenience.

Council Tax takes property values as its basis and is chargeable on the occupier. It therefore takes into account only one measure of ability to pay. By itself, even with the proposed reforms, it remains a regressive tax. It is perhaps better to look at the tax system as a whole when considering the principle of being proportionate to the ability to pay, rather than taking each tax individually. The fully holistic approach would look at the tax system and the welfare system as a whole.

The failure to update property values for Council Tax also means that the tax will still not reflect actual property values and not be any fairer in this regard.

As the response points out, one of the main routes to fairness for Council Tax is the system of reliefs and exemptions, such as Council Tax reduction. The proposed changes to Council Tax reduction aim to ensure that Council Tax takes account of both property value and income, thus better reflecting ability to pay. However, in order for the relief to meet its objective, it is essential that take-up is high. So, we call for a communications strategy to ensure that taxpayers are aware of the changes and their eligibility for reliefs. It is also important that the process for claiming reliefs is as easy as possible.

In addition, we call for careful consideration of the interactions of the changes to Council Tax reduction with tax credits, Universal Credit and other welfare benefits, to prevent problems such as claimants being exposed to extremely high marginal deduction rates.

The SSI is subject to the affirmative procedure. This gave the Committee only 40 days to report on whether or not to recommend that the SSI be approved by the Scottish Parliament. It could not recommend that the SSI be changed. While the proposed changes make a start, as set out in this submission, we think more could be done to reform Council Tax. We call on the Scottish Government not to rule out future changes.

Technical Team