Council Tax: Running Away From Reform

(This blog post previously appeared in Common Weal’s weekly newsletter. Sign up for the newsletter here.)

As the local elections loom, Scottish voters should be considering not just which candidates or parties we vote for in those election but also what we expect them to do with the power we loan them with that vote. Party manifestos are beginning to be launched so, as with the Scottish Parliamentary Elections last year, I’ll do my best to collect as many of them as I can in one place (do email me if you find one I might miss, such as from the smaller parties).

Today though, I want to discuss just one of the powers that I believe is being badly mishandled in Scotland for no reason other than the lack of political will to change it.


Council Tax is probably one of the most contentious elements of devolved taxation in Scotland. Its troubled birth started in the wake of the revolt against the Poll Tax and epitomised a solution that was almost literally the absolute least the government could do to stop the riots. Instead of a flat fee per household there would be a slight grading system where the most expensive properties in Scotland pay around 3.7 times as much as the cheapest properties.

There are caveats to this however. The Council Tax isn’t strictly based on property value now but on what a property was worth in 1991 or, if it was built after this date, it is based on an estimate on what it would have been worth if it had been built before 1991. I can think of no other tax that is charged in this way. Imagine if your current Income Tax was based on what your salary was more than a quarter of a century ago? Even Wales is ahead of Scotland on this point, having “revalued” its Council Tax baseline to then-current house prices in 2003 and is consulting on doing it again in the near future.

This means that there are many houses that are “mis-banded”. Consider a house built in an area that was run down in the early 1990s but has gentrified significantly since. That house might be worth a lot more now than what it notionally would have been worth if it had been built back then thus its owners may well be paying a lot less Council Tax than it should. And while the Council Tax is more proportional than the Poll Tax that preceded it, it remains one of the least proportional taxes experienced by most people. The most expensive houses in Scotland are worth a lot more than 3.7 times the price of the cheapest.

Despite this, the political will to change this tax appears to have vanished from the Scottish political stage. The 2007 SNP minority government infamously came to power with a promise to scrap the tax and – in fairness to them – they failed to gain a Parliamentary majority to do so but that excuse has not existed for over a decade now. The 2011 SNP majority government could have done it and either support from the Greens, from Labour or from any other single party would have been sufficient at any time since 2016.

Instead, the Government has kicked the can down an extremely long road. A Citizens’ Assembly has been announced to look at local government finance that will include examining options to reform or replace Council Tax but the Government has recently been clear that they will not even attempt to implement any changes until after the 2026 Scottish elections. (At which point, shouldn’t we be an independent country after our supposed 2023 independence referendum and shouldn’t we be considering what our tax system looks like in the light of being an independent rather than devolved country? In which case, mightn’t the conclusions of the Citizens’ Assembly be obsolete if it’s not designed from the outset to discuss this possibility? Good luck with the political ramifications of making a choice either way on that one!)

What really annoyed me though was the report in The National this week proclaiming that Scotland’s Council Tax system was “the best deal in Britain”. Scotland has a chronic problem of considering our lot only in comparison to south of the border. Never do we ask “is this good?” or “is this working?”, or “how does this compare to all of our neighbouring countries?” but merely “is it failing less badly than it is in England?”. And Council Tax is failing badly in England where the exact same structural problems exist but house prices are even more out of control. Take this £54 million property in Mayfair, London for instance. As a “Band H” property worth more than £320,000 in 1991 it will be charged £1728.26 in Council Tax this year, less than you’d pay in rent if you landed on a fully developed Mayfair when playing a game of Monopoly.

So what are the options for reform? The simplest reform would be to change the rates and bands to match current housing valuations but that just brings Scotland up to the same level as Wales and would leave us with the problem of revisiting the argument again in a decade or so.

A local income tax might be worth exploring and does have an advantage in that it more closely matches tax due with ability to pay but doing this would not address the problem of wealth inequality and the issue of people with some amount of wealth (possibly inherited) being able to leverage that to create even more wealth – once you own a couple of properties and the rent on them more than coverages any mortgages one them, you will find it a lot easier than your tenants to multiply that rent and buy even more property and that’s even before we consider the possibly of selling those properties for more than they were worth when you got them.

Neither of these options allows for the taxing of land. In most cases this is material as your garden (if you have one) is as much part of “the house” as the building and wouldn’t be sold off separately but a manor house on a shooting estate pays Council Tax on the building, not the broader estate. A separate Land Value Tax or Ground Rent could cover this but it may hit the opposite problem – what is the value of the estate, the garden or the ground under the house if we pretend that the house itself doesn’t exist?

In our investigation into Council Tax reform last year we found that there was only one viable possibility. Scrap Council Tax entirely and replace it with a Property Tax based on as current a value on the property as possible (i.e. the property would be revalued at point of sale, change of tenancy, when major structural works were carried our and/or on a regular basis outwith those points of change). We estimated then that Scotland could set a national average rate of 0.63% of current house prices to achieve a “revenue neutral” point compared to the Council Tax (we do however advocate that Local Authorities would control that rate themselves) it would replace including keeping or only slightly modifying discounts and exemptions for people on low income and the like. It would also raise an additional amount of several hundred million pounds a year at least in tax revenue from land (though the lack of a complete Scottish Land Registry makes it difficult to estimate how much this would be precisely). We estimate that around 60% of households in Scotland would benefit from a tax cut under this scheme. Take, for example, this flat currently for sale in Glasgow. £70,000 and Council Tax Band A. It would currently be expected to pay £952 per year in Council Tax but under our proposals would only pay about £440 in Property Tax. Of the other 40% of households that would see their taxes go up, most would experience only a minor uplift in their rates. The “break even” point for a property in Edinburgh currently on Council Tax Band F, for example, would be about £355,000 (so this property would only pay around £185 per year more than it currently does). The biggest uplift would be seen only in current “Band H” properties where they would pay, on average, around £2,300 more. The biggest financial gain would come from those properties on the very top end of that Band H though. To take that Mayfair property above as an example, a 0.63% Property Tax on it would result in an annual rate of £343,350. Either someone able to pay £54 million for a house can still afford to pay that tax or this tax would force an admission that no house worth actually living in can cost £54 million.

Thus the Property Tax would act as a break against rampant property price inflation and would restore the primary purpose of a house. Not as a speculative asset, nor as a hedge against the UK’s failing pension system but as a home to live in.

There is certainly scope for discussion about the details within the Council Tax reform debate (Should it tax land, or should we use a separate LVT? Should there be a “Free Allowance” on your home value similar to Income Tax? How should the tax be phased in?) but the idea that we can keep Council Tax intact for yet another entire Parliamentary Term is a dereliction of duty – especially as the cost of living crisis deepens. If the Scottish Government wishes to farm the responsibility for creating policy out to a Citizens Assembly though, so be it. I actually encourage a more democratic approach to policy in Scotland. But they must, right now, make a firm promise to the citizens who will take part in that assembly. Unlike the way they ignored the first Citizens’ Assembly and unlike the way they largely ignored the Climate Assembly, the Scottish Government must promise to not ignore the results of the Local Government Finance Assembly. If they do make a recommendation on a replacement or reform of Council Tax then the Scottish Government should commit right now to enacting it as written. Devolving the responsibility to make policy means accepting the responsibility of enacting it when it is made for you. Otherwise, what will be the point of yet another wasted half-decade on top of an already wasted quarter of a century under a tax that should never have been created in the first place?

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