Could council tax be on the way out in Scotland?

Scotland’s Commission on Local Tax Reform has concluded that council tax “must end” north of the border. How would such a shift impact Scottish councils and UK local authorities across the board?

The alternatives

The cross-party commission was asked to explore ways to improve Scotland’s local taxation system, and recently proposed three council tax replacements based on land, income and property.

While the three systems are quite different, all options would follow the 'general tax' principle, meaning that households would no longer be charged for a specific list of council services.

The first proposal is to implement a property tax based on the combined value of sites and buildings, while the second is to raise taxes on land value only. The third and final route would involve a tax based on householders' taxable incomes.

Implications

The commission is yet to formally back any of the alternatives,however its representatives have made their opposition to the current tax clear. The report explicitly concluded that "a better system" can be implemented, and noted that "there is now a real prospect...of beginning a programme to make local taxation fairer".

Doing away with council tax might sound like a radical step, but survey data indicates that the public would welcome changes to the current arrangements. Poorer households could pay less under the income-based tax proposal, for instance, and some commentators view the commission's proposals as a chance to rid Scotland of its Poll Tax legacy.

While an overhaul could lead to positive outcomes, the birth of a new system in Scotland would inevitably invite a cry for change in England and Wales too. Many local authorities are banking on stable council tax incomes to take the edge off austerity, and the fiscal uncertainty introduced by the possibility of a Scottish tax revolution may be unwelcome in this context.

Only time will tell if the commission's report will spark widespread reform. Even if action is taken, there's a strong likelihood that a drawn-out debate will precede the construction of a new system. In the meantime, local authorities can continue to protect essential public services by maximising council tax recovery and minimising council tax arrears.

If you work for a local authority that's facing tough times, contact one of our expert Dukes Debt Advisors to discuss your options today.