Local taxation

We had a very good session today at the STUC looking at the options for the reform of local taxation. I presented UNISON’s thinking along with Andy Wightman arguing for Land Value Tax and Stephen Curran on Glasgow City Council’s local taxation working group’s report. 

I started with first principles. What a fair system of taxation should look like with an emphasis on tackling all forms of wealth and using progressive taxation to reduce inequality. UNISON’s principles for local taxation include; local authorities raising and control revenue; business rates returned to local authority control; a property tax as the best for fit local government and grant support allocated with a minimum ring fencing. 

We have looked at all the options including a Local Income Tax (LIT), Land Value Tax and a fairer property tax. However, on this subject I almost always find myself drawn back to the Burt Review. This is without doubt the most thorough look at local taxation in Scotland in a generation. 

The problem with LIT is well documented as the many critical submissions to the Scottish Government’s efforts to introduce this tax show. An effective basket of taxation needs a property tax otherwise the tax burden falls disproportionately on workers. You can’t hide property or move it abroad as the richest do to avoid income tax. 

Land Value Tax is a property tax and therefore starts from the right place. However, while it taxes the owners of land there is nothing to stop the owners passing the cost onto tenants. The biggest difficulty is that two plots of land with very different properties end up with the same charge and few people will perceive this to be fair. Bills will be hard to understand as people roughly know the value of their property, but not the land value alone. We have poor data on which to base valuations and collection will be difficult from owners who can conceal their ownership through companies - breaking the link between local taxes and local democratic accountability.  

LVT undoubtedly does start to address a number of issues around land speculation, housing policy and would support land reform. There may well be a role for it at the national level, but as local tax it is far from ideal. 

Reforming the Council Tax by increasing the number of bands at the top and the bottom and increasing the multiplier between bands is a popular reform. However, on its own it still doesn’t make the tax progressive enough. It could work better if linked with regular compulsory revaluation and a reformed Council Tax Benefit. 

That leaves a Local Property Tax (LPT) as recommended by the Burt Review. It would be levied as a percentage of the capital value of the property (around 1%) thereby covering land and house value. It is more progressive than the Council Tax, avoiding the ‘cliff edge’ consequences of banding and is simple and understandable with all the benefits of a property tax. 

 

It has to be recognised that there are no easy solutions. As Derek Birrell’s study shows, there has been a political impasse across the UK in tackling this issue. The best options all involve political risk because of the significant number of losers. Both LVT and LPT would deliver more gainers than losers, but that doesn’t address the political risk factor, especially as the losers are the articulate middle classes. Even with transitional arrangements no politician has yet had the bottle to take the plunge.