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It mostly covers my work as UNISON Scotland's Head of Policy and Public Affairs although views are my own. For full coverage of UNISON Scotland's policy and campaigns please visit our web site. You can also follow me on Twitter. I hope you find this blog interesting and I would welcome your comments.

Wednesday, 2 March 2016

Welcome end to the council tax freeze, but this isn't a proper reform of local taxation

The First Minister has made the welcome announcement that the Council Tax freeze will end next year and has published the outline of some reforms to local taxation. The much needed detail is due in further consultation papers that will be published after the election.

The headline is some stretching of the higher bands. Bands A-D are unchanged and the others will increase as follows: band E - £105; band F - £207; band G - £335; band H - £517.

This does make the Council Tax more progressive, but it is hardly 'radical'. Stretching the bands was proposed in 2007 and rejected at that time by the SNP. Eight years later, at a cost of £3.15bn to local services, we have come full circle. Importantly, there is no indication that there will be a revaluation of properties, which means properties are allocated to bands based on 1991 property prices. Like a proper reform of the Council Tax, this was presumably put in the 'too difficult' file. Labour made the same mistake in response to the Burt Report in 2007.

There are some welcome changes to council tax benefit to provide additional support to families by increasing the child allowance within the council tax reduction scheme by 25%. Extending the council tax reduction scheme to exempt 54,000 households on low net incomes, but who live in higher property bands, appears sensible as well. No doubt those who understand the interaction with the benefits system will have views on these changes. Ending second home discounts and the development tax is also good news.

It is very welcome that the regressive council tax freeze will come to an end in 2017. However, councils are to be told that any increase must not exceed 3%. We also have a nice infographic telling us that that the new system means £100m for schools. Does this mean further ring fencing or ministerial direction? This goes to the root of the problematic relationship between local and central government in Scotland. It is for democratically elected local councils to decide what the council tax should be and what it should be spent on. Not big brother government in Edinburgh.

There is an outline proposal that councils could have a share of income tax revenues assigned to them. I suspect this is the First Minister's way of gently letting her supporters down over dumping the unworkable and unfair local income tax plan. However, I am frankly struggling to see how assigning revenues makes local taxation more progressive as the government claims.

The problem with assigned revenues is that they are largely cosmetic. UNISON opposed the Smith Commission plan to assign 10% of VAT revenues to the Scottish Government for the same reason.

It is not clear to me from today's announcement, how these assigned revenues will be adjusted to reflect economic growth. In any case, as the Scottish Government rightly argued in the fiscal framework negotiations in relation to their powers, councils have even fewer levers to influence economic growth. In addition, is the Scottish Government proposing to use income tax generated by payroll where taxpayers work, or where income tax payers reside. An important issue in a city like Glasgow with leafy suburbs. And we have to ask how an equalisation scheme would work. This chart highlights the problem.

 

The short answer appears to be that they haven't worked all this out, but needed to say something before the election. After eight years of inaction, we might have expected a bit more.

Of course all of this doesn't happen until 2017. The additional revenues won't save a local service or a job in the coming year. John Swinney made great play of council reserves over the weekend. His claims are exaggerated because the way council reserves are accounted for doesn't mean the cash is sitting in the bank ready to be spent. However, if I can pinch his own hyperbole, its not 'utterly exaggerated' - it is something we have highlighted before. Mind you, council leaders are entitled to a wry smile given John Swinney's own under spends with the Scottish Government's budget!

The promise of additional revenues next year may well encourage some councils to use reserves to plug more of the gaps in their budget. Others may have an eye to George Osborne's recent statements about public expenditure, as he digs a bigger hole for the UK economy. The problem remains that the Scottish Government has consistently shunted austerity onto councils. I have covered this before, but here is another chart that starkly makes the point.

 

The best we can say about today's announcement is that we are to be spared another pre-election council tax freeze bidding war, as in 2011. For that we should be grateful. However, after eight years of stop gap measures, we might have hoped for a proper reform of local taxation. Sadly, this isn't it.

 

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