We can't go on applying sticking plaster solutions to the thorny political issue of paying for local government. Services are being damaged and local democracy is being undermined.
Today, I was speaking at a seminar organised by Edinburgh Labour on the thorny issue of local government finance. My primary message was that we need to develop a new consensus that provides a long-term solution. Politicians should take some comfort from the recent CoSLA poll that showed the public understand that good services cost money and freezing the Council Tax cannot go on for ever.
As UNISON Scotland has highlighted many times, It is the better off that benefit disproportionately from freezing bills while councils face a growing problem providing services which, by and large, the less well off rely upon. In addition, charges are increasing to plug the gaps, which again place a further burden on those least able to afford them.
To ensure that we all pay a fair proportion, all forms of wealth need to be taxed. The current system taxes wages more highly than other forms of wealth leaving ordinary workers bearing an unfair burden. Property is a significant form of wealth and must be taxed in order to reduce inequality. The well-off already own bigger and more houses than the rest of us. If this form of wealth is untaxed it becomes an even more attractive form of investment. This is the primary reason why a property tax should form the basis of local taxation.
In 2007 the Burt Review looked at all the options in detail, but the main recommendation was shelved because it was so close to an election. The report recommends taxing the capital value of properties. In my view that recommendation remains sound to this day and should be the basis of a new Council Tax.
Land Value Tax (LVT) has its supporters on the left and I can see some merit in this as a national tax, or possibly some element of business rates. LVT is a tax levied on the owners of land based on the value of the land excluding any property/fixtures on the land. One of the key issues with this tax is working out the value of land itself in order to then work out the level of tax due. Land is rarely sold without anything on it nor are buildings sold without the land underneath. This means that any bills will be based on an estimated value.
There are real practical barriers to both valuing land and billing, as UNISON members working in this area have pointed out. Landowners are not as easy to find and bill as occupiers, particularly individuals and/or offshore companies hiding in tax havens. Landowners will be able to pass the cost on to tenants in higher rent charges. Local government should raise money from those people who live and work in their area, who use the services they provide to maintain local democracy. Wealthy landowners become the major contributors to local finance under LVT, yet have no interest in supporting local services. So even if the practical difficulties over LVT could be overcome, it is not really a tax suitable for local government.
This still leaves the political challenge of changing any tax. There will be winners and losers and inevitably the losers make the most noise. It is possible to separate a structural change in local taxation from the rate at which the tax levied. Parliament could, if it so wished, reform the council tax on the basis of no increase in yield until the economy improved. That would at least provide a fair system of local taxation on which to build a broader consensus.