As the Scottish Government establishes its Commission on Local Tax Reform, a group of experts has come together to make the case for a fair system of property taxation, calling the Council Tax discredited and saying it undermines local democracy in Scotland.

Scottish Property Tax Reform (SPTR), which launches today, is a network of interested individuals and organisations who believe that a well-designed system of property taxation can and should play an important role in public finance, the economy and a fair society.

SPTR aims to inform and influence the work of the commission established by the Scottish Government to examine possible replacements for the Council Tax.

Professor Mark Stephens, who is the convenor of the new group and is Professor of Public Policy at Heriot Watt University, said: 

“We welcome the Scottish Government’s commission. The Council Tax is unfair, but politicians have been reluctant to reform it. It is based on property values that are almost a quarter of a century out of date. It is now so discredited that it has been frozen for years and this is undermining local democracy in Scotland.

“Members of the group are concerned about the lack of understanding about how property taxes work. It intends to provide information and briefings for politicians and political parties, as well as improving the quality of information and analysis available to the public through the media and other sources.

“The group argues that property taxes are very difficult for wealthy individuals to evade for the simple reason that, by their very nature, houses cannot be moved abroad. It also argues that they can help to improve housing affordability and to stabilise the housing market.”

Stephens added:

“We must move away from the idea that economic prosperity can be founded on artificially inflated house prices. It is time to shift the burden of taxation away from the real economy and and back onto unproductive assets.”

Members of the group include: Professor Mark Stephens, Professor Glen Bramley and Professor Mike Danson (Heriot Watt University), Andy Wightman (Author and Land Activist), Professor Richard Kerley (Queen Margaret University), Professor Ken Gibb (Glasgow University), Professor Jim Gallagher (Nuffield College, Oxford).

Notes to Editors:

Scottish Property Tax Reform principles:

We believe that a fair system of property tax should form the basis of local government taxation because:

  • Property is fixed and space, is immobile, and so is easy to tax. This means that, unlike many other taxes, property taxes can’t be dodged by wealthy people by moving themselves or their companies abroad. They have to pay their share along with everyone else.
  • Property taxes can help to make housing more affordable – reversing the trend that has priced more and more people being out of housing.
  • Property taxes reduce boom-and-bust cycles in the housing market. These cycles allow a few people to get rich, but at the cost of leaving thousands of people in negative equity and having their homes repossessed when prices fall.
  • Property taxes help society to recoup some of the benefits that some people receive because they are lucky enough to live close to new infrastructure or other amenities. They do this because the value of property rises when the area they’re located in benefits from public investment.
  • Property taxes encourage people to invest in the productive economy, ensuring a prosperous future for us all. We all know that ever more inflated house prices doesn’t make us any better off in the long run.

A well-designed property tax should incorporate the following principles.

  • Property taxes should be revalued automatically and frequently. One of the reasons the Council Tax is unfair is that it is based on property values that are nearly a quarter of a century out of date. You wouldn’t expect to pay income tax based on what you earned in 1991!
  • Property taxes can be designed better to deal with anomalies that have been found with previous forms of local taxes:
  •  Direct help toward low-income households
  •  Deferring tax payments for asset rich/ cash poor households
  •  Regular statutory revaluations
  •  Combining property and other taxes, as is common elsewhere, to raise the   same yield.

If you’re still not convinced, think of it the other way round – not taxing property will simply encourage more wealth holding and speculative activity in property simply because it is untaxed.  Remember it was lending on the property market that led to the Global Financial Crisis. Stoking it up again is not the solution.

The Council Tax

The Council Tax was introduced in Scotland in April 1993, when it replaced the Poll Tax, which in turn replaced the domestic rates in 1989.

Council Tax was intended to be a hybrid property tax and charge for local services.

Properties are placed into one of eight bands*, based on their 1991 value.

(*) The banding system is designed to ensure that the more expensive a property, the lower the proportion of its value is taxed. For example, a property in the middle Band D is likely to be worth at least twice as much as one in Band A, but is liable for only 1.5 times as much Council Tax. A property in the top Band H is likely to be worth at least five times as much as one in the middle Band D, but is liable for only twice as much tax.

Of the 2.4 million dwellings in Scotland, about 5% are exempted and 40% subject to a discount (mostly a 25% discount for single person occupancy).

Average Council Tax bills are £988, and have been frozen since 2007.

More than half a million households (533,980 in September 2014) receive a reduction in their Council Tax Bill under the Scottish Government’s Council Tax Reduction scheme, at an annual cost of more than £350 million.

Scottish local authorities spend about £11.6 billion per year (‘net revenue spending’ 2012-13) on services. These services include education and social work.  This averages £2,400 per person.

The Council Tax raises £1.9 billion per year (2012-13).

All figures are from the Scottish Government  and except (*) =  SPTR calculation

The Burt Report

The Local Government Finance Review Committee was appointed by the last Labour-Liberal Democrat administration under the chairmanship of Sir Peter Burt.

It reported in 2006 and recommended a form of property taxation.

Its findings were rejected by the then Scottish Government.

Local Income Tax

The SNP was committed to introducing a form of income tax to replace the Council Tax in its 2007 manifesto.

Its proposal to use the Scottish Government’s tax varying powers meant that this would have in effect been a national tax, and failed to gain the support of the Liberal Democrats which support a local income tax.

These plans were abandoned by the SNP when in government.


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