This item was published during the term of a previous administration that ended in April 2007
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Proposals for 'a fairer way' of local tax
09/11/2006
The independent Local Government Finance Review Committee today published its recommendations for 'a fairer way' for local taxation.
The Committee, chaired by Sir Peter Burt, was set up by Ministers in June 2004 to review the different forms of local taxation and then make recommendations.
The key points in its report are:
- Proposals for a fair, stable and transparent Local Property Tax based on up-to-date property values
- It is assumed that the same amount of money will be raised as under the current system - but in a fairer way
- Almost half of households would pay less and two-thirds of households overall would pay the same or less
- The Committee considered - and rejected - all other options for local domestic taxation
Sir Peter said:
"Local taxation is an important and emotive issue which affects every one of us. That is why we were determined that the review we were asked to undertake should be the most comprehensive inquiry into local taxation in 30 years.
"Local taxation cannot be separated from the broader UK taxes - it has to be considered alongside the many different UK taxes and their many different consequences.
"Against that backdrop, we focused our considerations on local income tax and local property taxes. A local income tax might be less 'fair', its yield would be less predictable and it would place a major administrative burden on taxpayers, employers, local and central government. A local income tax which applied to all income would be extremely complex and expensive to operate, while a tax which ignored some types of income such as higher rate tax income or investment income would be of very questionable fairness.
"Property taxes are better suited for use as a local tax than income tax. They are difficult to avoid and suitable for local collection. They are also relatively stable - which is a major advantage for local authorities, whose costs are fixed in the short-term.
"There is a strong theoretical case for taxing property as well as income and consequently for including a local property tax in the overall basket of taxes. There is a broad relationship in most cases between property values and ability to pay and there are better ways of helping those who need help than moving away from a property tax. There is also absolutely no doubt that property taxes without the arbitrary banding system which applies to council tax would be fairer than the current system.
"No tax is popular - but we are proposing a fairer way than the current system. Our Local Property Tax is based on property values and is fair, stable and transparent.
"The Local Property Tax would raise the same amount of money as the current system - but in a fairer way. In fact, if introduced today, two-thirds of households will pay the same or less under the Local Property Tax than under the council tax.
"We have considered assistance for households on low incomes who live in expensive homes and have proposed a scheme which could give them relief from the immediate problem.
"We also considered the local business taxation system. We recommend the retention of non-domestic rates with the rates poundage continuing to be set by Scottish Ministers for the whole of the country.
"Local taxation was our focus - but no proper review could consider that without considering it in the wider context of local government. We make suggestions about improving and clarifying the split of responsibilities between central and local government. We believe that greater delegation and subsidiarity in decision making would lead to an improvement in the services delivered by local councils. Devolution should not and need not stop at Holyrood."
The Government Finance Review Committee was established in June 2004. Its membership is:
- Sir Peter Burt (Chair)
- Professor John Baillie
- Peter Daniels
- Dr Janet Lowe
2. The Committee also appointed Kenneth McKay as their specialist adviser, while David Milne was the Committee's Secretary. For further details, see:
http://www.scotland.gov.uk/News/Releases/2004/06/5749
2. A full copy of the Local Government Finance Review Committee's report, A Fairer Way, is available on-line at www.localgovernmentfinancereview.org and also the Scottish Executive website, www.scotland.gov.uk. The report includes a three page executive summary.
Contact: David Hamilton: 0131 244 2056 or 07771 555609
Internet: www.localgovernmentfinancereview.org