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Section 2: Our Review - Its Remit and its Conduct
Establishment & Remit
1. Our review stems from the Partnership Agreement between the Scottish Labour Party and Scottish Liberal Democrats, which set out the principles on which the coalition government of the Scottish Executive between 2003 and 2007 would operate. The agreement states that:
"following consultation with COSLA, we will establish an independent review into local government finance". 3
2. The then Minister for Finance and Public Services, Andy Kerr MSP, announced the establishment of the Committee and details of its remit in a statement to the Scottish Parliament in June 2004, 4 with details of membership of the Committee being confirmed shortly afterwards. 5
The Scope of the Review
3. The remit we have been given, which is outlined below, is broad. This is reasonable since local government finance touches on many issues, as the list of "associated issues" in the remit demonstrates.
4. One question we had to address is how closely we should consider these associated issues as part of our work. We have interpreted the remit in a way that restricts our consideration of these associated issues to the extent that they inter-relate with the question of local taxation. This is in our view the only sensible interpretation of our remit. Other issues listed, such as the structure of the broader local government finance system, the mechanism for distributing grant among local authorities and the regime for financing Scottish Water, are substantial and complex matters in their own right.
5. It became clear at a very early stage of our discussions that another major theme is the relationship between the role and functions of local government and the local taxation by which it is partially funded. A clear definition about how local services should be shaped and delivered is critical in reaching decisions about local government finance. We have concluded that local government is financed to deliver effective local services. The significance of the debate about local taxation must be seen in that context. Whilst we have not entered into the debate about how local services should be delivered, we recognise that our recommendations about local taxation must be able to cope with a range of possible scenarios regarding the future delivery of local services. We discuss this issue more closely in sections 5 and 6 later in this report.
Remit of the Local Government Finance Review Committee |
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To review the different forms of local taxation, including reform of the Council Tax, against criteria set by the Executive, to identify the pros and cons of implementing any changes to the local taxation system in Scotland, including the practicalities and the implications for the rest of the local government finance system and any wider economic impact, and to make recommendations. Core issues for systems of local taxation The issues that the review will need to examine for each system are: - Effect on the economy/economic growth;
- Ability to pay/fairness;
- Ease of avoidance/collectability;
- Stability/predictability;
- The relationship to the Benefits system;
- Balance of Funding;
- Buoyancy;
- Accountability;
- The cost of collection;
- Who collects the tax;
- Shift to a new system: timing and transitional arrangements.
Systems to be examined - Council Tax (current and reformed);
- Local Income Tax (locally and nationally set);
- Land Value Tax;
- Options for local business taxation;
- Any other appropriate models.
The associated issues to be addressed The associated issues are: - Business rates;
- The impact on the current GAE/ RSG system;
- The mechanism for distributing grant between authorities;
- The relationship to domestic Water and Sewerage charges;
- Reserved issues.
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6. In conducting the review, we have taken the existing UK tax system and the present Scottish devolution settlement as givens.
7. We have also considered whether we should restrict the scope of our review to matters that lie within the competence of the Scottish Parliament or whether we should make recommendations on reserved matters (such has the operation of the Council Tax Benefit scheme and composition of the UK basket of taxes). Since we are making recommendations to Scottish Ministers, we have concluded that it would not be appropriate for us to make recommendations on issues that lie outwith the competence of the Scottish Parliament.
Conduct of the Review
8. From the start of our review, we have recognised the need to give everyone with an interest in the future of local taxation in Scotland the opportunity to participate in the debate.
Consultation paper
9. We started by scoping the debate and, in particular, identifying issues we needed to consider more closely. In January 2005 we published a consultation paper which sought views on all aspects of our remit. We made the consultation paper generally available through our website and we distributed copies to a variety of stakeholders with a potential interest in the review, including local authorities, local government bodies such as COSLA6 and SOLACE (Scotland), 7MSPs, political parties, business organisations and welfare interests. We also encouraged public participation in the consultation by placing advertisements in the local and national Scottish press inviting people to visit our website or to contact us for their own copy of the consultation paper. In total, we issued around 1,600 copies of the consultation paper.
10. The Committee received some 350 responses by the end of the consultation period. Around 290 were from members of the public and approximately 30% of these described themselves as pensioners. In addition to these replies, Help the Aged ran a postcard campaign. The pre-printed postcards asked the Committee to consider carefully the effect of local taxation on pensioner households with low or fixed incomes. We received around 450 of these postcards. We also received 13 copies of a petition calling for the introduction of a local sales tax in place of council tax. Overall there were just over 100 signatories to this petition. A feedback paper about responses to the consultation, published in July 2005, is available on our website.
Public survey research
11. Recognising that the responses were self-selected and therefore the submissions received from the consultation process would not necessarily reflect the views of the population of Scotland as a whole, we also decided to obtain a more detailed and representative impression of public opinion towards local taxation across Scotland. We commissioned two distinct and complementary pieces of public survey research. Both research reports are available on our website.
12. The first report was a representative sample survey of public understanding of, and attitudes towards, local government funding in Scotland. For this purpose we commissioned a module of 10 questions in MORI Scotland's Social Policy Monitor. MORI Scotland interviewed 1,017 adults across Scotland between August and October 2005 and MORI weighted the results to ensure the data were representative of the population.
13. The second report was qualitative research, in the form of deliberative focus groups. Although not intended to be a representative analysis of public attitudes, this research helped us to understand the extent of public understanding of local government funding and the reasons for people's attitudes towards different local taxation models. This research, conducted by GfKNOP, involved 75 participants spread over 8 deliberative focus groups held in locations across Scotland in October 2005.
Oral evidence sessions
14. We also held a series of oral evidence with a range of stakeholders. These included many local authorities, 8COSLA, CIPFA in Scotland, SOLACE, CBI Scotland, the Scottish Chambers of Commerce, the Federation of Small Businesses in Scotland, six political parties, 9 Help the Aged in Scotland and UNISON. We recorded transcripts of these oral evidence sessions and these transcripts can be found on our website.
"Proofing" discussions
15. We held a number of fact-finding discussions with certain stakeholders, including Citizens Advice Scotland, the Department of Work and Pensions, HM Revenue and Customs, the Scottish Assessors Association and Scottish Water, in order to test and assess the practical effects of potential approaches. We also met three times with Sir Michael Lyons, who has been undertaking an inquiry covering similar ground in England.
Modelling research
16. We commissioned research to model the effects of a range of possible local taxation options. Following a selective tendering process, we appointed the University of Stirling to conduct this work. Their report is available on our website.
Legal advice
17. We appointed Brodies LLP to provide legal advice on a range of issues.
Constraints on the Review
18. The Committee are satisfied that we have been able to obtain evidence that enables us to respond to each aspect of the remit that Scottish Ministers set for us. However, we should record two areas on which the evidence available has been more limited than we would have hoped, namely statistical evidence and evidence of economic and behavioural effects.
Statistical evidence
19. A major problem for the Committee has been about finding suitable statistical evidence. Many of the statistics which one might have wanted simply are not available. For example, HM Revenue and Customs have statistics on incomes for individuals. The Family Resources Survey produced by the Department of Work and Pensions provides valuable information on incomes and other details, at household level. None of these statistics provide exact details of the value of the properties occupied by those individuals and households.
20. Notwithstanding the problem with data and the consequent strength of the conclusions drawn from them, the Committee have had the benefit of professional statistical advice from the University of Stirling and from the Analytical Services Division within the Scottish Executive's Finance and Central Services Department. We are satisfied that overall we have used the best available statistics and evidence to meet our remit, though we acknowledge that the incompleteness and limited compatibility of some of the statistics means that these results should be considered as broadly accurate rather than definitive. We do not consider this a significant problem. Given the economic dynamics, it is likely that the figures will have changed before any possible implementation date. Consequently we are happy that our conclusions are broadly supported by the data.
Evidence about economic and behavioural effects
21. One of the criteria our remit asks us to consider is the effect of different tax systems on the economy. Our wish has been to identify and quantify the effects of various options on people's behaviours and, consequently, on the economy.
22. We have found evidence about the types of impacts that could arise from the introduction or withdrawal of different tax systems, which have given us a reasonable understanding about the effects of change in theory. However, translating the theory into quantifiable effects of particular changes to the local tax system in Scotland has proven extremely challenging. Effectively, we have been trying to predict likely behavioural responses which will be dependent on or influenced by a number of factors, including the nature of the current council tax system, the particular features of any particular reforms or replacement tax system, and other specific social, economic and demographic factors that are unique to Scotland. We have been unable to translate empirical evidence of experiences in other countries, each of which has its own unique circumstances, into quantifiable predictions for Scotland.
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